Week Ahead: Uncertainty Will Not Fade Away

| About: SPDR S&P (SPY)

Summary

Yellen's speech weighs on stock market.

EU to take a hard line with UK in Brexit talks.

Lower probabilities of a rate hike in December are expected.

Deutsche Bank & Brexit to remain in news headlines.

Upward pressure in volatility; up 20% WoW.

Main European indices moved slightly upwards last week mainly due to some reassurance in the banking sector, which have temporarily stopped the sell-off of last week, a rise in utilities, oil & Gas and consumer goods and services.

On the other hand, US lost some ground on Friday late trading hours after Yellen's comments on US economy's resilience. Yellen mentioned that US may have to be on a high pressure economy. Effectively, this means that the country's real GDP should be above the potential GDP, inflation could be higher than the target rate (this has already been in news for a while), and unemployment could be lower than the natural rate of unemployment. Although this will attract critiques from economists, Yellen argues that the benefit derived from this are higher capex, workers drawn in from sidelines, and productivity gains. The economic interpretation of these comments is that the US central bank may be willing to stay accommodative for a longer period of time. This may not necessary mean that rates will not rise (although, we expect the comments to result in a decline of a probability of a rise), but may stay at low levels in the long term.

As described in a previous article, the low interest environment could be a positive catalyst so far, but when interest rates have to stay low for a longer period because of concerns of a decline in economic activity, it's a headwind for stocks as future earnings growth is in question.

World Indices Return

Name

Return since Brexit

1 Week

1 Month

YTD

S&P 500

0.93%

-0.96%

0.34%

4.36%

Dow Jones Industrial Average

0.71%

-0.56%

0.57%

4.09%

FTSE 100

10.66%

-0.44%

5.10%

12.35%

DAX

3.15%

0.85%

1.95%

-1.51%

CAC 40

0.11%

0.47%

2.30%

-3.58%

Athens Composite Index

-4.60%

2.08%

5.96%

-6.66%

IBEX 35

-1.32%

1.67%

0.75%

-8.13%

MIB

-7.65%

1.13%

0.31%

-22.54%

NIKKEI 225

3.81%

-0.02%

1.46%

-11.44%

HANG SENG

11.33%

-2.59%

0.18%

6.02%

Source: Yahoo Finance

Click to enlarge

In Europe, Deutsche Bank (NYSE:DB) is to remain in headlines until the DOJ and the bank agree on a deal, and formal announcements take place. In addition, fears of a "hard" Brexit took FTSE down 0.44% for the week, but the uncertainty remains and the market could move downwards. The main reason is not just the Brexit itself, but the uncertainty arising from the belief that the government has no plan about it.

Stock Market Outlook

The US markets closed slightly lower than last week after Yellen's comment on economy and despite the higher oil prices. As mentioned in a previous article, we expect volatility to rise, as it is difficult to predict the Fed's next move, a hard or a soft Brexit is followed, and the US elections are close. Volatility (VIX) this week was already up by 20% Week on-Week.

This week's economic calendar

The economic calendar for next week includes consumer confidence in UK, EU and US, CPI in AU and Germany, GDP in US and UK, FDI & trade balance data for Japan, and some data on Housing market for UK and US.

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

DB

Deutsche Bank AG

-21.4%

1.2%

-5.5%

-45.7%

OTCPK:CRZBF

Commerzbank AG

-20.2%

0.0%

-7.3%

-40.6%

RBS

Royal Bank of Scotland Group PLC

-31.0%

-5.0%

-12.5%

-42.8%

LYG

Lloyds Banking Group PLC

-27.3%

-0.1%

-7.7%

-27.7%

BCS

Barclays PLC

-9.0%

-2.0%

-0.1%

-22.3%

CS

Credit Suisse Group AG

-1.4%

-1.3%

-1.8%

-40.9%

UBS

UBS Group AG

-13.3%

-2.5%

-3.8%

-32.0%

OTCQX:BNPQF

BNP Paribas SA

1.0%

-2.3%

4.9%

-7.7%

NMR

Nomura Holdings Inc.

7.7%

-1.8%

-2.2%

-32.1%

OTCPK:SCGLF

Societe Generale SA

-9.4%

-0.1%

3.0%

-22.8%

HSBC

HSBC Holdings PLC

36.3%

0.0%

10.4%

15.6%

OTCPK:UNCFF

Unicredit SpA

-22.7%

-0.8%

-1.5%

-59.0%

OTCPK:BMDPY

Banca Monte dei Paschi di Siena SpA

-68.5%

0.7%

-23.6%

-86.1%

OTCPK:NBGIF

National Bank of Greece SA

-26.5%

6.3%

8.6%

-41.1%

JPM

JPMorgan Chase & Co.

