Global Investment Weekly 2019.04.01 - CTBC Private Banking
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Global Investment Weekly
2019.04.01
Market Calendar, 2019/4
W1(4/1-4/5) W2(4/8-4/12) W3(4/15-4/19) W4(4/22-4/26) W5(4/29-5/3)
Composite ECB Meeting(10) U. Of Michigan IFO Outlook(24) Euro Zone Q1
PMIs(1) Confidence(12) BOC Meeting(24) GDP(30)
DM BOJ Tankan(1) Germany ZEW(16) US Durables
RBA Meeting(2) Fed Beige Book(18) Orders(25)
US Nonfarm(5) US Retail Sales(18) BOJ Meeting(25)
US Q1 GDP(26)
Composite
EM China Social China Q1 GDP(17) CBR Meeting(26) China NBS PMI(30)
PMIs(1)
Financing(10~15)
Financials Results Growth Sector Results
Healthcare, Cons. Energy Results
S ector Staple Results Commodities
Results
Utilities, Telecom Iranian
Results Sanction
Waiver Expiry
S ur pr i se
E vent
M ar ket India Election Indonesia Election
Topic
Source: Compiled by CTBC Bank, 2019/3/29
1
Investment Strategy Summary
Inversion≠Recession, Investment Strategy Is Key
Brexit: May Sent Deal In Batches For Voting, Parliament Consensus
Past Hard To Reach
EU: Weak Mfg But Confidence And Leading Indicator Improved
Topics
FX: ECB/FED Both Dovish, DXY and EUR To Consolidate
AUD: Rate Cut Expectation Rose, Long-term Negative On AUD
Central
Russia: Inflation Stable, CBR To Hold For The Year
Banks Commodity: Real Demand To Recover Moderately, Positive On 2Q19
US Macro: Inversion Had Causes, Apr Data Gives The Key Direction
Key Topic US Equity: Moderate Monetary Policy Fuels Expansion, Room To Rally
In 2Q19
Yield
Financials: Index Went Against Fundamentals, Cautious On Shocks
Inversion
EM Bonds: Negative Yield And Yield Inversion Favor EM Bonds
Source: Compiled by CTBC Bank, 2019/3/29
2
Agenda
Part I Macro and Market Review
Part II Short-Term Focus and Strategy
3
Macro Review
Economic Data Release Review(3/22-3/28)
Macro Data: Overall Euro Zone Manufacturing PMI slid for the 8 consecutive months. New orders also hit the lowest
since end of 2012 while services PMI pulled it back slightly to above 50 in the expansion zone. IFO business climate
recovered from 98.7 in Feb to 99.6. The most exciting part was the expectation rebounded to 95.6, indicating corporate
outlook and sector certainty both improved. US Conference Board Consumer Confidence fell from 131.4 to 124.1 in Mar.
Current situation reached one year low while expectation weakened slightly to 99.8. It reflected that recent slowing
employment and high oil price squeezed disposable income, affecting consumer confidence. US 4Q18 GDP QOQ
reached 2.2% with household consumption sliding to 2.5% and government expenditure and corporate investment both
slowed slightly. Overall 2018 growth rate reached 2.9%, the highest in 3 years with Trump’s tax cut and corporate
investment incentives.
