Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for December 9, 2019. The text below is an excerpt and does not contain the full analysis.
Highlights include:
- November Job Report Shatters Expectations: Last month, employers added 266,000 jobs during the month, around 80,000 more than consensus expectations. These reported figures eased fears around weaker economic numbers and boosted markets worldwide on Friday.
- Investors Question Growth in Consumer Spending: The question Wall Street is asking is: can growth in consumer spending continue to overcome manufacturing sector contraction and trade wars to support continued economic expansion? So far conditions are stable, but investors are watching closely for any warning signs that the balance may come unstuck.
- BTC Trades at $7,460 Mark: Sustaining above $7,500 is proving to be a hurdle for bitcoin, but looking at the hourly time frame, there could be an ‘ascending triangle’ pattern forming. This potentially implies a bullish breakout.
- Ethereum Completes Hard Fork: Ethereum’s Istanbul upgrade will increase bandwidth on the blockchain, but questions are being raised around the 680 smart contracts on the Aragon platform that will be broken by the fork.
In the UK, markets were reacting to a revised bid for Just Eat from Prosus, the rival bidder that is attempting to take control of the UK food delivery firm.
This morning it raised its offer to £5.1bn, or 740p a share, although this remains below the company’s current share price of 780p. Prosus, an Amsterdam-listed offshoot of South African technology giant Naspers, is seeking to break up the merger agreed in July between Just Eat and Dutch rival Takeaway.com.
Meanwhile in the US, the November jobs report released on Friday shattered expectations, easing fears around weaker economic numbers and boosting markets worldwide. Employers added 266,000 jobs during the month, around 80,000 more than consensus expectations. The US unemployment rate also dropped to 3.5%, its lowest level in 50 years (tied with September this year). Gains were spread across multiple sectors, with healthcare adding 45,000 positions, leisure and hospitality 45,000 and business services 31,000.
Aside from the Friday gains posted by all the major US stock indices, the surprising numbers are likely to affect both the US-China trade negotiations and the Federal Reserve’s decision-making process on interest rates. For trade talks, it demonstrates that tariffs have not yet hurt the jobs market. For interest rates, it shows that for now the Fed can take a breather and let the expansion continue without further action.
However, Beijing has since commented that China hopes for a swift resolution to trade talks. Assistant Commerce Minister Ren Hongbin told reporters:
We wish that both sides can, on the foundation of equality and mutual respect, push forward negotiations, and in consideration of each others’ core interests, reach an agreement that satisfies all sides as soon as possible.
Industrials lag in mixed week for US stocks
On Friday the S&P 500, Dow Jones Industrial Average and the Nasdaq Composite closed 0.91%, 1.22% and 1% higher respectively after the jobs numbers were announced. However, after falls earlier in the week, the period as a whole was more mixed. The S&P was the only one of the three to post a positive week, eking out a 0.16% gain, as an outperforming consumer staples sector facing off with lagging industrial stocks. Boeing was one industrial name that proved a drag, losing more than 3% off its share price over the week due to uncertainties over when the 737 Max airliner will return to service.
Ultra Beauty, a $15bn retailer, was the big winner on Friday. Its share price popped 11.1% after beating its Q3 profit estimates. It attributed this to demand for celebrity-led beauty brands. Further down the size spectrum, small cap stock benchmarks bested their large cap siblings for the second week in a row, with the Russell 2000 index closing the week 0.57% higher.
- S&P 500: +0.91% Friday, +25.49% YTD
- Dow Jones Industrial Average: +1.22% Friday, +20.09% YTD
- Nasdaq Composite: +1% Friday, +30.46% YTD
Mid continues to beat large in the UK
UK markets were also split by market cap last week, with the FTSE 100 falling by 1.45% and the FTSE 250 gaining 0.58%. The mid cap focused FTSE 250 has more than doubled the return of its large cap sibling year-to-date. A combination of US-China trade deal concerns earlier in the week, and Sterling climbing to a seven-month high at $1.31, was enough to sink the exporter heavy index despite a rally on Friday.
Growing confidence in a Conservative Party majority in this week’s general election has been driving the pound’s surge. A 1% plus rally in UK shares on Friday followed the positive US jobs news; only five stocks in the FTSE 100 closed lower on the day. At the top end, packaging firm DS Smith, advertising firm WPP and Legal & General Group were among the biggest winners, climbing 5.2%, 2.9% and 2.6% respectively.