5.4%

-0.9%

1.7%

2.3%

C

Citigroup Inc.

9.3%

-1.4%

4.0%

-6.1%

BAC

Bank of America Corp.

14.0%

-0.8%

2.4%

-4.9%

GS

Goldman Sachs Group Inc.

11.7%

0.4%

2.6%

-5.4%

MS

Morgan Stanley

17.5%

-0.7%

1.6%

0.8%

Source: Yahoo Finance

Click to enlarge

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

SPY

SPDR S&P 500 ETF Trust

1.1%

-0.9%

0.0%

4.5%

DIA

SPDR Dow Jones Industrial Average ETF Trust

0.8%

-0.5%

0.5%

4.2%

XLF

Financial Select Sector SPDR Fund

2.5%

-1.0%

0.4%

0.4%

XLU

Utilities Select Sector SPDR Fund

-5.1%

1.3%

-2.2%

10.3%

VIX

Volatility Index

-6.6%

19.6%

-11.1%

-11.5%

NULL

EURO STOXX 50 VOLATILITY

-47.4%

-0.8%

-32.6%

-14.2%

GLD

SPDR Gold Trust

-0.6%

-0.3%

-5.4%

17.6%

UUP

PowerShares DB US Dollar Index Bullish Fund

5.0%

1.6%

2.9%

-1.1%

FEZ

SPDR EURO STOXX 50 ETF

-4.8%

-1.3%

-0.6%

-6.4%

Source: Yahoo Finance

Click to enlarge

World ETF Performance

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

IWRD

iShares Core MSCI World UCITS ETF

0.99%

-0.72%

0.19%

3.44%

SPY

SPDR S&P 500 ETF

1.10%

-0.89%

-0.01%

4.54%

DIA

SPDR Dow Jones Industrial Average ETF

0.82%

-0.51%

0.48%

4.20%

EWG

iShares MSCI Germany ETF

-1.04%

-1.19%

-0.46%

-1.60%

EWQ

iShares MSCI France ETF

-3.93%

-1.21%

0.04%

-1.98%

EWU

iShares MSCI United Kingdom ETF

-8.76%

-2.89%

-3.02%

-6.44%

CSX5

iShares Core EURO STOXX 50 UCITS ETF

-0.09%

0.80%

2.09%

-4.42%

EWJ

iShares MSCI Japan ETF

4.31%

-0.88%

1.73%

1.82%

AAXJ

iShares MSCI All Country Asia ex Japan ETF

7.41%

-2.67%

0.89%

10.71%

EEM

iShares MSCI Emerging Markets ETF

6.10%

-2.15%

2.05%

14.57%

MCHI

iShares MSCI China ETF

12.27%

-2.33%

0.61%

7.22%

Source: Bloomberg

Click to enlarge

UK market outlook

Sterling lost more than 18% against the dollar and 15% against Euro since the vote of Britons in favour of a Brexit. The fall in pound weighs on the tensions between suppliers and retails (see Tesco and Unilever last week) as profit margins take a hit from the currency free-fall. Higher oil prices and lower pound should put pressure on inflation and expectations about future inflation and it may pass the BoE target rate of 2% next year, but we do not expect BoE to raise rates as the uncertainty regarding Brexit could still slow economic activity down. However, the fall of sterling should benefit the county's exporters, which could gain market share outside the country and boost top and bottom line growth.

FTSE Weekly Winners/Losers

UK Ticker

Name

Weekly Return

OML

Old Mutual PLC

-7.17 %

HL

Hargreaves Lansdown PLC

-5.78 %

ANTO

Antofagasta PLC

-5.45 %

SL

Standard Life PLC

-5.15 %

SKY

Sky PLC

-5.02 %

RBS

Royal Bank of Scotland Group PLC

-5.00 %

PFG

Provident Financial PLC

-4.83 %

LGEN

Legal & General Group PLC

-4.79 %

MNDI

Mondi PLC

-4.65 %

ULVR

Unilever PLC

-4.62 %

BRBY

Burberry Group PLC

4.51 %

PPB

Paddy Power Betfair PLC

4.30 %

IAG

International Consolidated Airlines Group SA

4.00 %

INTU

Intu Properties PLC

3.37 %

MKS

Marks and Spencer Group PLC

3.15 %

PSON

Pearson PLC

3.10 %

NG

National Grid PLC

2.74 %

UU

United Utilities Group PLC

2.61 %

RMG

Royal Mail PLC

2.45 %

SSE

SSE PLC

2.11 %

Source: Bloomberg

Click to enlarge

S&P 500 Weekly Winners/Losers

Ticker

Name

Weekly Return

ILMN

Illumina Inc.