Release Date Country Economic Data Period Consensus Actual Prior
03/22/2019 16:30 GE Markit/BME Germany Manufacturing PMI Mar 48 44.7 47.6
03/22/2019 17:00 EC Markit Eurozone Manufacturing PMI Mar 49.5 47.6 49.3
03/22/2019 17:00 EC Markit Eurozone Composite PMI Mar 52 51.3 51.9
03/22/2019 18:30 RU Key Rate Mar 22 7.75% 7.75% 7.75%
03/25/2019 17:00 GE IFO Business Climate Mar 98.5 99.6 98.5
03/25/2019 20:30 US Chicago Fed Nat. Activity Index Feb -0.38 -0.29 -0.43
03/25/2019 22:30 US Dallas Fed Manf. Activity Mar 8.9 8.3 13.1
03/26/2019 22:00 US Richmond Fed Manfact. Index Mar 10 10 16
03/26/2019 22:00 US Conf. Board Consumer Confidence Mar 132.5 124.1 131.4
03/26/2019 16:30 GE Gfk Consumer Confidence Apr 10.8 10.4 10.7
03/28/2019 20:30 US GDP Annualized (QOQ) 4Q T 2.3% 2.2% 2.6%
Source: Bloomberg, Compiled by CTBC Bank, 2019/3/28
4
Market Review
Global Equities Pulled Back, Financials The Weakest
Country: Overall market has pulled back in the past week without signs of risk-off. The main reason for the fall was
because the YTD rally was too fast and too much. Before corporate earnings momentum turns upward, market stays on
hold. Furthermore, US treasury yield inversion topic resurfaced, providing another reason for profit taking.
Sector: Yield inversion caused pressure in outlook of the global 11 sectors. The most sensitive financials sector fell the
most in both the past week and past month, in response to the outlook concern. Tech sector volatility also intensified.
The relatively strong real estate sector in the past month also has the rally shrunken in the past week.
Global Equity Index Change Global Sector Index Change
Source: Bloomberg, past month is for 2018/2/28~2019/3/28, past week is for 2019/3/21~2019/3/28.
Sector indices based on Morgan Stanley Capital International (MSCI) global 11 sectors. 5
Market Review
Outlook Concern Depressed EM FI/FX, DXY And US Treasury Stronger
FI: Fed was cautious on outlook with its dovish policy stand depressing treasury yield curve so dollar denominated
IGBs performed relatively well. EM central banks stayed neutral to dovish but geopolitical and FX disturbance dragged
the performance of local currency bonds. The longer duration and better quality Asian local currency bonds still rallied.
FX: Turkey turmoil continued. EM currencies volatility increased, weakening together. South Africa nonfarm
employment data were stronger than consensus but it still waited for Moody’s to confirm its sovereign rating. RBNZ
turned dovish, depressing the commodity currencies. Capital flew to safe haven dollar and yen.
Global Bond Index Change Global FX Change (Against USD)
Source: Bloomberg, past month is for 2018/2/28~2019/3/28, past week is for 2019/3/21~2019/3/28
Note: Bonds take BAML Bond Index price change in the period. FX is against USD. 6
Brexit Progress
May Sent Deal In Batches For Voting, Parliament Consensus Hard To Reach
May Sent The Deal In Batches: On 3/28, May planned to sent
Path After Batch Votes
the deal to vote in 2 stages with parliament debating and voting
the withdrawal agreement on 3/29. Indicative votes on 3/27
showed no consensus so May announced to resign in exchange
for MPs supporting the deal. This could have some Conservative
MPs turned to support her deal but DUP still objected it. It was
hard to reach consensus in parliament, extension of deadlock
continues. We maintain our base case as circled in red.
May would resign if Brexit deal was passed to
empower some Leave Camp MPs in the next
Deal round of negotiation with EU. To avoid soft Brexit
Brexit or no Brexit after extension, they might choose
to support May’s deal. UK/EU equity could
rebound in this case.
May’s resignation was because she could not
unite the whole Conservatives with the Remain
Extend Camp refusing to allow the Leave Camp
Stay In dominating the negotiation. Alliance DUP’s
objection showed consensus was still hard to
EU
reach. Indicative votes did not yield any
consensus with a divided parliament, extension
of deadlock continues. Rebound of UK/EU
equities might retrace amid uncertainty.
No Deal Brexit extension did not rule out no deal Brexit. If
Brexit this surprise came true, UK/EU equity could
plunge though this is the least likely scenario.
