Zero Equilibrium Financial Markets Weekly: Market movers, and Financial Media Commentary
- The financial markets had an interesting week with stocks rising to all time highs in the US NASDAQ and Japan's TOPIX hitting 3.000 for the first time, on favorable earnings report, and lower than expected CPI for Japan.
- Wall Street has its best week since June with all major US indexes rising.
- Still Analysts at Investment Banks are calling for a 10% - 15% correction in the stock markets this quarter.
- Commodities we watch were mixed, with Gold rising and Oil falling on a possible supply glut, and expectedly slow economic activities and growth from tarrifs uncertainties.
- Punch reported the dicey situation in the composition of [Nigerian] FPIs, citing the net negativeI foreign flows in the equity markets, leaving both the stock market and bond market dependent on hot money.
- The European Central Bank reported that “Chinese Imports are increasingly becoming an obstacle to Euro-area labor markets”, in more than just low cost manufacturing.
- US trade deficit hit a 2 year lowin June as trade with China shrunk by a third.
- Data shows growth in Chinese imports per worker in European markets has risen over the past years, with the share of Euro-area manufacturing in total employment declining.
- Below we give excerpts on the above weekly events and reports and provide independent views, and commentary on financial market movements.
- Smith & Nephew: “Revenue and
operating profits beat estimate for the first half of the year. The
estimate beating reesult and a $500 million share buy-back are
responsible for the 17% jump seen Tuesday morning. “the most since 2020” Bloomberg reports.
A combination of positive/esrimate-bearing earnings, and a significant share buy-back are major drivers of the stock this morning. - Frensilo: Gold and Silver Miner Frensilo see a 9.3% jump in share prices (“the most since January 2024”), after being up by 160% this year. The diversification of the company's precious markets product portfolio (gold and silver) has provided it with double exposure as it's earnings gains from the rally of both metals.
- Domino's: Unlike the medical devices producer (Smith & Nephew), and the Gold and silver miner, Domino's shares plunged about -16% at the Open. This is after the company issued a profit warning for the full year. The delivery chain lowered it's guidance, on weak consumer sentiment and slowdowns in store openings —despite fierce competition. “The chain’s pretax profit fell by almost 15% in the first half of its financial year,noting franchisees have been cautious given increased employment costs.” (@bloomberg A few other (UK) stocks mentoned by @bloomberg 's journalists and analysts who did fairly well in June include;
- Rotork: on it's statement that it sees “a strong performance in its Water & Power division. And,
- Keller: Boasted of strong balance sheets but antipates a hit in H2 from a weaker dollar.
- Portfolio Investments accounted for 92% of total FX inflows for the period and as it be has for prior periods.
- The concentration is also in the territorial sources of these funds as 65% of total Inflows originated from Britain. Suggesting that there is need for more sources even as we consolidate finance relations with the Kingdom.
- Vehicles {150% increase in Chinese imports}:
- Chemicals {140% increase in Chinese Imports} and,
- Electrical Equipment which grew 85% in the same period.
- Open borders to allow for an increase in employable population.
- Offer tax incentives for heavily affected sectors, to aid the most hit industries.
- Secure and consolidate key export makers with the most growth potential to supplement for the loss of jobs from shifting local demand.]
Wall Street warns of a Pullback Natasha Solo-Lyons (for @bloomberg)²
On Wednesday 5th August, Bloomberg 's Natasha Solo-Lyond reported that “Wall Street’s biggest firms prepare for a major market pullback as sky-high equity valuations” citing top investment banks; “Morgan Stanley, Deutsche Bank and Evercore all cautioned that the S&P 500 Index is due for a near-term drop thanks to the darkening economic picture.”
Calls made included Mike Wilson of Morgan Stanley seeing a -10% correction in he quarter and Evermore's Julian Emmanuel calling for a -15% correction in the quarter. This is as trade uncertaities, that could slow economic activities..
Our Commentary on X (formerly Twitter)¹ on our Zero Equilibrium account was that:
1. The fears seem overblown, as the thinking on our end is that the tarrifs are but a negotiation tactics. So,
2. As new deals are made, and confidence and relative certainty returns to the market, stocks could rebound, rewarding holders or ‘buy-the-dip" traders. And,
A [unlikely] correction would be seeen as an entrepreneur opportunity.
FTSE 100 Live: European and UK Stocks Extend Global Rebound ( Bloomberg)³
Market opened and the FTSE 250 is up 0.4%, roughly in line with a bounce across continental European peers as equity markets extend their rebound.”
