Weekly Market Focus. 12 September Follow us on LinkedIn. Weekly Market Focus 12 September 2018 CONTENTS

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1 Weekly Market Focus 12 September 2018 CONTENTS Asset class review... 2 Forex... 3 Views from the trading floor... 4 Calendars... 5 Contacts... 6 Disclaimer... 7 Follow us on LinkedIn H i n d u j a B a n k ( S w i t z e r l a n d ) L t d 1

2 ASSET CLASS REVIEW EU stock market It is possible that a turning point in the economy story between the US and the Eurozone has arrived. Lately, Citi s economic surprise index is more negative for the US than the single market. The indices measure data surprises relative to forecasts and, having surged ahead since mid-february, the US has stalled while the Eurozone has climbed up since mid-june (see chart below). Source: Financial Times Eurozone equities, led by banks, have lagged behind Wall Street as the Eurozone suffered a lot during the spring (see chart below). Synchronised global growth was the main driver of markets at the start of the year. Source: Financial Times The divergent growth trajectories of the US and Europe have contributed to the dollar strength against the euro and a shift in the surprise indices was probably a good reason for a euro recovery. While the S&P 500 has become the longest bull market of all time, strength has come from a switch to defensive sectors, hardly reassuring. In conclusion, it may finally be the time for the Eurozone to outperform the US stock market, and we would recommend to increase the exposure of this asset class in portfolios. H i n d u j a B a n k ( S w i t z e r l a n d ) L t d 2

3 FOREX GBP NOK SEK TRY CNY Sterling was able to appreciate yesterday when EU chief negotiator Michel Barnier suggested that an agreement with the UK was realistically feasible within 6-8 weeks even if some issues remained unanswered. It is not the first time that the tough guy Barnier is creating hope on the market that everything will turn out to be alright in the end. But admittedly comments pointing in this direction are now getting more frequent, after he had previously stuck to more categorical comments that conveyed a sense of tough fronts and relentless positions. Perhaps the EU told him to finally get on with it and to sound more conciliatory. Nonetheless there is no real news again as it was always planned to reach an agreement by late October/early November. However, it does provide a welcome breather for Sterling at any rate. One thing is likely to have emerged very clearly now: the rate hike cycle in Norway is most likely to start this month. The inflation data for August that was published yesterday just topped things off. Since June Norges Bank has been talking about the key rate probably being raised in September. The economic and inflation data of the past few weeks and months underpins this view. The economy, in particular the mainland economy, is humming and inflation is well above target. Moreover the inflation trend is rising. As a result, we are of the view that Norges Bank will hike the key rate by 25bp to then 0.75% next week. As the market is likely to have largely priced this in since yesterday NOK is unlikely to benefit much from this first rate step. What will be more important next week is whether Norges Bank raises the rate path in view of the inflation development and whether it signals more rapid rate hikes. Traders expect a cautious, gradual rate hike cycle and thus gradual krone appreciation towards 9.50 in EUR-NOK by year-end. Core inflation excluding energy remains very low in Sweden. The overall rate has comfortably reached its inflation target. According to Riksbank the risk of excessively low inflation merit particular attention, as it is more difficult to manage than excessively high inflation. As a result the development of the krona continues to play an important role as the krona exchange rate also has a bearing on inflation. If the conditions for inflation were to change, the Executive Board is prepared to adjust monetary policy. It will be difficult to form a government as no political block has sufficient votes to form a majority. Prime Minister Stefan Löfven allegedly wants to stay in office for another two weeks until the new parliament convenes. If he did not want to step down then, as the social Democrats received the highest number of votes, he faces a vote of no confidence. If he loses this the speaker of parliament will appoint a new candidate. If this candidate also fails, there could be new elections in three months time. The uncertain political situation is likely to be putting underlying pressure on the krona, even if the populist Sweden Democrats did not gain quite as many votes as had been feared. Turkish GDP data for Q2 came in line with expectations yesterday: GDP was up 0.9%q/q in Q2 after seasonal adjustment. Traders had expected growth of 0.5%, in line with consensus, but since the previous quarter has been revised downwards, all in all, growth was in line with expectations. While the key components such as private consumption and fixed investment had declined quarter-onquarter, the headline growth rate was held-up solely by net-exports. This is not necessarily good news: imports were adversely affected by the sudden breakout of the lira crisis in May, which disrupted activity. Market already know that matters worsened much further in Q3 as the crisis intensified. Therefore, analysts expect GDP to decline in the third quarter. Such an outlook complicates life for CBT, which is gearing up to hike interest rates on Thursday. 3-month deposit rates have shot up to 26% in recent days, to reflect elevated risk premium. If the market is already anticipating a sizeable rate hike from CBT, and this is why the lira has been stable, then CBT has little room to under-deliver without re-igniting the lira sell-off. Recent economic data and markets performance were quite mixed. While the economic data illustrated some sort of stability, the risk is seemingly biased to the downside. For instance, the passenger car sales declined by 7.4% y/y in August, following -5.4% in July and -3.7% in June, exhibiting a softening momentum. On the financial markets, while USD-CNY was roughly stable, the stock market continues to head lower in recent months, with benchmark CSI300 index falling 20% year to date. All in all, given the economic outlook looks challenging, traders believe that the Chinese authorities will remain proactive to boost economic activities. H i n d u j a B a n k ( S w i t z e r l a n d ) L t d 3

