12 ★ FTWeekend 17 August/18 August 20193 Stocks climb on hopes of significant
European stimulus
3 Bond rally fades after week when
30-year Treasury yield hit record low
3 Gold price slips as investors take a
breather from haven assetsGlobal stocks and government bond
yields rose yesterday, providing respite
after a turbulent week in which renewed
fears over a global recession hit markets.
Equities bounced off recent lows as
hopes grew that the European Central
Bank would announce a package of
stimulus measures in September that was
larger than anticipated.
ECB official Olli Rehn told the Wall
Street Journal: “It’s important that we
come up with a significant and impactful
policy package in September.”
Weak data released yesterday
highlighted the damaging impact that the
US-China trade war was having on the
bloc.
Trade between eurozone members
contracted in June at the fastest pace in
more than six years, according to
Eurostat data. Intra-eurozone trade
dropped 6.6 per cent compared with June
last year.
German magazine Der Spiegel also
reported that Berlin’s coalition
government was willing to relax its fiscal
rules in order to tackle the slowdown in
the large export-driven economy.
Luigi Speranza, chief global economist
at BNP Paribas, said: “Recent events mark
a tipping point for economies that are
structurally more dependent on trade as
the extent and duration of themanufacturing slump have started to
cloud the domestic picture... Negative
news flow will... force the ECB to react
relatively aggressively.”
The region-wide Stoxx Europe 600
index rose 1.3 per cent while Frankfurt’s
Xetra Dax index climbed by the same
margin.
London’s FTSE 100 increased 0.7 per
cent following a software glitch that
delayed the start to trading.
Wall Street stocks picked up from steep
falls earlier in the week, led by technology
companies. By midday in New York, the
tech-heavy Nasdaq Composite index had
climbed 1.5 per cent, helped by a rise in
chipmaker Nvidia, which beat earnings
expectations.
Investors moved out of haven assets asthe risk-off mood waned. Gold slipped 0.
per cent to $1,509 per ounce while the
yield on 30-year US Treasuries rose 4
basis points to 2.02 per cent, rebounding
from Thursday’s record low.
Meanwhile, the yield on US and
German 10-year bonds rose 3bpto 1.
per cent and minus 0.69 per cent,
respectively.
Earlier this week, poor data from China
and Germany soured market sentiment,
helping to invert key parts of the US and
UK yield curves, a metric that has been a
reliable signal for recession.
Oil rallied as mounting expectations for
stimulus measures eased concerns about
falling demand. Brent crude, the
international benchmark, rose 0.7 per
cent to $58.63 a barrel.Nikou AsgariWhat you need to know
US government bonds rally as recession fears intensify
Yields ( )Source: Bloomberg Jan AugUS -year TreasuryUS -year TreasuryThe 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 2887.39 1456.14 20418.81 7117.15 2823.82 99769.
% change on day 1.40 1.23 0.06 0.71 0.29 0.
Currency $ index (DXY) $ per € Yen per $ $ per £ Rmb per $ Real per $
Level 98.293 1.110 106.385 1.214 7.045 3.
% change on day 0.152 -0.090 0.226 0.248 0.206 -0.
Govt. bonds 10-year Treasury 10-year Bund 10-year JGB 10-year Gilt 10-year bond 10-year bond
Yield 1.566 -0.688 -0.242 0.465 3.015 7.
Basis point change on day 2.610 2.600 0.070 5.900 0.000 -3.
World index, CommodsFTSE All-World Oil - Brent Oil - WTI Gold Silver Metals (LMEX)
Level 331.86 58.64 54.73 1515.65 17.29 2774.
% change on day 1.10 0.48 0.13 0.16 1.02 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 UKUpsGeneral Electric 9.
Cimarex Energy Co 5.
Nvidia 5.
Westinghouse Air Brake 5.
Mylan Nv 5.Seadrill 12.
B. Sabadell 5.
Commerzbank 5.
A.p. Moller - Maersk B 5.
Deutsche Bank 4.Itv 3.
Sainsbury (j) 3.
St. James's Place 2.
Smurfit Kappa 2.
Scottish Mortgage Investment Trust 2.