-25.20 %

AA

Alcoa Inc.

-15.72 %

BMY

Bristol-Myers Squibb Co.

-10.21 %

FAST

Fastenal Co.

-9.36 %

COG

Cabot Oil & Gas Corp.

-8.96 %

JNPR

Juniper Networks Inc.

-8.30 %

VRTX

Vertex Pharmaceuticals Inc.

-7.55 %

STX

Seagate Technology PLC

-7.21 %

FLS

Flowserve Corp.

-7.19 %

BBBY

Bed Bath & Beyond Inc.

-7.10 %

ULTA

Ulta Salon Cosmetics and Fragrance Inc.

9.91 %

HCA

HCA Holdings Inc.

8.20 %

KR

Kroger Co.

7.83 %

LUV

Southwest Airlines Co.

7.41 %

ALK

Alaska Air Group Inc.

6.17 %

TSN

Tyson Foods Inc.

5.65 %

FSLR

First Solar Inc.

5.03 %

CRM

Salesforce.com Inc.

4.74 %

AMT

American Tower Corp.

4.46 %

CCI

Crown Castle International Corp.

4.22 %

Source: Bloomberg

Click to enlarge

Commodities Return

Ticker

Name

Return since Brexit

1 Week

1 Month

YTD

GLD

SPDR Gold Shares ETF

-0.62%

-0.32%

-5.40%

17.64%

SLV

iShares Silver Trust ETF

0.42%

-0.24%

-8.10%

25.55%

USO

United States Oil Fund

-4.51%

0.97%

13.38%

4.00%

UCO

ULTRA BLOOMBERG CRUDE OIL ETF

-13.29%

2.16%

27.10%

-9.49%

DBA

PowerShares DB Agriculture Fund

-8.69%

0.65%

0.65%

-2.09%

UNG

United States Natural Gas Fund

16.56%

3.29%

10.81%

8.77%

PPLT

ETFS Physical Platinum Shares ETF

-3.13%

-3.06%

-9.61%

4.72%

DBP

PowerShares DB Precious Metals Fund

-1.42%

-0.42%

-6.13%

18.37%

UGA

United States Gasoline Fund

1.94%

1.21%

16.07%

-2.97%

Source: Bloomberg

Click to enlarge

Precious metals higher YTD and this week mainly, energy futures also up on oil gains. Shipping index was down 3.2% on a weekly basis mainly due to costs associated with higher energy prices. Copper and platinum are down 2.5% and 2.4% respectively on a weekly basis and cocoa down 2.2%.

Commodities Return

Name

Return since Brexit

1 Week

1 Month

YTD

Gold Futures

-0.64%

0.34%

-5.18%

18.18%

Silver Futures

0.26%

0.40%

-8.37%

26.26%

NYMEX Light Sweet Crude Oil WTI

0.48%

1.08%

15.53%

35.93%

Brent Crude Futures

2.04%

0.04%

13.30%

39.35%

NYMEX Natural Gas Futures

21.76%

2.88%

13.71%

40.56%

Bloomberg Commodity Index

-2.27%

0.82%

4.44%

9.91%

COMEX High Grade Copper Futures

-2.77%

-2.46%

-2.07%

-1.04%

Platinum Futures

-3.11%

-2.39%

-9.95%

4.96%

London Cocoa

-0.79%

-2.20%

1.02%

0.27%

Baltic Exchange: Baltic Dry Shipping Index

49.66%

-3.15%

17.99%

88.58%

Source: Bloomberg

Click to enlarge

World Indices Return

Name

Return since Brexit

1 Week

1 Month

YTD

S&P 500

0.93%

-0.96%

0.34%

4.36%

Dow Jones Industrial Average

0.71%

-0.56%

0.57%

4.09%

FTSE 100

10.66%

-0.44%

5.10%

12.35%

DAX

3.15%

0.85%

1.95%

-1.51%

CAC 40

0.11%

0.47%

2.30%

-3.58%

Athens Composite Index

-4.60%

2.08%

5.96%

-6.66%

IBEX 35

-1.32%

1.67%

0.75%

-8.13%

MIB

-7.65%

1.13%

0.31%

-22.54%

NIKKEI 225

3.81%

-0.02%

1.46%

-11.44%

HANG SENG

11.33%

-2.59%

0.18%

6.02%

Source: Yahoo Finance

Click to enlarge

Click to enlarge

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.