- FTSE 100: +1.43% Friday, +7.6% YTD
- FTSE 250: +1.09% Friday, +19.6% YTD
Stocks to watch
Chewy Inc: Florida-based online pet food retailer Chewy went public in June at an IPO price of $22 a share. It peaked beyond $37 a few days later and has been in a slump since. The firm’s share price closed on Friday at $24.95. Despite posting a 42% year-over-year sales increase, the company failed to meet high expectations with the earnings it posted in September. It has also found itself in a market where there is serious skepticism of multi-billion dollar IPOs by loss making firms such as itself. Currently, analysts have an average 12-month price target of $35.45, with the range between $29 and $42. Expectations for the Q3 earnings per share numbers, which come out on Monday, have declined from -$0.10 to -$0.13 over the past three months.
MongoDB: At the other end of the spectrum, database company MongoDB has been a comparative IPO success story. It priced its late 2017 IPO at $24 a share and is now trading at $131.17. Performance has hit a rough patch in the past six months however, with the stock diving more than 20%. When the firm reports Q3 earnings on Monday, analysts are expecting earnings-per-share of -$0.28. New partnerships announced during Q3, including with Microsoft and Alibaba, are certain to be topics of discussion on the earnings call.
Ashtead (AHT.L): FTSE 100 firm Ashtead, which rents out industrial equipment, has rewarded investors who hung on through multiple double digit drops with a 45% plus share price gain year-to-date. Key to investors when the firm reports its results on Tuesday will be whether the latest data showing contraction in the manufacturing sectors in both the UK and US, and a decline in US construction spending, have affected its bottom line. Analysts have an average 12-month price target on the stock that’s around 9% higher than its present level. The firm’s shares have a price-to-earnings ratio of 12.8, based on its last full-year earnings, according to the London Stock Exchange.
The long and short of it
The short: return of Brexit
In the run up to Thursday’s general election Brexit news has effectively been on pause, with investors increasingly focused on the outcome of the vote. Sterling’s rise based on polling, indicating a Conservative majority, has been weighing the FTSE down but Brexit itself has largely been absent as a factor. That is now likely to change, according to Russell Investments’ director of client investment strategies Mark Eibel. He said that Brexit is likely to come back into play as a driver of market movements in December, with a return to market sensitivity to Brexit headlines this week and post-election. For investors watching the election, it is worth taking polling data with a hefty pinch of salt.
On Friday, T. Rowe Price bond fund manager Quentin Fitzsimmons warned that the general election may not be as clear cut as it appears, due to a combination of tactical voting, a surge in new voter registrations and the potential power of a sizeable youth turnout.
The long: can consumers keep the gravy train rolling?
A key battle is raging in markets at present, particularly in the US: can growth in consumer spending continue to overcome manufacturing sector contraction and trade wars to support continued economic expansion? So far, it’s working, but investors are watching closely for any warning signs that the balance may come unstuck. Investment firm Charles Schwab said on Friday that employment data is a key watch for “any signs of a breakdown in the bifurcation in the economy between weak manufacturing/capex and stronger services/consumption”. In addition to the punchy jobs data detailed above, a strong start to the holiday shopping season is another positive indicator of consumers’ state of mind. According to the National Retail Federation, shoppers in the US increased their spending by 16% between Thanksgiving and Cyber Monday versus the same period last year.
Crypto corner:
Crypto assets are slightly in the red this morning with Bitcoin trading around the $7,460 mark, which on the one hand is encouraging that it has maintained some gains above the $7,000 level albeit sustaining above $7,500 is now proving to be a hurdle.
Although, looking at the 1 hourly time frame, there could be an ‘ascending triangle’ pattern forming, potentially implying a bullish breakout.
China’s central bank to conduct real world pilot of digital Yuan
The initial pilot of the Central Bank Digital Currency (CBDC) is planned for the city of Shenzhen by the end of 2019. This will make the People’s Bank of China (PBoC) the world’s first central bank to issue a digital currency, a far cry from the seemingly staunch anti-crypto stance the country took a couple of years ago.
Ethereum hard fork is now live
Ethereum has successfully completed the Istanbul hard fork in what is the 3rd upgrade of 2019. The lower costs enabled by the improvements will increase bandwidth on the blockchain. There have been a few questions raised around the up some 680 smart contracts on the Aragon platform which will be broken by the fork.
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