Flow Traders Investment Competition: European stocks rally, pound swings

European markets have recovered after a period of losses. Over the week, the Eurostoxx 600 Large index increased by 1.38%. The FTSE 100 rallied by 1%, reacting positively to the breakthrough in the Brexit negotiations. Brussels and London seem to have found some common ground, enabling the negotiations to advance to the next stage. However, Theresa May is experiencing a lot of criticism in Great-Britain, agreeing to a €40 billion divorce settlement. Prominent Brexiteers speak of a ‘surrender’ instead of a breakthrough, undermining May’s accomplishment.

As Brexit headlines were dominating the news in the UK, the pound swung between gains and losses this week. One week implied volatility on the pound-dollar rose to its highest level since June. Option pricing, moreover, reveals some scepticism towards the next stage of the Brexit talks, with one-month put contracts on the pound continuing to trade at a premium to calls.
On the other side of the Atlantic, an interesting week is about to come. The American economy is continuing its strong performance, with the unemployment rate reaching a 17 year low at 4.1%, the government reported. Next week, the FED decides whether it will increase the short-term interest rate another time before the end of the year. Expectations are that this is the case, but since inflation has lagged behind a bit over the last months, investors might be wrong.

Most investment groups made positive returns last week, profiting from the recovery of European markets. B.R.O.O.D. Beleggers shows us that portfolio theory is not some vague academic gibberish. Investing in a very diversified portfolio, consisting of equity, commodities, ETF’s and mutual funds, they made the most return last week.

The road has been somewhat bumpier for other groups, investing in Altice (ATC). The French cable company is going through a difficult time, losing more than half of its value since November. Over the course of last week, we have seen some ups and downs. On Monday, the news got out that Goldman Sachs had approached some funds to buy some of the loans to the French company. If that is not enough, Moody’s, a credit rating business, has changed its rating to negative. Even though the cash flows are sufficient to meet its obligations and debt restructuring are not on the agenda, the credit rating business is not foreseeing a bright future. In the end, it was not a bad week for Altice, gaining about 10% last 5 days.

Written by Joppe de Bruin