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THE MARKET REVIEW  26 October 2017 THE MARKET REVIEW  26 October 2017

THE MARKET REVIEW 26 October 2017 - PowerPoint Presentation

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THE MARKET REVIEW 26 October 2017 - PPT Presentation

Best Performing Asset Classes Best Performing US Sectors Best Performing Currencies Source Beauclerc Bloomberg Source Beauclerc Bloomberg Source Beauclerc Bloomberg The week in ten words Has Mario Draghi managed to break the euro revaluation trend ID: 738281

beauclerc oct week pmi oct beauclerc pmi week eur company 2017 sep etf 16long rate sales guidance usd 17short

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Slide1

THE MARKET REVIEW

26 October 2017

Best Performing Asset Classes

Best Performing US Sectors

Best Performing Currencies

Source: Beauclerc, Bloomberg

Source: Beauclerc, Bloomberg

Source: Beauclerc, Bloomberg

The week in ten words: Has Mario Draghi managed to break the euro revaluation trend ?

The big picture…

In the Eurozone,

the ECB finally announced today a long-awaited move to

scale down its asset-purchase programme

amid the current expansion cycle. In a nutshell, the bond buying programme will

remain open-ended,

i.e. it will be extended to September 2018 at least, while

cutting purchases to EUR 30 billion

a month

from EUR 60 billion after December this year. This is broadly in line with consensus expectations ahead of the policy meeting today. This recalibration of the programme is viewed by investors as an attempt to ensure the domestic recovery is not slowed by a sharp rise in borrowing costs. Also, Mr. Draghi confirmed that the

continued stimulus was needed if inflation is to rise to the ECB’s target of just under 2%. “Domestic price pressures are still muted overall and the economic outlook and the path of inflation are conditional on continued support from monetary policy,” he said in a news conference. On top of the open-ended feature of the programme, the commitment expressed by Mr. Draghi to continue reinvestment of maturing bonds purchased for an extended period of time, was a dovish element that triggered a sharp correction in the EUR today. Earlier in the week, the PMIs painted again a bright picture of the EZ economy, suggesting the strength and breadth of the recovery carries on into Q4. The composite PMI for October slipped marginally to 55.9 from 56.7, but remains at levels consistent with a 0.5% GDP expansion in Q4. Also, both the services sector and manufacturing PMI surveys pointed to faster expansion. Finally, the EZ consumer sentiment index rose to a peak of -1.0 in October, from -1.2 in September, signalling a firm rebound in retail sales growth in coming months.In the U.S., the release of the durable goods orders this week provided another evidence of rising business investment. After three straight 1.3% month-to-month increases in core capital goods orders, it looks increasingly likely that the upturn in business investment signalled by the NFIB survey is now materializing. The drop in oil prices no longer is the dominant factor driving the rate of change of capital spending, and the 7.8% y/y increase in orders, is the fastest since April 2012. Spending on non-oil equipment and intellectual property - mostly software - accounts for 13% of U.S. GDP, so an acceleration from the 2.5% growth observed in H1 2017, to the 8-to-10% implied by the NFIB survey, would add about 1.0% to real GDP growth in H2 2017. Also this week, the new home sales were reported at +19% m/m in September, although all the reported increase came from the Southern U.S. states. In Canada, the Bank of Canada (BoC) kept its policy rate unchanged at 1% at its October meeting, judging that with the economy near potential, risks and uncertainties make the current policy stance appropriate. Also, the BoC did emphasize that policy uncertainty is clouding its outlook, specifically citing the renegotiation of NAFTA as a risk factor in its statement. Slide2