4 VIEWS FROM THE TRADING FLOOR Equity S&P was down 0.3% last week, with a very small increase in volatility from to The only significant upward move was for the trucking sector up 5%, while on the downside we found semiconductor equipment down 9%, HR & employment services down 8% and Casino &gaming and reinsurance both falling by 5%. This week investor will have a close look to the inflation data, PPI on Wednesday, CPI on Thursday and retail sales on Friday, respectively expected at +0.2%, +0.3% and +0.4% MoM. Trade tensions are heating up rather than moving towards a resolution. Emerging markets are trading close to their 52-week lows (mainly due to USD strength and trade) and rates are moving higher as we get closer to the FOMC (25th and 26th of September). S&P 500: The index has tested and bounced back on its 2870 support level and remains on track to reach its 2950 target is still the first support. A break of this level will lead to the 2800 support before 2750 (the bottom of the uptrend initiated in February 2016). Eurostoxx 50: The index is below the lower part of its trading range The current level is a good entry point with a 3450 minimum target is the next support and should be considered as a stop loss level. The next support being EQUITY Developed countries Total return - 1 Week SMI 1.0% Euro Stoxx % DAX -0.4% FTSE % S&P % Dow Jones -0.1% Nikkei % Developing countries Russia/Micex 0.6% India/Nifty % China (HK) -3.1% FIXED INCOME Developed countries 2-year Yield 10-year Yield USA 2.7% 3.0% UK 0.8% 1.5% Germany -0.6% 0.4% France -0.4% 0.7% Italy 0.8% 3.0% Spain -0.3% 1.5% Switzerland -0.8% -0.1% Developing countries 2-year Yield 10-year Yield Russia 3.9% 5.0% - Upward move - Downward move COMMODITIES Total return - 1 Week Crude Oil 4.2% Gold -1.2% H i n d u j a B a n k ( S w i t z e r l a n d ) L t d 4

5 CALENDARS Economic Events Date of release Domicile Event Period Actual Estimated 12 Sept 2018 US PPI Demand MoM August -0.1% 0.2% 13 Sept 2018 US CPI MoM August 0.2% 0.3% 13 Sept2018 France CPI YoY August 2.3% 2.3% 12 Sept 2018 Italy Unemployment Rate Quarterly 2Q 10.7% 10.8% H i n d u j a B a n k ( S w i t z e r l a n d ) L t d 5

6 Contacts Geneva Headquarters Hinduja Bank (Switzerland) Ltd Place de la Fusterie 3bis 1204 Geneva, Switzerland Tel Fax Branches Zurich Florastrasse Zurich, Switzerland Tel Fax Lugano Viale Serafino Balestra Lugano, Switzerland Tel Fax Representative Office London Room no: 117, First Floor, Regus, 100 Pall Mall, London SW1Y5NQ Tel Subsidiaries Switzerland Rowena AG Grenzstrasse St Margrethen, Switzerland Tel Fax Dubai Hinduja Bank (Middle East) Ltd Dubai International Financial Centre Building GV 10, 2nd Floor, Office 205 Dubai, UAE Tel Mauritius Hinduja India Mauritius Holdings Ltd HBS Trust Services (Mauritius) Ltd 4th Floor, The AXIS 26 Bank Street, Ebene Mauritius Tel UK Amas Investment & Project Services Ltd Room no: 117, First Floor, Regus, 100 Pall Mall, London SW1Y5NQ Tel Fax India Paterson Securities Pvt Ltd Bhavani Mansion 3, 4th Lane Nungambakkam High Road Chennai - 34 India Cayman Island Hinduja Bank & Trust (Cayman) Ltd c/o P.O. Box 2407GT Grand Cayman Cayman Islands H i n d u j a B a n k ( S w i t z e r l a n d ) L t d 6

7 Publisher Hinduja Bank (Switzerland) Ltd Place de la Fusterie 3 bis 1204 Geneva, Switzerland Tel Fax info@hindujabank.com Disclaimer The information in this publication was developed using data which Hinduja Bank (Switzerland) Ltd assumes to be accurate; nevertheless, Hinduja Bank (Switzerland) Ltd accepts no liability and offers no guarantee. The availability of such information does neither constitute a recommendation nor a solicitation to buy or sell any of the products and services discussed herein. Statements made in this publication can be changed without prior notice. The Bank or its subsidiaries or affiliates cannot be engaged in any legal action, claim or dispute for any result, performance, losses or any other reason linked to any information provided in this document. Moreover, the content is not intended for individuals (or entities) who (which), by reason of their nationality or domicile or for any other reason, are subject to foreign regulations prohibiting access to banking services or investment instruments via one or several distribution channels, or prohibiting or restricting the use of any information provided in this document. Hinduja Bank (Switzerland) Ltd, Geneva 2018 H i n d u j a B a n k ( S w i t z e r l a n d ) L t d 7