18 ★ Thursday22 August 2019Benjamin Parkin
Markets Insight
RetailersTargetandLowe’sled the S&P
500 index gainers, rising sharply after
stronger than expected earnings.
Sales rose 3.4 per cent for Target and
2.3 per cent for Lowe’s, topping forecasts
and underliningrobust US consumer
spendingdespite worries over slowing
domestic growth.
Target, which has invested heavily in
ecommerce, upgraded its full-year
adjusted profit forecast, leading its stock
to hit an all-time high on Wall Street.
Aflacfell on Japanese media reports
thatJapan Posthad improperly sold the
company’s insurance policies. The insurer
is a leader in Japanese cancer insurance
but Japan Post’s alleged failure to update
customer management systems has led
to customers reportedly being
temporarily uninsured or double charged.
Fitbitrose after announcing it had won
a contract to supply Singapore’s Health
Promotion Board, beating rivalApple.
Singaporeans will receive the group’s
health-tracking device for free butpay
$10 monthly for a year of premium
subscription service.
Alliance Data Systems, which provides
data-driven marketing, jumped after it
accepted a “modified Dutch auction”
tender offer to buy back its shares for a
total cost of $750m.Harry DempseyWall Street Eurozone London
RenaultandFiat Chrysler Automobiles
were boosted by reports from an Italian
newspaper that an abandoned merger
deal between the group has recently
been under discussion again.
The proposed merger had previously
fallen apart due to pushback from the
French government and Nissan.
Global Fashion Group, the emerging
markets-focused online fashion retailer,
gained after it unveiled a sharp rise in
sales and new customers in its first set of
quarterly results since listing on the
Frankfurt Stock Exchange last month.
The surge in the stocks of jewellery
makerPandoracontinued for the second
day as its quarterly results showed
promising signs of recovery.
GEA Group, the German food and
beverage technology supplier, climbed
after Goldman Sachs upgraded the stock
to “buy”.
Groupe SEB, the household appliances
owner of Tefal, was helped by a Citi
upgrade to “buy”, citing strong margins
and its market-leading position.
Medical companyAlconslid after
posting big losses in the second quarter.
Its results cast doubt on the progress
of the eyecare specialist’s turnround to
profitability since it spun off from
Novartisthis year.Harry DempseyWood Group, the energy services
specialist, fell after announcing the sale of
its nuclear arm to Jacobsfor £250m.
It expected that offloading the unit
would help reduce its debt after the
group became highly leveraged by the
2017 acquisition of Amec Foster Wheeler.
Victrexrallied after Barclays Capital
upgraded the high-performance
materials maker’s rating to “equal” and
raised its price target to £20.20.
Barclays said the weaker pound would
mitigate the vulnerability of the “pure UK
exporter” to volatile market conditions.
Mortgage lenderOneSavings Bank
dived after it reported a drop in first-half
earnings and its net interest margin,
which has been hit by the mortgage price
war and uncertainty arising from Brexit.
The company said it would not be able
to produce detailed guidance for the year
because of a planned merger with
Charter Court, which also fell.
Oil producersBP,Royal Dutch Shell,
Tullow OilandCairn Energyrose as the
price of Brent crude rebounded from
recent falls.
ButNostrum Oil & Gastumbled after
Berenberg cut its rating two notches
because of “operational disappointment”
at the failure of a well in Kazakhstan.
Harry Dempsey3 Strong retail results from Target and
Lowe’s help lift Wall Street stocks
3 European equities rise amid reports of
progress in Renault-Fiat Chrysler talks
3 Brent crude breaks above $60 a barrel
after US crude inventories shrinkStock markets bounced back yesterday
as global growth fears took a back seat to
forecast-beating retail results in the US
and renewed merger reports in Europe.
Solid earnings results from retailers
Targetand Lowe’sprovided evidence
that US consumers remained confident in
the face of headwinds from the Sino-US
trade war and worries over slowing
growth.
The S&P 500’s consumer discretionary
sector, which is viewed as a weathervane
on the state of thelargest economy, was
up 1.7 per cent.
