INSIGHTS

Mihai Nechita

Tue, Dec 18


Stock Watch - 19/12/2018

The increased level of volatility experienced by the equity markets at the end of November continued into the first two weeks of December.

December started on a positive note with US and China agreeing a 90 days “grace period” during the G-20 meeting in Buenos Aires. Notable, “record sales” during the Black Friday and Cyber Monday events fuelled a recovery in the more consumer-focused stocks.

This positive sentiment rapidly evaporated as President Trump tweets then raised concerns about the possibility of the future trade agreements. The negative sentiment was further fuelled by the impasse around the Italian Budget, the "Yellow Vest" protestations in France, the Brexit approval stalling in the Parliament and a rerating of global growth expectations.

Over the second week of December, the sentiment improved on the back of news that some progress has been made between US and China. On this positive note, the trade war has not stopped the Chinese companies to list in the US. Over the course of 2018, there were 37 IPO’s made by Chinese companies which have raised $9.2 Billion; an increase from last year's 20 IPOs which raised $3.6 billion

US

S&P500 VIX Daily Chart (Jan-Dec 2018)

In the US, the S&P 500 VIX which measures the volatility of the S&P 500 index, has reached a height of 26 recently after initially starting the month at the 16 level. This comes about on the back of the increased volatility the US major indices which have sharply turned to the downside. The revaluation of the growth expectation for the US economy was mostly reflected in the performance of the industrial sector, which has seen the largest negative performance over the period. The financial sector followed closely behind, reacting negatively to the economic development and to the front end of the yield curve inverting.

Shares of Facebook (FB.US) have been negatively affected, this was following the release of documents implicating the company in an additional scandal surrounding client privacy. The documents released by British members of Parliament, suggests that Chief Executive Officer Mark Zuckerberg and other top executives have made secret deals with developers to allow them special access to user data.

On Thursday, 6 December, Broadcom (AVGO.US), the American microchip maker reported quarterly revenue and profit above analysts’ estimates, driven by strong demand for its enterprise software and networking products.  The stock of the company that had been following the down trend of the technology sector, had a positive reaction to the report, making it one of the few with positive gains over the period.

UK


FTSE100 – FTSE250 H1 Chart by % (Q4 2018)

In the UK, the Brexit negotiations have held the headlines and heavily influenced the evolution of the indices. During the period, indices made year-on-year lows but managed to recover a part of the negative performance seen on the second week of December.  Both FTSE 100 as well as FTSE 250 have outperformed relative to the US stocks during the same time period.

In their strategy update, the advertising giant WPP (WPP.L) provided more clarity on their plans to become a more technology focused company. The plan will cost in the region of £300 million but could generate annual savings of £275 million. They set the dividend at 60p which has been positively received by the market.

The London focused builder Berkeley Group (BKG.L) has upgraded its estimate on  pre-tax profit to 5% for this financial year. The interim dividend is set at 7.12p per share with the group having allocated £130.5 million for share buybacks over the coming 6 months. This announcement was well received by the markets, considering the inherent negative sentiment in the sector caused by Brexit uncertainty.

Sports Direct (SPD.L) reported a 15.5% rise in the first half of year core earnings. The group who bought the department store chain House of Fraser in August this year, reiterated its strategy of taking the brand more upmarket.

EU

DBK.DE Daily Chart (Jan-Dec 2018)

In Continental Europe, the negative sentiment was amplified by the Italian Budget situation and the civil unrest France. All major indices made new lows on the year.

Deutsche Bank’s (DBK.DE) Frankfurt headquarters was raided by the police in a new money laundering investigation. This is the latest blow for the German banking giant as it struggles to reshape the business. The company’s stock reacted negatively to the news and continued in the negative trend. Over the course of 2018 the stock has lost more than the half of its value.  

Following the indication of the Italian Government that they are willing to reduce the deficit the Italian banks, the major holder of the countries paper have recorded a relief upside movement is now apparent.


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