The FTSE 250 was up by 0.4%, Wednesday boosted by gains for Rotork and Keller after their results, and by Spectris on the new bid for the firm. FTSE 260 closed at 21,958.55,.rising +1.19% on the week.
Major Market Movers Per Bloomberg are as follows: Smith & Nephew and Frensilo jumped beat estimates and Domino's, stock declining -16% in the day. Other notable stocks that did fairly well in June's earnings reports as Rotox and Keller
Us Trade Deficit drops to a 2-year low in June: @reuters⁴
Rueters reported on Wednesday 5th August that ,“The US trade deficit narrowed to two year lows at 16% in June, as trade with China, given this trade debacle, shrunk by ⅓, as tarrifs on US imports rise to a 91 year high.”
This could indicate some form of political win, as 150 billion revenue from tarrifs, and a 24 month low in US trade deficit can pass a political win this is perhaps the reason why market closed positive on the week with NASDAQ hitting all-time highs. – Zero Equilibrium
Capital Importation Gains Still A Cosmetic Covering to Unresolved Structural Issues. – Zero Equilibrium ⁵
“Nigeria’s capital importation jumps 67% to $5.64 billion in Q1 2025, driven by portfolio investments, compared to $3.4 billion recorded in the same period of 2024.” this represents a 10.82% rise from Q4 2024. – Nairametrics
The above seems laudable on the surface, but as usual the devil is in the details.
First, the FX flows are concentrated in two forms:
Secondly, foreign direct investment contribution to FX inflows stood at $126.29 million with a sharp of 2.24% of Q1 2025. total capital importation in. -@NBS
An indication that long-term foreign investors (in fixed assets) are yet to be convinced, or the federal government has failed to facilitate investment deals, and as the table below shows, banking and finance accounts for 92.62% of total Inflows. With Manufacturing making up 2.30%.
Industry. | Share% of Total Inflow
Banking Sector | 55.44%
Financial Sector | 37.18%
Manufacturing | 2.30%
Zero Equilibrium Remarks:
Investors should be wooed with actions and not talk:
Despite the slew of memorandums of understandings signed with private and public would-be foreign investors (into the real economy and with long-term sunk capital), manufacturing –a proxy for the real sector— attracted the least amount of foreign capital.
This goes to show that despite the reforms, the growth of real sector is still marred by the inflationary [and exchange rate depreciation] shock. Mega-cap companies who are only just recovering and recording significant profit, were able to tweak their business models, weather the storm, or had an invaluable value proposition (or strategy).
Using Equity to Court FDI:
Since it is clear that improving the manufacturing, [Industrial, and agricultural] sector(s) contribution to FX flows, would be a significant contribution to higher and sustainable FX inflows, more strategic, aggressive and purposeful policy actions are necessary.
The Federal Government could privatize underutilized or dilapidated federal assets (e.g., the four Refineries, Ajaokuta Steel Mine, etc), and list them on the Stock market. This provides a clear and unambiguous business deal, with the allure being the low purchase cost and a market with sufficient demand for products thereof – Nigeria, ECOWAS and AfCFTA.
A strong legal and trustworthy regulatory system is also invaluable to foreign investors. This means improving tangible and intagible infrastructure, formulating, implementing favorable policies and creating a business friendly environment.
Policy Credibility, and Investing in Human [Capital] Development:
All these done silmultaneously with investing in human development (to up skill the labor force), and demonstrating policy credibility and political reliability. This isn't done in a day, but can be achieved once the business environment improves and looks favorable
A healthy and educated labor force, an efficient transportation infrastructure, a swift and reliable justice system, and a clear and unambiguous government policy, will bring in more FDI than‘negotiations’ which end up as MoUs.
Foreign Direct Investment Capital Importation as a Resource Exportation:
Capital importation is the otherside of resource and market share exportation. If a foreign investor buys a land in country A, to grow bananas and hopes to either sell it in country A, or export it to countries B,C or, D.
From the above, it can be said that, the host country (country A), has imported his money – paying for it with the land, labor and other resources and factors that makes the country suitable for investment– or exported said FOPs.
For our Final Remarks, we stated;
Priority to Local Businesses: In light of the above, priority should be given to supporting local industrial development, for it is the same [tangible and intagible] infrastructure they would need to succeed, that foreign investors [in fixed capital] would need.
Sales of Dilapidated Assets: The Federal government need to move to securitize and flip some federal assets, and also fix what's broken in the economic structure first– the link between, credit and industry; and the mismatch between labor demand and the skills set of supply–whilst simultaneously courting investors, before any meaningful gains in FDI's contribution to FX inflows can be made.
