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Kristal Insights Mins Read

Kristal Weekly Feed | 9th September 2019

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All you need to know, in under 1 minute.
Here’s a concise report on what made headlines in the global market last week.

Positives

  • Dow Jones and S&P 500 indices book slight gains on the back of jobs report
  • Biggest weekly rise for 10-year Treasury Bonds
  • Retail sector shows resilience; Costco shares rise
  • U.S. oil drilling numbers fall, but oil futures see a rise

Negatives

  • U.S. jobs report falls shy of expectations; unemployment rate stays same
  • Fitch downgrades Hong Kong’s creditworthiness for the first time since ‘95

 

Now, for more detail.

 

Positives

1. Dow Jones and S&P 500 indices book slight gains on the back of jobs report

What You Should Know

On Thursday, talks of renewed trade negotiations between the U.S. and China led to a strong stock market rally, which continued even after the August jobs report for U.S. was announced. Though the jobs data has been tepid, market watchers hope that there may be stronger support now for a second rate cut soon.

The Dow Jones Industrial Average rose by 0.3% or 69.31 points to close at 26,797.46 – which is just 2.1% shy of its record peak of 27, 359 from July 15. The S&P 500 index amped up by 2.71 points, or about 0.1%, to 2,978.71 – closing 1.6% short of its July 26 high of 3,025.86. However, the Nasdaq Composite Index slipped by 0.2% or 13.75 points, to finish at 8,103.07. The Nasdaq is 2.7% short of its July 26 record of 8,330.21.

For the week, the Dow saw a 1.5% rise, while the S&P 500 and Nasdaq both rose 1.8%.

What You Should Look Out For

The rally has not been favourable for all stocks though. While Lululemon and DocuSign stocks rose, but others like ZoomVideo, CrowdStrike, and PagerDuty saw a dip. It’ll also be foolhardy to expect too much from the trade war talks as we have seen them fail in the past. We have also seen similar big swings in stock futures in the recent past, but these don’t necessarily translate into actual trading in the next regular session. Investors would be wise to remember these finer points.

Suggested Reading

 

2. Biggest weekly rise for 10-year Treasury Bonds

What You Should Know

The 10-Year Treasury yield saw a roller-coaster week as it was first buoyed by the trade selloff on Thursday, and then saw a fall post the jobs report announcements. However, the fall wasn’t bad enough to break the biggest weekly rise for the bond; a gain of about 1.57%.

Yields have been low this year because of the usual factors – Brexit, trade war, and others. This has led to what market analysts call an ‘artificial buying’ in the bond market, with investors putting their money behind bond-based funds and other strategies – a move that caused a 12% spike in the iShares 20+ Year Treasury Bond ETF (TLT) in August.

What You Should Look Out For

Lucky for investors, the bond rally is expected to last for a while. Now that the artificial buying is tapering off, we may see a selloff in the bond market and probable rise in the rates. However, as Wells Fargo Global Head of Rate Strategy Michael Schumacher says, it would still be prudent to keep those rose-coloured glasses at bay for a minute.

Suggested Reading 

 

3. Retail sector shows resilience; Costco shares rise

What You Should Know

Costco Wholesale Corp. beat market estimates and showed an ‘impressive’ performance for the month of August. Same-store sales at Costco outlets have beaten analyst numbers, and the company’s shares are now up by 2.6% this week; and a cumulative 49% for the year so far. This is more than double the percentage gain of BJ’s Wholesale Club Holdings Inc. – Costco’s closest rival.

What You Should Look Out For

Wall Street is happy about the traffic increase at Costco stores – a total of 4.8%, with a 4.9% increase in the U.S. alone, and a 24% increase in online sales. Joseph Telsey of the Feldman Advisory Group has an ‘outperforming’ rating on the stock and expects it to remain a market share gainer in the coming days. Analysts also believe that the recent store launch in China could further add to Costco’s revenues.

Suggested Reading 

 

4. U.S. oil drilling numbers fall, but oil futures see a rise

What You Should Know

Oil futures ended Friday on a happy note, even though the number of oil rigs fell for the third week straight. The fall in rig numbers, along with talks of a cooling down in the trade war led to fears of an energy crisis being allayed. West Texas Intermediate crude for October was tracking at 22 cents, or 0.4%, settling at $56.52 a barrel on the New York Mercantile Exchange on Thursday. WTI rose 2.6% for the week.

November Brent crude, which is regarded as the global benchmark rose 59 cents, or 1%, to end at $61.54 a barrel. The cumulative rise for November Brent crude was 3.9%.

What You Should Look Out For

The oil market currently is a broadly sideways market with day-to-day volatility. Though increased output due to better technology has offset the loss in the rig numbers, gains for oil will continue to hinge on a few global factors like averting a recession, continued cuts by OPEC, and the impact of 2020 IMO regulations to reduce sulphur emissions from fuel oil.

Suggested Reading 

 

Negatives

1. U.S. jobs report falls shy of expectations; unemployment rate stays same

What You Should Know

According to the Labour Department report, the U.S. economy added only 130,000 non-farm jobs which in most part was due to the temporary hiring of Census workers. The number is 20,000 short of Wall Street’s expectations, even as unemployment stayed steady at 3.7%.

The good news, however small, was that wage growth remained solid with average hourly earnings rising 0.4% for the month, and 3.2% over the year. Labor force participation has also increased; currently tying with its August 2013 levels.

What You Should Look Out For

The sad headline apart, the rest of the jobs report has actually been pretty positive. U.S. economists have expressed positive opinions about the report, stating that if risks of recession and global slowdown were not already being talked about, one wouldn’t start today.

Suggested Reading

 

2. Fitch downgrades Hong Kong’s creditworthiness for the first time since ‘95

What You Should Know

For the first time since ‘95, the international credit rating company Fitch Ratings has deemed it fit to downgrade Hong Kong’s creditworthiness due to continued protests and the increased influence of China in the territory. Along with this, Fitch has also echoed sentiments across the globe that the territory and global economic hub may be heading towards a prolonged slowdown in the second half of the year.

What You Should Look Out For

The move will make it harder for Hong Kong businesses to borrow money. Retail and tourism businesses in Hong Kong have already been hit badly, but more than anything the credit downgrading highlights how Chinese involvement in the area will hurt investors. Fitch also said that the recent protests have severely tested the ‘one country, two systems’ framework. This is the first time since 1997 when mainland Chinese officials have been this vocal about Hong Kong’s politics, symbolising a gradual but inevitable integration of the island into mainland Chinese economics. Fitch also noted that such policies will only “present greater institutional and regulatory challenges over time”.

Suggested Reading

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.

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