Source: BBC, Compiled by CTBC Bank, 2019/3/29
7
Europe Macro
EU Data Mixed But Confidence And Leading Indicator Improved
EU Manufacturing Worst Hit: Eurozone Mfg PMI slid
for 8 consecutive months. Services pulled up slightly to Euro Zone Mar PMI Dragged By Germany/France
defend the above 50 expansion level. Germany Mfg fell
below 50 for the 2nd month, reflecting EU/China/US
trade conflicts. Others (excl. GE/FR) were stable.
Confidence Boosted Outlook: IFO confidence rose
from Feb 98.7 to 99.6 with the most exciting
expectation rebounding from prior low. It showed
corporate outlook and sector certainty both have
improved. Among that, service, trade and construction
also improved. Domestic demand indicators boosted
outlook.
ZEW Expectation Rose IFO Stopped Falling
Source: (Top Right)JPM, 2019/3/22, (Bottom Left)Bloomberg, 2007/1~2019/3, (Bottom Right)Bloomberg, 2007/1~2019/3
8European Currencies Strategy
ECB Meeting Expected To Be Dovish, EUR/USD To Consolidate At Low
Euro Zone Economic Data Still Weak: Fed slashed rate outlook, reducing dollar momentum. But Euro Zone economies
were still weak so EUR was hard to perform. Euro Zone Mar Mfg PMI released last week continued to slide. 47.6 was the
69-month low. As the most influential country of Euro Zone, Germany Mfg PMI was only 44.7. Luckily Germany IFO
confidence rebounded from 98.7 of prior month to 99.6, 1st rise in 7 months. Market still holds expectation on Euro Zone
monetary and fiscal stimulus could boost the economy.
FX Outlook: Global yield slid swiftly. US 10-yr treasury yield fell to the low of early 2018, making the short-/long-term yield
inverted and causing market concern over future outlook. Germany 10-yr treasury yield was again in the negative region.
With dovish ECB meeting expectation, short-term yield would be maintained at low. Historically, EUR was hard to perform
under such set-up. We expect it to maintain consolidation at the low so that DXY’s consolidation trend at the high would be
hard to change in the short-term.
EUR/USD To Consolidate At Low Germany Yield Turned Negative Again
EUR/USD Daily Chart US 10-yr Treasury Yield
Germany 10-yr Treasury Yield
200DMA
Source: Bloomberg, 2019/3/28
9Agenda
Part I Macro and Market Review
Part II Short-Term Focus and Strategy
10RBA
RBA Would Continue The Easing Signal
Australia Outlook Continued To Be Weak: Australia Q4 GDP rose 0.2% SA QOQ and 2.3% YOY, slowest since 2017 and
far below market and RBA forecast. Recent economic data were weak. Retail sales did not exhibit peak season momentum
in Dec while negative wealth effect from falling housing price emerged. We think RBA is likely to downgrade 2019 outlook.
Market Largely Expects RBA To Act On Q3: Australia largest trading partner – China is still having its outlook bottoming.
Australian domestic outlook faced negative wealth effect from falling housing prices so we are conservative on Australia
outlook. As inflation stayed low, though we expect RBA to hold this time, it could cut rate to 1.25% latest in Q3. Major
countries central banks all turned dovish, the probability of RBA bringing rate cut forward to Q2 is increasing. We would
keep a close eye on the housing market, consumption and employment changes.
RBA Continued To Downgrade Outlook Aussie Yield Curve Fell Amid Weakness
Source: (L)UBS, 2012~2020(F), (R)Bloomberg, 2019/1~2019/3
11AUD Strategy
RBA Turned Dovish, Maintain Long-term Negative On AUD
Australia Faced Both Internal/ External Risks: RBA has held its rate for 27 months. External trade tension
channeled to domestic uncertainty. Though global outlook is still within reasonable range, downside risk rises. Internally
low rate has supported the economy with gradually improving unemployment rate and inflation. But main uncertainties
came from household consumption and falling housing prices. RBA forecasted housing investment to be negative to
growth and its fall ‘might tail off sooner and faster than earlier projected’ with profound slowing risk in the next 1 to 2
years. Vice governor also noted that Sydney housing supply surge would affect the housing price and financial stability.