For now the Nigerian Economy –and the Naira remains dependent on variable, short-term (or fleeting), capital, and debt for both monetary [to stabilize exchange rate and inflation rate, and fiscal reasons [to fund the budget].
Chinese Imports an Increasing Challenge for Euro-zone. ⁶
Chinese Imports are increasingly becoming an obstacle to Euro-area labor markets, and the “competition is no longer confined to low-cost goods; it extends to high value-added sectors, such as vehicles and specialised machinery” (Al-Haschimi et al., 2024)
In analysing the effects of strong Chinese import competition [to local industrial output and employment], they compare data on the growth in Chinese imports per worker in European markets against, the share of Euro-area manufacturing in total employment.
From the chart below you can see a direct displacement of European manufacturing jobs by Chinese Imports.
China's penetration has eaten deep into various sectors in the past half a decade, the most notable in the paper being:
China's proficiency in the automobile sector and advances in the EV space, has challenged the traditionally dependable Automobile sector in Europe.
The report says, that areas where Chinese imports have increased the most accounts for 27% of the Euro-area labor market, or some 29 million workers, with manufacturing employing the bulk of that at 24 million.
Though the biggest losing sector – the vehicle sector– employs 1% of the Euro-area labor force, “it contributes nearly 10% of the manufacturing sector’s real value added and slightly below 2% of euro area GDP” — @ecb 's The Box
Chemical the second largest accounts for 1.5% of the Blocs employment.
As a result “Labour demand has decreased more in sectors where exposure to China has increased the most between 2019 and 2024” — @ecb's The Box.
“Elevated US tariffs on China may further increase competition for euro area producers if Chinese exporters expand or seek new markets in Europe” - @ECB's The Box.
This poses a challenge to the Euro-area labor market as the competition and deep penetration as we've seen in the sectors above can shift to a broader section of the European labor market. – Zero Equilibrium
“Trade diversion from the United States, combined with China’s increasing competitiveness in high value-added industries, suggests that euro area firms must adapt to an increasingly competitive global environment.”
Unlike the US , Europe does not have the luxury of a cohesive and impulsive trade policy, however organized, the exposure and dependence of each country varies, as does the industrial capacity, so an aggressive move to “bring back jobs” is out of it. - Zero Equilibrium
What Europe can and should do is;
Foreign investors sell off N576bn Nigerian stocks in six months (Sami Tunji and Olukemi Abimbola) ⁷
Foreign investors do not seem overly enthused by Nigerian Stocks, as the first half of the Year records a net-negative foreign portfolio positioning the equity markets. – Zero Equilibrium
“The outflows exceeded foreign inflows, which stood at N559.25bn, resulting in a net negative foreign portfolio position of N16.84bn over the six months.” – Punch
Global Economic Uncertainties Spurring the outflow Surge:
It was reported that “the surge in outflows to the inconsistencies caused in global markets by the policies of US President Donald Trump, the high yields in T-bills that spurred sell-offs, among others. – Punch
This we find [found] plausible, as the effects on the domestic economy is yet to be ascertained, given that the Trump tarrifs essentially reduces the tarrif-less’ international markets upon which businesses would compete. That could mean more competition for local companies in developing countries from more advanced ones. – Zero Equilibrium
Domestic Investors Keeping the Market Afloat:
Per the article, “ domestic investors accounted for N3.06tn worth of trades between January and June 2025, representing 72.92 per cent of total market transactions. This marks a 41.5 per cent increase from N2.17tn in the same period of 2024” – Punch
At“near-parity” retail institutional equity market activity “suggests balanced domestic participation over the half-year”
But this isn't a case of retail growing and institutions slowing as “recent months show institutions gaining dominance.” and the total value of transactions during the six month period (January to June) ”amounted to N4.19tn, up 60.98 per cent from N2.60tn recorded in H1 2024.”
Thus, it can be said that the total stock market transactions had been fueled by an increase domestic investors, rather than an increase in foreign (hot money) participation. – Zero Equilibrium
High-yields on bonds is also a major reason for the foreign equity investment outflows as uncertainties drive flows to [relatively safer] fixed Income Sovereigns. - Zero Equilibrium
For “of that $5.2bn that came into the portfolio investment, investment in money market instruments was $4.2bn” invested through Open Market Operations in Treasury bills. –Punch
Volume masks Foreign Outflows and Retail Investor Volatility:
Still the “positive in volume, masks growing concerns over the quality of capital flows, particularly the surge in foreign outflows”
“A breakdown of monthly data reveals volatile investor behaviour, with large fluctuations in both foreign and domestic trades.”
