Global equity markets ended mixed this week as investors prepared for earnings season with some anxiety over a global slowdown with the IMF cutting its 2019 global growth forecast from 3.5% to 3.3%.
Banks and Auto & Parts were among the two top performers in Europe for the week (+2.5% and +2.0%, respectively), as upbeat China trade and new loans data shifted sentiment and moved markets once more, especially for cyclicals. Indeed, cyclicals have started to rally again while momentum & defensives continue to be under pressure with the worst performing sectors in Europe this week being Healthcare, Utilities and Telecom (-2.2%,-1.7% and -1.1% respectively). The poor performances of those defensive sectors were underpinned by strong flows through our books, in particular for Consumer Non-Cyclical, which was our most actively traded sector with investors 59% skewed to 'sell' (Essilor Luxottica was our most actively traded stock).
In China, credit, trade and inflation data showed a rebound this week. Credit and money supply data improved more than expected in March, suggesting that China's economic recovery is on track. The release seems to confirm that the downward trend in credit growth since mid-2017 stopped at the start of this year. Our economists find that outstanding credit growth and money supply measures tend to have 2–3 quarters lead on activity growth. Their view is that the recovery of China is on track thanks to the monetary and fiscal easing measures implemented last year in Q3, and that the bottom in Global manufacturing PMIs could be near and EU PMIs could bottom out by June.
The European Central Bank and Federal Reserve both flagged a high degree of uncertainty over the economic outlook earlier in the week. Fed minutes for March showed officials' outlook on monetary policy could "shift in either direction". On Wednesday 10 April, the ECB also left interest rates unchanged as expected and conveyed the message that it would remain accommodating as long as the growth slowdown continues.
Tour operators: "It's all up in the air"
Most read research this week:
After recent profit warnings and abysmal share price performances over the last 12 months, is it finally time to get involved in the stocks that Leisure investors love to hate? We initiate with Outperform on TUI shares and with Underperform on Thomas Cook shares. The structural outlook is not looking too bad, but the micro will remain tough. The market share of Package travel in the key UK market has remained broadly flat at c. 44% (in value) since 2005. As Online Travel Agents and direct bookings have continued to take share in commoditized products, Tour Operators have collectively refocused on higher price points.
Automotive: "The Supplier Myth: Why we're still cautious"
Suppliers have been quick to price in a stabilisation in production schedules in 2019. However any respite may be short-lived, with emissions hurdles a burden to EU output, and signs of mix trends stalling in the US. We stay cautious, and would sell supplier rallies, not buy the dips. Stabilisation in production may be short-lived and concern to shift to the US and EU. While we acknowledge a structural content story within electrification, the problem is this accounts for no more than 7% of sales in 2020e even for electrification leader Valeo (=). Cyclical risks to the remaining 93% of revenues are our primary concern at this juncture, especially as OEMs and consumers look for areas to save cost.
Equity Capital Markets:
ECM saw its busiest week since the start of the year: 17 transactions priced for a total of EUR 7.6bn (Up to EUR 8.1bn including all greenshoes) out of which 7 were IPOs, 4 ABBs, 4 Capital Increases, 1 Combo Convertible Bond/ABB and 1 Convertible Bond.
Stadler Rail* (Switzerland, industrials), Nexi (Italy, payments) and Network International (UAE/ London, payments) all completed large IPOs successfully and should give the market confidence following a very fragile Q1.
Main takeaways for this week's wave of IPOs: (i) All IPOs were covered on Day 1 and some within only a few hours of bookbuilding; (ii) all IPOs priced away of from the bottom of the range; (iii) All IPOs were multiple times oversubscribed (for instance 9x for Stadler and 10x for Network International); (iv) Strong investor engagement (including proper domestic demand especially for Stadler with huge support from Swiss retail and private banking) and (v) Aftermarket performance has been mostly positive establishing further confidence.
*BNP Paribas led
Things to watch out for this week:
- Eurozone PMIs. German PMI manufacturing index will be the key focus next week and will be released on Thursday alongside data from Eurozone and France. We expect the German Manufacturing PMI to stabilize at 44 after nine months of consecutive decline but the consensus is even expecting a rise to 45.0. In France, the Manufacturing PMI should be stronger than expected, climbing back above the 50 threshold and thus moving away from recessionary conditions. While the German services PMI should be down 0.4pt to 55, we expect the French service PMI to recover to 50.8 in April from 49.1 in March. Overall, Eurozone Manufacturing and Service PMI could both move up, mainly thanks to France.
- China data. Q1 2019 GDP will be released on Wednesday. We expect growth to slow to 6.2% y/y, from 6.4% in Q4 2018. On the same day, industrial production, investment and retail sales for March will also be released. Expectations are for an improvement, as sentiment has recently been lifted by fiscal and monetary stimulus and better leading indicators. Nonetheless, we think risks could be on the downside this month, as there can be a lag between changes in soft and hard data.
- US data. Next week's US data should be positive. After a few disappointing months, we expect March retail sales to be up a strong 1.4% m/m while industrial production is also expected to pick up. Flash PMIs will be released on Friday. The Manufacturing PMI should improve to 52.4 in March while Services PMI are expected to remain broadly stable around 55. We also expect an improvement in the housing market with the NAHB Index and housing starts both up (to 64 from 62 and +6% m/m, respectively).
Have a good week.
This week's statistics:Stoxx 600 trading volume as % of 3-month average: 93%
Stoxx 50 volatility (VStoxx): range 11.5-15.0%, finishing on 11.9%
ECM Volumes 2019YTD:#EMEA €37.7bn
This week:Stoxx 600 (-0.2%)
Stoxx 600 sector performance:
This week:Best: Banks (+2.5%)
Worst: Healthcare (-2.2%)
2019YTD:Best: Basic Resources (+25.9%)
Worst: Telecoms (+0.8%)
This week:Best: Cyprus (+5.1%)
Worst: Ukraine (-5.0%)
2019YTD:Best: Greece (+24.8%)
Worst: Ukraine (-4.1%)
Deals priced this week (> €100m):
- Stadler Rail, up to €1.4bn, IPO (Switzerland – Capital Goods)*
- Nexi, up to €2.0bn, IPO (Italy – Tech)
- Network International, up to €1.3bn, IPO (UK – Payment)
- Adevinta, up to € 298m, IPO (Norway – E-commerce)
- Gateway Real Estate, €180m, re-IPO (Germany – Real Estate)
- Karnov, €287m, IPO (Sweden – Professional Services)
- Rubis, €237m, ABB (France – Oil & Gas)
- Entertainement One, €180m, ABB (UK - Media)
- Technogym, €144m, ABB (Italy – Fitness equipment)
- Ramsay Generale de Sante, €567m, Rights Issue (France – Healthcare)
- Prisa, €200m, Rights Issue (Spain – Media)
- Globalworth, €348m, Capital Increase (UK – Real Estate)
- Shop Apotheke, €110m, Combo Convertible Bond + ABB (Germany – Food & Drug Stores)
- Sacyr, €175m, Convertible Bond (Spain – Construction)
Deals ongoing (> €100m):
- ÅF Pöyry AB, €270m, Rights Issue (Sweden – Engineering)
- Hipgnosis Songs Fund, €115m, Capital Increase (UK - Fund)
* BNP Paribas led
Head of Equity Capital Markets
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