%DownsAlliance Data Systems -6.
Applied Materials -2.
Cboe Global Markets -1.
Davita -0.
Intuitive Surgical -0.
Prices taken at 17:00 GMTLindt -1.
Exor -1.
Norsk Hydro -1.
Eni -0.
Oci -0.
Based on the constituents of the FTSE Eurofirst 300 EurozoneFresnillo -1.
Prudential -1.
Bhp -0.
United Utilities -0.
Antofagasta -0.
All data provided by Morningstar unless otherwise noted.Colby Smith
On Wall Street
A
bruising week for Argen-
tine assets following recent
primary elections has
awoken emerging market
bond investors to a harsh
reality: that their preferred candidate,
incumbent president Mauricio Macri, is
set to loseOctober’s presidential contest
to Peronist Alberto Fernández.
But what that reality entails, exactly,
remains unknown — meaning Argen-
tina’s financial markets and their
patrons are in for a bumpy ride for at
leastthe next couple of months.
The day after Mr Fernández handed
Mr Macri a decisive defeat in the pri-
mary elections, the peso lost more than
a fifth of its value against the dollar at
one point. The Merval stock index,
meanwhile, fell 48 per cent in dollar
terms, in what was the second-largest
one-day drop in any of the 94 markets
tracked by Bloomberg since 1950.
While the subsequent trading ses-
sions for the week saw less dramatic
moves, Argentine markets remain on
shaky footing.
Mr Macri’s announcement midweek
of emergency measures to provide eco-
nomic relief sent the peso spiralling to
another record low. Yields on the coun-
try’s government bonds also spiked,
indicating a fall in price.
“The market has repriced for a new
reality,” said Pramol Dhawan, head of
theEM portfolio management team at
Pimco, the investment group.
Investors are “in limbo”, as Mr Dha-
wan put it, because no one really knows
how moderate Mr Fernández will turn
out to be and what kind of relationship
he seeks to have with the IMF, which
extended a record $56bnbailoutto the
country just last year.While Mr Fernández did indicate on
Monday that he wanted to avoid a
default on the country’s debts, he has
since offered few clues on how he will
achieve that goal. Nor has he provided
much assurance to shaken markets.
His comment that he would be “fine”
with an exchange rate of 60 pesos per
dollar — about where it sits now —
caused more concern. The sharp depre-
ciation is already forecast to stoke infla-
tion, which remains above 50 per cent
on a year-over-year basis. It will also
make debt repayment a more difficult
task since four-fifths of Argentina’s debt
is denominated in foreign currencies.
Investors are understandably eagerfor guidance but few expect Mr Fernán-
dez to provide it, given that the election
proper is still months away, and many of
the policies required to sidestep a debt
default and find common ground with
the IMF may turn off voters.
“One challenge we have as investors is
that the opposition has been deliber-
ately quite vague about their economic
policy agenda,” said Michael Hugman, a
portfolio manager at Investec Asset
Management in London.
Carlos de Sousa, an economist at
Oxford Economics, said that, if Mr Fern-
ández goes the way of capital controls or
runs a large fiscal deficit, among other
unorthodox policies, “the IMF isn’t
going to give Argentina any moremoney”. Yet, if the opposition leader is
not seen to be moving far enough away
from the IMF-endorsed policies of the
Macri administration, his electoral lead
will probably narrow.
Mr Fernández has the added motiva-
tion to stay quiet because, for the time
being at least, the resulting market tur-
moil is likely to weigh more heavily on
Mr Macri’s popularity than his own.
“The opposition have a very tricky
balance to strike,” said Mr Hugman. “It
doesn’t appear they want to help Mr
Macri by calming the marketimmedi-
ately but, at the same time, it seems
clear that, if they win in [October], they
will need to change the policy narrative
with the market quite quickly.”
Mr Fernández’s choice of running
mate — former president Cristina Fern-
ández de Kirchner — muddies the out-
look further, said Whitney Baker,
founder of New York-based research
firm Totem Macro.
“One of the big ambiguities around
policy under [Fernández-Fernández] is
if Ms Fernández is actually in control,”
Ms Baker said. “She has no track record
of acting rationally. Although the Kirch-
ners didn’t cause the 2001 default, their
reaction kept Argentina as a pariah state
for the next decade.”