Maintain Negative On AUD: Market expects higher chance of RBA rate cut now. On the other hand, Australia
household debt ratio surged while housing prices fell, making RBA more likely to hold. Sino-US trade talk and Brexit
continue as risk factors so we maintain our negative view on AUD.
Australia Property Price Fell YOY Australia OIS Implied Rate Cut Chance Rose
Multi-tenor OIS
Source: Bloomberg, 2019/3/26
12Russia Monetary Policy
CBR Also Turned So We Downgraded Rate Target
CBR Downgraded Inflation Forecast: Mar meeting
CBR Policy Rate held rate unchanged and downgraded year end inflation
Upward Downward 2Q19 7.75% to 4.7%~5.2% from 5%~5.5%, stressing VAT impact
Deviation Realized Quant Voluntary has largely reflected in price while stronger RUB
lowered inflation threat.
Reason: Russia hiked VAT but the effect on inflation
was lower than forecasted so CBR turned from hawkish Two Hikes Enough To Depress Inflation Expectation,
to dovish. As future inflationary pressure was mild and CBR Has Room For Cuts: Governor stressed two
global major countries have turned their monetary hikes in 18 were enough. Weak domestic demand
policy dovish YTD. Though CBR might not cut rate now,
depressed inflation. Statement also brought the rate cut
rate hike was virtually impossible so we downgraded
2Q19 and 3Q19 benchmark rate target to 7.75%. from 2020 to 2019 but governor did not state exact
timing. FRA reflected the dovish tone immediately.
CBR Preventive Rate Hike Slowed Inflation FRA Fell Into Negative, Rate Cut More Likely
CBR Hiked Twice In
2018
CPI YOY
Source: (L)Bloomberg, 2019/3/22, (R)Bloomberg, 2019/3/22
13Commodity Strategy
2Q19 Commodity Demand To Grow Moderately
Iron Ore Undersupply, Copper Demand To Rebound In Mfg PMIs Weakened, US/CN New Order Higher
2Q19: Vale Brucutu iron ore restart progress was interfered by
the court sanction, delaying it to 2H19. Iron ore price would
consolidate at high in 2Q19 and fell in 2H19. US/CN mfg new
order rebound and China tax cut would boost copper in 2Q19.
Chemicals To Bottom Out In 2Q19: US Chemical Activity
Barometer monthly change bottomed out last Dec, indicating
chemical production to rebound after 2Q19 though slower YOY.
US chemicals would rebound despite its weak EU counterparts.
Slowing Demand Affect Commodity 1Q19 Results: Prices
front run Sino-US trade optimism. MSCI Commodity would
retrace due to weak 1Q19 results but still positive in 2Q19.
CAB Predicts Bottom Out In 2Q19, But Slow Growth Price Forecast: Oil Flat, Cu Up, Fe Down
Forecast
(Normalized)
Source: (Top Right, Bottom Right)Bloomberg, 2019/3/27, (Bottom Left)American Chemistry Council, 2019/3/26, Compiled by CTBC
Bank, 2019/3/27 14Macro Trend Analysis - America
Fed Monitors 1st 3M-10Y Yield Inversion, Apr Data Provide Key Direction
Curve Analysis: Fed quarterly meeting downgrades of outlook and rate were higher than consensus with announcement
to stop QT soon. Officials expected to hold rate this year with only one hike in 2020. Interest rate future-implied rate cut
probability surged to 70%. NY Fed focused on the 1st 3M10Y yield inversion in current cycle. Historically, it occurred when
growth reversed after peaking as FI investors confidence faded. Current yield slide is different from that in 4Q18. 4Q18
slide was due to trade war and risk aversion from oil and equity prices plunge while 1Q19 one was due to government
shutdown and US storm affecting economic activities with delayed data while external dwarfing global trades deteriorated.
