Weekly ECM update


Weekly ECM update

04 Feb, 2019

Dear Reader,

Another directionless markets week in Europe - but England did beat reigning champions Ireland 32-20 in Dublin on the first weekend of the Rugby Six Nations, (first time since 2013) so that will have brought a little Brexit cheer.

Stoxx gained 50bps but further advances were hindered by weak regional data, Brexit and the news that Italy's economy has fallen into a recession. Basic Resources did best (+3.7%) but Banks fell most (-3.6%), led by with Italian and German banks. Investors bought UK equities (FTSE 100 +3.1%) although th odds of 'no deal' seemed to rise. Meanwhile the S&P500 gained 1.6%, making for its best January since 1987. Our trading this week evidenced the lack of direction, with flows equally split between the buy and sell side, with Long only institutions being much more active than Hedge Funds. From a country perspective, we saw investors selling French, Spanish and UK equities, in order to buy German stocks.

US performance was helped by the Fed's continued walking back of its tightening policy - not  only did it leave rates unchanged, claiming to be "patient" in determining future changes in borrowing costs, but unexpectedly called into question the balance sheet unwinding. 
Asian equity markets finished a week higher, despite Chinese industrial profits falling for the second straight month, overshadowing boosts from the end to the US government shutdown. News that substantial progress has been made between the US and China in their trade negotiations also added support to local equities. Further optimism was dulled by the disappointing PMIs data which led the Renminbi to pull back and confirmed the deepening growth slowdown of Chinese economy. HSI and HSCEI closed the week +1.3% and +1.7% respectively, whilst the SHSZ300 gained +2.0%. Japan's Nikkei gained 0.1%.

Most read research this week:

STRATEGY: Oversold, overlooked and over here
It's early days, but reporting season has been interesting. Quite a few misses as expected – 2019 EPS estimates still look a bit high to us, especially in Europe. However, of the 44 stocks we have identified globally that have profit warned since the beginning of the year, 52% are actually up versus where they were prior to warning. The majority of these stocks appear to be from beaten down cyclical sectors such as Autos, Financials, Semis and Transport. We have provided a screenof heavily de-rated European cyclicals that could be candidates for some bottom fishing.

FOOD RETAIL: Aisle spy with my little AI...
Food retailers have historically under-exploited customer data. Most obviously, pricing decisions which clear the mismatch between supply and demand have been crude and very damaging to profitability. Data-driven disruption is coming, we believe. We see a new era of 'dynamic' and 'personalised' prices emerging, with technology extending gains to all parts of the sector, from what to stock, how to clean, when to replenish, and beyond. The prospect is enticing. Thin industry margins mean that on price alone, if you could raise average selling price by just 1% and do little damage to volume, you could conceivably double net profit.

SEMICONDUCTORS: Sensing the future
Investor sentiment around 3D sensing remains very low following the inventory corrections in the Apple supply chain and almost no Android adoption in 2018. However, in 2019, we expect 3D sensing to become more mainstream, driven by the presence of 3D sensing in all new Apple iPhones and the launch of 3D-sensing phones by Android manufacturers (Huawei, and to a lesser extent Xiaomi and Oppo/Vivo). We expect the 3D sensing market to grow from USD1bn in 2018 to USD4.4bn in 2022.

Equity Capital Markets:
 Another slow week for ECM EMEA activity, raising only €780m. At the end of the first month of 2019, total ECM EMEA volumes amount to €3.7bn vs. €8.5bn for January 2018 (c.56% decrease vs. last year). 'Nothing done' in the IPO market as the only two offerings were both cancelled (Gefco, France, logistics; and Global Sustainability Trust, UK, Investment Trust). Nevertheless, a good pipeline is building, though the Brexit date is making planning difficult. The biggest transaction of the week in Europe Vonovia's long-awaited placing of its Deutsche Wohnen stake (Real Estate, Germany). US-based investors are indicating  more openness to European deals than anytime since September - which will help particularly large and liquid blocks that come after results. 

Things to watch out for this week:

  • US: State of the Union and data. President Donald Trump will deliver the State of the Union address to Congress on Tuesday (9pm local time). It had been postponed by a week because of the government shutdown. In terms of data releases, the ISM non-manufacturing for January will be released on Tuesday, expected to weaken slightly (as does consensus).
  •  Eurozone data: Services and composite PMIs for January will be available for Italy and Spain on Tuesday. Services are expected to broadly deteriorate. On Friday, following the upside surprise on Q4 GDP, industrial and manufacturing production for France for December is expected to strongly rebound, and to a greater extent than consensus expectations. Industrial production for Germany should also follow the same direction. Factory orders for Germany will also be available on Wednesday, which should edge up.
  • China services PMI:  On Sunday, the Caixin Services PMI for January is likely to soften slightly, but remain at a relatively strong level.
  • UK, BoE and PMI: On Thursday, the Bank of England will hold a meeting. No change in monetary policy is expected. The Services and Composite PMIs for January will be released on Tuesday.

Have a good week.


This week's statistics:

Stoxx 600 trading volume as % of 3-month average: 104%
Stoxx 50 volatility (VStoxx): range 14-17%, finishing on 14% 

ECM Volumes 2019YTD:

#EMEA €3.7bn
#US $7.6bn

Index performance:

This week: 

Stoxx 600 (+0.5%)
S&P500 (+1.6%)
Nasdaq (+1.4%)
HSI (+1.3%)
HSCEI (+1.7%)

Stoxx 600 sector performance:

This week:

Best: Basic Resources (+3.7%)
Worst: Banks (-3.6%)


Best: Basic Resources (+13.1%)
Worst: Telecoms (-2.5%)

Country performance:

This week:

Best: UK (+3.1%)
Worst: Spain (-1.8%)


Best: Turkey (+12.8%)
Worst: Cyprus (-8.0%)

Deal priced this week (> €100m): 

- Deutsche Wohnen, €698m, ABB, shares sold by Vonovia (Germany, Real Estate)

Deal ongoing (> €100m): 

- Tritax Big Box REIT, £250m, Capital Increase (UK, Fund)

Andreas Bernstorff 
Head of Equity Capital Markets 
BNP Paribas
Extel 2017 & 2018 - Exane BNP Paribas #1 Equity House

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