Its rise helped lift the wider S&P 500
benchmark 1 per cent by midday in
New York.
Brian Moynihan, chief executive of
Bank of America, told CNBC yesterday
that such promising retail numbers
showed the US economy remained
resilient.
“The underlying consumer is doing well
and making more money,” Mr Moynihan
said. “They’re employed. And more
importantly, they’re spending more
money.”
Wall Street’s Nasdaq’s Composite index
and Dow Jones Industrial Average alsoadvanced 1 per cent. Reports suggesting
merger talks between Renaultand Fiat
Chryslerwere making progress helped to
lift European stocks.
The Stoxx Europe 600 automobiles &
parts sector gained 1.7 per cent,
outperforming the broader Stoxx Europe
600 index that ended the day 1.2 per
cent higher.
Milan’s FTSE MIB index fell 1.8 per cent,
rebounding sharply from Tuesday’s fall
that followed the announcement of the
Italian prime minister’s plan to resign.
Core government bond markets lackedstrong direction with the yield on the 10-
year Treasury up 1 basis point to 1.57 per
cent while the yield on the 10-year
German Bund was unchanged at minus
0.68 per cent.
Brent crude, which has fallen sharply in
tandem with recent stock market routs,
rose more than 1 per cent to break $60 a
barrel after the Energy Information
Administration showed US crude oil
stockpiles had fallen.
But WTI, the US oil benchmark, was
down 0.4 per cent to $55.92 a barrel.
Nikou AsgariWhat you need to know
Upbeat retail results help drive US stocks higher
Source: BloombergRebased Fri Mon Tue WedS&P Consumer Discretionary sectorS&P indexThe day in the markets
Markets update
US Eurozone Japan UK China Brazil
Stocks S&P 500 Eurofirst 300 Nikkei 225 FTSE100 Shanghai Comp Bovespa
Level 2927.38 1478.69 20618.57 7203.97 2880.33 100606.
% change on day 0.93 1.15 -0.28 1.11 0.01 1.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 98.188 1.109 106.470 1.213 7.063 4.
% change on day -0.002 0.000 0.146 0.000 -0.003 0.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 1.576 -0.673 -0.245 0.477 3.056 7.
Basis point change on day 1.940 2.100 -0.520 3.000 1.600 -14.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 336.32 60.67 56.08 1504.55 17.02 2748.
% change on day 0.71 1.08 0.00 0.53 0.56 -0.
Yesterday's close apart from: Currencies = 16:00 GMT; S&P, Bovespa, All World, Oil = 17:00 GMT; Gold, Silver = London pm fix. Bond data supplied by Tullett Prebon.Main equity markets
S&P 500 index Eurofirst 300 index FTSE 100 index||||||||||||||||||||
Jun 2019 Aug2800288029603040||||||||||||||||||||
Jun 2019 Aug14001440148015201560||||||||||||||||||||
Jun 2019 Aug7040736076808000Biggest movers
% US Eurozone UKUpsTarget 19.
Lowe's Companies 9.
Alliance Data Systems 6.
Gap (the) 5.
Kohl's 4.Pernod Ricard 4.
Exor 4.
Cap Gemini 3.
Cnh Industrial 3.
Lvmh 3.Burberry 4.
Nmc Health 4.
Flutter Entertainment 3.
Tui Ag 3.
Smith (ds) 3.
%DownsAflac -4.
Amcor -3.
Conagra Brands -1.
Occidental Petroleum -1.
Halliburton -1.
Prices taken at 17:00 GMTSeadrill -6.
Oci -1.
Ing -0.
Fresen.med.care -0.
Caixabank -0.
Based on the constituents of the FTSE Eurofirst 300 EurozonePhoenix Holdings -2.
Royal Bank Of Scotland -1.
Legal & General -1.
Bhp -1.
Bt -0.
All data provided by Morningstar unless otherwise noted.T
hat a gold trader in London
has to watch the progress of
South Asian monsoon rains
says something about the
depth of India’s love for the
precious metal.
