Things That Could Help European Stocks Break Out… Or Not – JPMorgan

JPMorgan’s equity strategist team has published a report today trying to figure out if European stocks will finally break out the glassdoor of 400 points (for Stoxx Europe 600) that they have been hitting 3 times already (2000, 2007, 2015).

They argue that this time might be the time, IF a number of conditions are successfully met. Among them, earnings recovery, operating leverage, decent (!) valuations and direction of bond yields are important factors to consider. Big swing factor are FX.

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Oil & Gas: A Primer (Sort of)

(Most of the data points/comments are extracted from a Primer published in Oct 2016 by Bank of America Merrill Lynch. Comments and financial data at the end are my own).

After a number of underperforming years, European oil & gas companies have been staging their comeback: they have cut into capex and opex to generate more cash flow or reduce debt and be able to maintain their payout/dividend payment.

The market has bearly started to notice, but oil & gas companies are leaner and in better shape to leave in a world where oil price would stand around 40-60$/barrel. Continuer la lecture de « Oil & Gas: A Primer (Sort of) »

Chart of the Day – Cross Asset Correlation is VERY Low

Source: Morgan Stanley

Per MS’s report dated Jan 3rd 2017:

« 2016 saw the 3rd best annual performance for US High Yield on record. Commodities posted their best year of returns since 2009, a feat all the more impressive given early losses. It was a surprisingly ho-hum year for performance in global equities (+8.5% in MSCI ACWI), global rates, and the USD (+4.3%), with those numbers masking big divergences by region, style, and the 1st-versus-2nd half of the year. We also note that global correlations have plunged, driven largely by the breakdown in rates correlation to risk assets and regional correlations within equities. »

Risk Appetite Needs Growth – Goldman Sachs

Source: Goldman Sachs

Per today’s report:

« As equities rallied and bonds sold off, our measure of risk appetite reached a new post-crisis high, but it has started to retreat more recently. Near-term, we think growth optimism will persist and keep risk appetite strong. We are long US equity near-term as it should be a direct beneficiary of growth optimism, but expect optimism to moderate eventually. Later in 2017 we are looking to rotate from S&P 500 to EM (specifically EM-ex-China) where risk appetite has lagged and we expect the growth picture to be more supportive. We also like Europe and Japan on a 12-month horizon in our asset allocation. Both of these lagged global equities in 2016, but should continue to be beneficiaries of reflation and have supportive monetary policy backdrops. »

On a 12 month horizon, GS is overweight Equities, with a bias towards Europe and Japan, but underweight US equities and Neutral on Asia ex-Japan.

The bank underweights Government bonds and is Neutral on credit (yet with a preference for US High Yield and Euro High Yield).

It’s also Overweight Commodities and Cash.