Last week, the market clearly climbed a wall of worry on Iran risk thanks to a rapid de-escalation and, quite controversy, it turned out to be a mildly positive point for markets. MSCI World is up 1.25% Ytd, S&P500 +1.8%, Eurostoxx +0.9%, and MSCI Emerging +2.6%.

In focus, inflows continued in Emerging Markets for 11th straight week, mainly due to better Macro data (i.e. Semis chip Korean exports rising for the first time since October 2018) and de-escalation in Middle East. Chinese markets are continuing to perform well thanks to the recent PBOC comments about fiscal and monetary stimulus in Q1.

Even if we have witnessed just 2 weeks in 2020, it is quite remarkable to note that the US domestic market is underperforming (poor macro data, deceleration of inflows) and the USD is weakening creating the perfect condition for an EM outperformance. Let’s see now what happens with the upcoming signature of Phase 1 deal. Chinese delegation is currently in Washington with the signatures expected by the end of tomorrow.

Oil on a rollercoaster Ytd, following Soleimani’s death, down 10% since 8 January’s high, and gold hovering around 1560 level, up 2% year-to-date. Among some interesting trends to spot in currencies, China’s strengthening Yuan is smashing every key bullish level in sight, punching past 6.9 per dollar for the first time since August. Analyst forecast sees Renminbi at 6.8 in 3 months (green line chart) on improving US-China relationship.

Onshore Yuan (red line)


Technology stocks were in particular strong with Info Tech and Communication up more than 2% in MSCI World and Software Services trending higher more than 5% in US. Interestingly, the concentration at the top positions of the S&P500 is incredible (as previously discussed) with the first five companies (all Tech such Apple, Amazon etc.) accounting for 18% of the total index capitalization. The problem here is that while net income is decreasing (cost inflation etc.), market capitalization is rising, probably due to massive available liquidity in the market.

Share Top 5 Companies in the S&P500 – % Market Cap (blue) vs Net income (yellow)



Today will importantly kick-off the US Q4 2019 earning season with JP Morgan at 13:00 CET and Wells Fargo at 14:00 CET releasing numbers.

US companies are expected to report a 2% decline in earnings in Q4 2019 year-on-year, their fourth straight quarter of declining earnings, and the longest streak since 2015-16. Close to zero or even negative earnings growth is already priced in consensus (and current bar is quite low in terms of earnings expectation). The market is rising because investors are currently forecasting a turnaround in earnings in 2020 such that earnings growth will be at +4.5% in Q1 2020, +6.5% in Q2 2020 and +9.5% in 2020 year-on-year.

On Macro, after weak US Non-Farm payrolls on Friday (defensive rotation), UK GDP came negative of as much as 30bps for November, below market consensus. In addition Industrial and Manufacturing production were well below consensus, calling for increasing expectations for a rate cut at the next Bank of England meeting (three policy makers including governor Carney have flagged the possibility of a cut), sterling down 70bps.

Indeed, it seems that the Eurozone is the region with the highest economic index so far.

Economic Surprise Index by region


A final consideration on Crypto currencies. Yesterday we saw the launch of CME bitcoin options with several dedicated market makers. Over the past few days, there has been a step increase in the activity of the underlying CME futures contract with the open interest growing by 2,214 contracts to 5,400 contracts, a 69% increase from year-end. The number of large open interest holders grew to 47, an indication that institutional interest continues to build.