It also masks the volatility in the composition of retail to institutional investors. The later has been increasing whilst the former reducing. Which is an expected outcome because the still double digit inflation eats into incomes and lowers the demand for financial securities. – Zero Equilibrium
“Institutional trades were at N364.71 in June and retail N274.63 in the same month after peaking in at N337.46 in May.” – Punch
Zero Equilibrium Views:
The foreign outflows could be seasonal, but in our opinion, the higher volume of fixed income securities compared to stocks is a result of foreign investors feeling safer with Treasury Bills than equities, hence the outflows from stocks.
This makes the economy entirely dependent on hot money and exposed to a crowding out of private investments.
Foreign investors may be optimistic, but are simply not convinced about the future of the real economy. However the silver lining here is that they market seems comfortable woth the current Naira valuation. And that is something that is needed for sustained portfolio investments, and capital importation.
Japan index hits record high on earnings boost, other Asian markets ease - @Reuters ⁸
“Japanese stocks soared, with the Nikkei 225 (.N225), opens new tab up 2% and the Topix index (.TOPX), opens new tab hitting a fresh record, trading above 3,000 for the first time.” – @Reuters
This rally “follows a mixed bag of earnings reports for the country's biggest exporters” – @Reuters
Investors, anxious about trade uncertainties got a boost of confidence after the earnings report. This is as Japan is a largely export reliant economy. The index closed at all-time highs at 3,042.21– Zero Equilibrium
Inflation data also came in cooler than markets anticipated as “Japanese household spending data released Friday, which provides clues to consumption and wage trends that the Bank of Japan is monitoring to determine the timing of its next rate hike, rose at a slower-than-anticipated 1.3%.” – @Reuters
The Nikkei is up +5.03% week-on-week and an closed at 41,820 levels at the Asian Close. - Zero Equilibrium
Oil set for steepest weekly losses since June on tariffs, Trump-Putin talks - Reuters ⁹
Oil prices are headed for their steepest weekly losses since late June, as “higher U.S. tariffs against a host of trade partners went into effect on Thursday” which “aised concerns of weaker economic activity” – @Reuters
Supply side pressures and prospects of a deal reach in the recent “Trump-Putin talks raised the prospect of an ease in sanctions on Russia” – @Reuters
“A Kremlin announcement on Thursday that Vladimir Putin and Donald Trump would meet in the coming days meanwhile raised expectations of a diplomatic end to the war in Ukraine.” – @Reuters
Market moves indicate that a deal is expected to be reached between the US and Russia which in addition to OPEC+ supply increases could lead to an increase in supply of barrels in an already supply glutted market. – Zero Equilibrium
“At Thursday's close, WTI futures had dropped for six consecutive sessions, matching a declining streak last recorded in December 2023” – @Reuters
On Friday, per the charts above, BRENT and WTI both extended loses to close at an average of 4% each. Crude could officially enter a bear market except;
1. A series of trade resolutions, on trade between the US and it's largest trading partners (particularly India and China) is reached.
2. Trump and Putin unable to reach a deal, that see sanctions on Russia eased (it a combination of both), could ease market fears and turns the tides in favor of the bulls.
For now Oil is expected to stay under pressure owing majorly to the trade debacle.
Both benchmarks closed at $63.88 and $66.59 for WTI and BRENT respectively, making for a 3.65% draw down for BRENT and an even steeper 4.44% for WTI . As at the time of our post on X (formerly Twitter) both benchmarks were down 6.97% and 7.14% respectively.
Stocks tick higher as Wall Street looks to close out
a winning week: Live updates - Christopher Hayes, Sean Conlon ¹⁰
”Stocks rose on Friday, putting the three major averages on pace to round out the week with gains.The Dow Jones Industrial Average climbed 258 points, or 0.6%.” – CNBC
”The S&P 500 was higher by 0.9%, supported by a surge in shares of names like Gilead Sciences and Monster Beverage following their strong quarterly results. The Nasdaq Composite jumped 1% and had hit a fresh all-time intraday high. The move also places the tech-heavy index on track for a new closing record.” – CNBC
Despite the increases in the 3 Major US indexes, ”gold prices, which were already increasing this week on hopes of a Federal Reserve interest rate cut, soared to record highs”
“The
Nasdaq Composite reached a new all-time intraday high of 21,464.53 after
rising around 1% during Friday’s trading session.
CNBC reported that: ”Any close above 21,242.80 would be also mark a record close for the
index.” from the chart below, the index closed at 21,450.02 representing a record high for the NASDAQ.
Comments
Post a Comment