Start

DateClosing Date

Investment ThemesPerformanceAllocation17/12/15

06/01/16

Long Eurozone equities (ETF)-11.6%10%01/05/15

03/02/169M One-touch option EUR/USD – Strike 1.003-100.0%0.3%11/02/16

10/03/16

Long RUB/USD

10.4%

5%07/01/16

16/03/16Long deep-discounted value DM equities 10.6%

10%09/02/16

17/03/16

Short Gold

-5.8%

5%

15/02/1617/03/16

Short EUR/USD

-1.0%

5%14/01/1606/04/16Long 10Y US Treasuries3.1%15%03/05/1619/05/16Short EUR/USD3.0%5%13/06/1624/06/16Long EUR/GBP-1.4%5%06/04/1602/08/16

Short volatility on EM equity ETF

4.6%

5%

06/04/16

02/08/16Short volatility on US equity ETFs (oil/biotech/banks) 3.7%6%08/08/1606/09/16Long Stoxx 600 oil & gas (ETF)3.2%3%20/05/1619/09/16Short volatility on EU equities0.0%4%27/07/1620/09/16Long Euro Stoxx 50 ex-financials (ETF)-1.6%4%19/08/1620/09/16Long S&P 500 banks (ETF)1.3%3%23/08/1620/09/16Long Stoxx 600 healthcare (ETF)0.1%3%05/12/1617/01/16Long Eurozone equity (ETF)9.1%10%08/11/1624/02/17Short volatility on US/EU single stocks2.9%10%04/08/1608/03/176M Digital option GBP/USD – Strike 1.25188.5%0.7%31/01/1710/03/17Short EUR/USD1.1%5%24/01/1716/03/17Short Gold (ETF)-1.7%5%07/12/1607/04/17Long RUB/USD13.0%5%16/03/1726/04/17Long EUR/USD1.6%19%17/05/1702/06/17Short 10Y US Treasury (Future)-0.6%10%17/05/1731/07/17Short EUR/USD-4.3%12%30/08/1722/09/17Short EUR/USD-0.5%2%02/01/12OpenLong EU-peripheral / high-yield bonds51.5%20%17/06/13OpenShort volatility on DM equity (US/EZ/UK/CAN)50.3%20%08/02/16OpenLong 3-5Y IG bonds in USD6.2%8%24/01/17OpenLong Eurozone equity (ETFs)16.4%25%15/02/17OpenLong Euro Stoxx50 / short MSCI EM (certificate)-8.7%5%25/09/17OpenShort Gold (3x reverse ETF)3.8%2%02/10/17OpenShort 10Y US Treasury (Futures)0.7%10%

www.beauclerc.com

…and how global markets reacted

Euro

Stoxx

Index was up +1.1% over the past week, led by Basic Resources (+3.1%). S&P was much weaker at +0.1%, Japan a strong performer up +1.4% and Emerging Markets performing the weakest at -1.1%.

French semiconductor company,

STMicroelectronics

, rose by close to 19% over the week after it delivered 3Q 2017 numbers that surpassed consensus expectations on sales, gross margin and operating margin. This allowed the company to beat consensus 3Q 2017 EPS by 10.5%. Despite recent indications that Apple had adjusted its production of its latest iPhone downwards, the company guided towards 4Q 2017 sales rising 10% over the quarter which was 4% higher than forecasted. This improved guidance should now see the company beat its full-year revenue guidance of US$8 billion.

A very disappointing set of results from Finnish consumer electronics company

Nokia

which saw the company decline by -15% over the week. Headline EBIT reported by the company beat consensus by 19.6% but was largely due to a low quality beat. Excluding the one-off from LG Electronics associated with payments for the past use of intellectual property, underlying EBIT came in 9.8% below consensus. The market was also disappointed with the lowered 2017 & 2018 guidance, with additional €600m of additional cash charges associated with restructuring and the lack of new cash return.