Farmers celebrate a good harvest by
purchasing gold jewellery, to be gifted at
weddings or kept for future generations.
Others might buy the metal on reli-
gious festivals such as Akshaya Tritiya
or donate it to a temple. Gold bracelets
or nose rings feature prominently across
the economic spectrum.
Lakshmi, the goddess of wealth, is
often depicted exuding a yellowish glow.
India has long been a crucial source of
global gold demand — its voracious
appetite second only to China’s.
For millions of rural Indians, histori-
cally without access to bank accounts or
even sometimes a steady supply of cash,
hoarding gold was often the only way to
store wealth.
But demand for the metal is waning,
threatening to change the India equa-
tion for global gold investors.
Prime Minister Narendra Modi’s gov-
ernment has embarked on an aggressive
programme to formalise the fast-grow-
ing economy, improve financial literacy
and increase access to products such as
mutual funds. Intended or otherwise, all
this has contributed to a steady fall in
gold demand, setting off alarm bells in
the industry.
From a record high of more than
1,000 tonnes in 2010, consumer
demand for gold in India has since fallen
by about a quarter to 760 tonnes last
year. A recent price rally has accelerated
the trend.
Global prices this month traded at a
six-year highof more than $1,500 an
ounce, leading some local prices to hit
record levels. In value terms, goldimports fell 42 per centin July from a
year earlier.
The most contentious of Mr Modi’s
initiatives, known as demonetisation,
involved a shock decision in 2016 to
invalidate the majority of the country’s
cash supply in order to flush out unde-
clared wealth. That was followed by an
overhaul of the indirect tax system.
A separate scheme to increase access
to banking has prompted the share of
adults with bank accounts to more than
double since 2011.
Newly financially savvy Indians real-
ised they could enjoy higher returns
investing in stocks and bonds ratherthan physical assets such as gold. This
prompted a boom in mutual fund
investingwith assets under manage-
ment rising to Rs26tn ($363bn) at the
end of May, almost doubling since
demonetisation.
Meanwhile, the share of physical
assets in household savings, including
gold, fell.
A consumption boom has created
competitors. “Earlier, gold was the only
ultimate luxury for Indian households,”
said Somasundaram PR, managing
director of the World Gold Council in
India. “Today, it is not. A car is a luxury,
electronics are a luxury, foreign travel is
a luxury.”
This has resulted in frantic efforts by
authorities and industry bodies to rein-
vent gold as a financial asset fit for the
government’s vision of a 21st centurydigital Indian economy. About 24,
tonnes of gold lies unused in households
and religious institutions, according to a
2018 government report.
Efforts to drawthat wealth into the
financial system have mostlyfallen flat.
A so-called gold monetisation scheme,
whereby consumers could deposit their
gold with banks and earn money on
interest, has failed to catch on.
Gold exchange traded funds and sov-
ereign gold bonds, which are not backed
by physical gold but track the price of
the metal,have also failed to excite
investors.
“I don’t see wealth managers very
equipped in educating their clients that
you should diversify in gold,” said Nitin
Bhasin, head of research at brokerage
Ambit Capital.
One problemfor India is that, despite
the size of its market,the country lacks
a single, transparent benchmark gold
price. A plan to fix that by launching a
spot gold exchange, modelled after
China’s successful Shanghai Gold
Exchange, is gathering momentum.
Meanwhile, companies are looking to
cash in on the shift. Paytm, an Alibaba-
backed digital payments start-up,
launched a platform to allow users to
trade gold from their mobile phones,
with the option of delivery. Paytm also
plans to offer sovereign gold bonds as it
expands into brokerage services.
India’s deep affinity for gold is not
going to change. But the shift in invest-
ment patterns is making the metal less
relevant in the world’s second-largest
market.
It will require swift action toensure
gold thrives alongside India’s fast-
developing financial markets, rather
than suffers because of them.[email protected]Indian financial
literacy dulls the
appeal of gold
‘Earlier, gold was the
only ultimate luxury
for Indian households.
Today, it is not’
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