Conclusion: Fed held rate unchanged and global QE liquidity maintained short-term yield. In long-term yield, 1Q19
temporary factors (storms & shutdown) would be removed in 2Q19. Recent data have improved with stable initial jobless
claim, better housing and 2Q consumption boost from tax refund. We maintain 2Q19 US outlook recovery. Overbought of
long-term yield would reverse in 2Q19 with Apr nonfarm and global mfg as key signals. Inflation would bottom out in 4Q
after 3Q transportation base effect faded. 10-yr treasury yield 2Q19=2.7%, 3Q19=2.7%, 4Q19=2.9%.
Long Duration Treasury Yield Fell For A Month Fed Closely Monitor 3M-10Y Yield Inversion
US Treasury Yield Curve
2.6 2019/2/25 Vs. 2019/3/25
2.5 2/25
-20.9
-11.8
2.4
2.3 -25 -23.5 3/25
2.2
1M 3M 1Y 3Y 5Y 10Y
Source: (L)Bloomberg, 2019/2/25 and 2019/3/25, (R)Bloomberg, 1962-2019/3/25
15Investment Strategy – US Equity
US Yield Inversion To Equity Plunge?
3M10Y Yield Inversion Impact Over Magnified In Equity:
Equity Reflected Fed Dove & Sino-US Optimism
US 3M10Y inversion continues, reflecting market concern
over global growth. In the past 50 years, outlook fell into Factors Market Reaction
recession average 16 months after 3M10Y yield inversion. In
Fed Turned Dovish Upward
terms of US equity return, results were mixed without reliable
references. However, the probability of positive return is high. Sino-US Trade Optimism Upward
US Equity Consolidated Around 2800, Upward Breach Corporate Earnings On Hold
Depends On Several Factors: We think a more moderate Confidence
Fed represents room for further US economic expansion. US Economy Bottom Out On Hold
Corporate earnings might bottom out in 1Q19. Investors long
position is currently low. Overall climate awaits 2Q19 rally. Liquidity Negative
Cumulative Return After 3M10Y Inversion In 50 Yrs S&P500 Consolidated Around 2800
%
Source: (Bottom Left)CS, 2019/3/25, (Bottom Right)Bloomberg, 2019/3/25, (Top Right)Compiled by CTBC Bank
16Investment Strategy- Financials
MSCI Financials Against Fundamentals, Cautious On Future Shocks
Financials Went Against Fundamentals, Cautious On
US Banking Cut Costs In Conservative Operation
Future Shocks: Recent yield inversion caused market
concern over pessimistic outlook. The highly sensitive Interest Income Growth(YOY%)
financial sector fell the most. We think MSCI Financials might Non-Interest Income Growth(YOY%)
Expenditure Growth(YOY%)
continue to retrace because its rally YTD was against
fundamentals. Till 4Q18, Financials have stable earning
growth in interest income but slowing growth in non-interest
income while banks continue to slash costs. Last time banks
slashed costs was during outlook downturn in 2015. With
current US/EU outlook in the downward trend in contrast to
the rally of financial sector equity. Analysts were not more
optimistic about 2Q19 earnings growth in MSCI Financials so
we believe probability of MSCI Financials to retrace is high.
Financials Went Against US/EU Outlook Trend Fund Managers Unwilling To Add Banking
US ISM Manufacturing
Euro Zone Manufacturing PMI
MSCI Financials
50 Threshold
Source: (Top Right, Bottom Left)Bloomberg, 2019/3/26, (Bottom Right)BofA, 2019/3/19, Compiled by CTBC Bank, 2019/3/27
17Investment Strategy – EM Bonds
Negative Yield And Yield Inversion, Investors Might Favor EM Bonds
EM Bonds Largely Rallied During Last Inversion: Fed paused monetary tightening would benefit EM assets while
global negative yield bond size rose to 2017/9 high, attracting more funds into EM bonds. In last(2006) yield inversion,
major EM bonds returned average 8% for the year, especially major currency sovereign bonds. But in terms of yield
spread, concern of outlook and growth rises in the late stage of Fed rate hike cycle, yield spread had little room for
narrowing. Returns were mainly from coupons.