American data storage company,

Seagate Technology

, was up +11.5% over the week after delivering a good set of 3Q 2017 results. 4Q 2017 guidance was also ahead of consensus on both the top and bottom-line due to higher HDD revenue in PCs and Consumer. The company also guided for gross margins to improve over the next quarter. Following the company’s announcement just over a week ago that it was discontinuing its Crohn’s disease trial, pharmaceutical company Celgene cut its 2020 guidance from its previous guidance of $13 in EPS to US$12.50. Stock has performed abysmally following this double setback and is down -27.8% over the past week. The past week saw the oilfield services companies underperform the oil majors after Schlumberger and Baker Hughes warned that growth in the North American drilling activities was expected to slow in the coming quarters, evidenced by the flattening trend of the U.S. land rig count during the third quarter. This update sent these companies down -1.5% and -9.1% over the week respectively.

This document is provided as a service and is limited to Professional Clients and Investors of Beauclerc Limited (“Beauclerc”) and is published for reference purposes only. It is neither an offer nor a solicitation to buy or sell any investment referred to herein. Past performance is not necessarily an indication of future investment returns. Exchange rate changes may cause the value of overseas investments or investments denominated in different currencies to rise or fall. The information and opinions in this document have been recorded by Beauclerc in good faith and from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness or correctness. Beauclerc accordingly accepts no liability whatsoever for any direct, indirect or consequential loss arising from the use of this document or its contents. Beauclerc is licensed and regulated by the Guernsey Financial Services Commission. It must be distinctly understood that while being under licence the Commission does not vouch for the financial soundness or the correctness of any of the statements made or opinions expressed by Beauclerc.

The week ahead …

Beauclerc Investment Themes – Last 18 months

Alex ZimmermannManaging Director, Beauclerc Ltdalexz@beauclerc.gg

Contact for additional information

Source: Beauclerc, Bloomberg

Updated 25/10/2017 COB

CAC 40 vs STMicroelectronics (Base 100)

Macro

Corporate

Earnings

SP500 vs Celgene (Base 100)

Source: Beauclerc, Bloomberg

30 Oct

EZ Economic Confidence (Oct), EZ Consumer Confidence (Oct), GE CPI (Oct), UK Mortgage Approvals (Sep), US Personal Income (Sep), US

Persoal Spending (Sep), US Fed Mfg. Activity (Oct), JP Jobless Rate (Sep), JP Ind. Pdn. (Sep). HSBC, Lowes, Galp, Dominion Energy, Bankia, Viscofan, Noble Energy, Edison.31 OctEZ Unemployment Rate (Sep), EZ GDP (3Q17), FR GDP (3Q17), FR CPI (Oct), FR PPI (Sep), IT CPI (Oct), UK Consumer Confidence (Oct), US Consumer Confidence (Oct), JP Housing Starts (Sep), CN PMI (Oct).BP, Airbus, SKF, Aetna, Pfizer, Under Armour, American Tobacco, Cummins, Kellogg, Ecolab, Royal Caribbean, Ryanair, Dufry, BNP Paribas, ASM International, Zodiac Aero, Imerys, Anardarko, Concho Resources. 1 NovUK PMI (Oct), US Mortgage App. (Oct), US Emp. Ch. (Oct), US PMI (Oct), US FOMC Rate (Nov), JP PMI (Oct), JP Vehicle Sales (Oct), CN PMI (Oct).Lundin, Smurfit Kappa, Allergan, Novo Nordisk, Cognizant, Garmin, Qualcomm, Ternaris, Prudential, Marathon Oil, Equinix, Symantec, Kraft, Facebook.2 NovEZ PMI (Oct), GE PMI (Oct), GE Retail Sales (Sep), GE Unemployment Change (Oct), FR PMI (Oct), IT PMI (Oct), UK BOE Rate (Nov), US Jobless Claim (Oct).Swiss Re, Credit Suisse, Sanofi, Hugo Boss, BT, Randgold, Chesapeake, DowDuPoint, Estee Lauder, Yum!, ING, L’Oreal, Motorola, Starbucks, Activision, Apple.3 NovUK PMI (Oct), CN PMI (Oct), US Nonfarm Payrolls (Oct), US Unemp. Rate (Oct). Air France, Duke Energy, Berkshire Hathaway, Societe Generale, Repsol, Amadeus.