By turning to the central bank to
finance fiscal spending when the coun-
try was shut out of international capital
markets, added Ms Baker, Ms Fernán-
dez created much of the currency and
inflationary pressure seen today.
Until Mr Fernández addresses these
open questions, financial assets across
the country look vulnerable to another
frenzied sell-off.[email protected]Argentina’s volatile
politics leaves EM
investors in limbo
‘Although the Kirchners
didn’t cause the 2001
default, their reaction keptArgentina as a pariah state’
John Deererose despite cutting its full-
year earnings forecast for the second
time in four months.
The tractor maker has suffered as
trade tension between the US and China
has ratcheted up with the loss of orders
from China weighing on its share price.
Earlier this month, Beijing ordered
Chinese state-owned enterprises to
curtail their purchases of US agricultural
goods, stripping US farmers of a key
export market.
Samuel Allen, John Deere chairman and
chief executive, highlighted “the high
degree of uncertainty that continues to
overshadow the agricultural sector”.
Since July 30, when Donald Trump
tweeted to suggest that China “was
supposed to start buying [America’s]
agricultural product now — no signs that
they are doing so”, John Deere’s shares
have fallen more than 15 per cent from
$1.70 to $1.43 at the start of yesterday’s
trading.
Marketing services providerAlliance
Data Systemsdipped with Deutsche
Bank downgrading from “buy” to “hold”.
The bank’s analystspointed to
“multiple headwinds” that could hamper
earnings growth.
Nvidiarose on the back of strong
second-quarter results. The chipmaker’s
revenue was down on the year before but
was nonetheless ahead of consensus
estimates.George HammondWall Street Eurozone London
Bayerrose after an upgrade from Bank of
America Merrill Lynch.
The bank raised its price target for the
pharmaceuticals company from €70 a
share to €85 and switched its rating from
“neutral” to “buy”. Shares in the company,
which acquired agrochemical business
Monsanto for $63bn in 2016, were trading
at around €65.
IMCD, the Dutch chemicals and food
distributor, fell after warning on the state
of its sector in its first-half results.
The company’s operating earnings rose
17 per cent year on year while earnings
per share were up 22 per cent. But chief
executive Piet van der Slikke warned of
“volatile and uncertain” markets.
“IMCD also experienced a much more
challenging macroeconomic environment
in the second quarter which impacted
growth,” said Mr van der Slikke.
Ambu A/S, the Danish medical
equipment maker, rose 6 per cent ahead
of the release of its third-quarter
earnings next week.
Before the rally, it had lost close to half
its value since a peak in late April.
United Internetbounced back from
disappointing first-half earnings and was
the biggest riser in the Stoxx Europe 600.
The German internet services company
saw shares dip on Wednesday after
lowering its full-year earnings guidance
but yesterday’s 14 per cent rise more than
recovered the losses.George HammondBurford Capitalwas the biggest faller on
the Aim junior market.
The removal of Elizabeth O’Connell,
who is married to chief executive
Christopher Bogart, as finance director
failed to arrest the slide in the litigation
funder’s shares.
Ms O’Connell has been replaced by Jim
Kilman, who has served as a senior
adviser to the company since 2016.
Burford has struggled since coming
under attack from short seller Muddy
Waters this month. Muddy Waters’
founder Carson Block said the company
was “arguably insolvent”.
Shares in the company lost almost two-
thirds of their value after the Muddy
Waters research and remain about 40 per
cent down on their early August level.
Boohoowas among the biggest risers
in London.
The online retailer, which completed
the acquisitions of Karen Millen and
Coast on August 6, had its target price
boosted from £3 to £3.25 by Jefferies.
Prudentialedged lower after the
proposed transfer of £12bn of annuities
from the insurer to Rothesay Life was
blocked by a High Court judge.
Prudential, which is in the process of
demerging its UK business M&G
Prudential, had agreed the transfer in
March and said it was “disappointed by
the High Court’s decision”.
George HammondMARKETS & INVESTING
РЕ
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