Results for search of category: Eurozone

There Will Be A Correction

With very few exceptions, our main risk-appetite indicators are at or close to maximum risk-on. We see evidence of peaking behaviour in global equities vs global fixed income, in US Credit, and cyclicals vs defensives in the US, Japan and the UK. There is one indicator – Italian vs German government bonds - which is already past its peak. Most investors understand this and intend to use any correction as a buying opportunity. However, it still makes sense to take some risk off the table now, if only to put it back on at a lower price. We are also concerned that investors may be ignoring an uptick in geo-political risk.  [Read More... ]

To See Ourselves as Others Do

Eurozone equities may be cheap when compared to the US, but that’s not really important. Over the last10 years, US investors have never been able to generate a superior risk-adjusted return by diversifying into the Eurozone index, no matter what tactical allocation strategy they follow. The picture is marginally better if we look individual sectors over a shorter time-frame, but Japan and Asia ex Japan, do much better on this test.   [Read More... ]

How the World Turns

This report is a real-time survey of how the great rotation is progressing in different regions of the world. Our conclusions are (1) Many of the important sector infection points happened back in September; so talking about them now in terms of factors suggests that people missed them the first time round. (2) The UK has much the most aggressive sector rotation and China the least. (3) There are different winners and losers in each region and any attempt to apply one paradigm to all of them is likely to fail. (4) Many value-rich sectors in each region have hardly moved, suggesting that the value trade has already been differentiated into those sectors which have catalysts and those which don’t.  [Read More... ]

Rotation, Inflection & Persistence

There has been a lot of excitement about factor rotation in equities, but it’s mostly based on the back of two days’ trading at the start of this week. We agree that rotation is going to pick up, but from a very low base and our work suggests that it’s going to be from the top to the middle and vice versa. We think that the laggards, like Financials, Energy and Telecom could underperform for some time to come. If the factors in question are meaningful, they will show up in sector performance fairly soon. If not, perhaps they are not as important as reported.  [Read More... ]

Dropping Bunds as the Benchmark

It’s time to restructure our euro-denominated fixed income portfolio. The yield on 7-10 year German bunds is too negative for comfort and they no longer offer the best way of creating risk-efficient portfolios. A pan-euro index of government bonds with the same maturity has done this more effectively for the last two years and we believe it offers a safer and more liquid benchmark asset.  [Read More... ]

Signs of Life in the Eurozone

Our charts for Eurozone equities relative to the rest of the world have suddenly gone vertical. The change started in late June and the charts have improved in each of the last four weeks. It is now supported by improving lead indicators in cyclical sectors, like Materials and Industrials, and deep value sectors like Financials. The latter are key to the rehabilitation theme. Without them, a Eurozone rally will be anaemic; with them it could be surprisingly powerful.   [Read More... ]

Lessons from a Fast Market

Yesterday’s sell-off was so brutal that it probably marks the start of a different regime in equity markets. We are out of Phase 1 of the recovery and into a second more sceptical and nervous regime. Both the US and the UK broke of out the uptrends in our daily indicator that have been in place since March. The technical situation is better in the Eurozone and Japan, while the level of financial repression is China so severe, in our view, that the indicator has lost most of its signalling power.  [Read More... ]

Six Sector Ideas

Where to look in advance of the Q3 results season. The macro picture is confused. Our last note argued that we are in the late late-cycle for equities, but we could go on like this for months and there are no new developments to prove or disprove this view. So, our focus shifts to sector selection. We highlight six sector ideas – one from each region we cover – where we think there is potential for a major upgrade or downgrade in the near future.  [Read More... ]


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