Dollar Consolidated At High Increased FX Volatility Risk: Current setup is still different from 2006. Europe was
recovering at that time while global economy is slowing now with US momentum stronger than Europe. DXY might
still consolidate at thigh while EM currencies volatility would be enlarged. We prefer EM major currency sovereign
bonds with attractive yields.
All EM Bonds Rallied In Previous Yield Inversion Inversion As Double-edge Sword For EM Sovereign
Local IGB Corporate HYB Major Currency
Currency Bond Sovereign Bonds
Source: ICE Data Indices, Bloomberg, 2019/3/27, Compiled by CTBC Bank
18Target Price
Target Price – Rates/FI
第二層 第三層 2019/3/28 2019Q2 2019Q3
美國聯邦基準利率(上緣) 2.50 2.50 2.50
美 美國10Y 2.39 2.70 2.70
巴西利率 6.50 6.75 6.75
歐洲央行再融資利率 0.00 0.00 0.00
德國10Y -0.07 0.35 0.35
英國央行利率 0.75 0.75 0.75
歐 英國10Y 1.00 1.35 1.30
南非政策利率 6.75 6.75 6.75
南非2Y 6.99 7.20 7.35
俄羅斯政策利率 7.75 7.75 7.75
日本央行利率 -0.10 (0.10) (0.10)
日本10Y -0.09 (0.10) (0.12)
中國存準率 13.50 12.5 12.0
亞 中國2Y 2.68 2.50 2.45
台灣央行利率 1.38 1.38 1.38
澳洲目標利率 1.50 1.50 1.25
澳洲10Y 1.73 1.85 1.80
第二層 第三層 2019/3/28 2019Q2 2019Q3
全球投資級債 2.84 3.30 3.14
成熟市場投資級債指數 美國投資級債 3.64 3.99 3.99
歐洲投資級債 0.83 1.20 1.08
全球高收益債 6.03 6.92 6.86
成熟市場高收益債指數 美國高收益債 6.34 6.96 7.13
歐洲高收益債 3.47 4.46 4.14
新興主要貨幣主權債指數 新興主要貨幣主權債 5.77 6.30 6.05
新興主要貨幣企業債 5.74 6.50 6.28
新興主要貨幣企業債指數 新興投資級債 4.02 4.70 4.55
新興高收益債 7.11 8.00 7.70
新興當地貨幣債 6.32 6.65 6.50
新興當地貨幣債指數 人民幣債 3.60 4.05 4.20
亞洲當地貨幣債 4.77 5.30 5.20
Source: Compiled by CTBC Bank, 2019/3/29 : TP Adjustment
19Target Price
Target Price - Equity
第二層 第三層 2019/3/28 2019Q2 2019Q3
成熟市場股 2095.2 2150 2000
美國 2815.4 2900 2600
美
拉丁美洲 2686.4 2800 3000
巴西 94388.9 97000 103000
歐洲 3101.1 2960 3100
英國 3951.4 3800 3920
歐 德國 11428.2 11200 11900
新興歐洲 315.3 292 312
俄羅斯 1207.3 1100 1190
泛太平洋 158.6 160 165
澳洲 6256.5 6200 6500
日本 21033.8 23000 23000
新興市場股 1045.2 1020 1080
新興亞洲 532.4 520 560
中國A 2994.9 2800 3100
亞
中國H 11294.8 11000 12000
香港 28775.2 27500 30000
台灣 10536.3 10500 10650
韓國 2128.1 2300 2350
印度 38545.7 39550 39550
東協 790.5 820 820
科技 251.4 250 260
成長型產業 非核心消費 247.9 253 260
工業 248.2 255 259
金融 110.6 104 107
利率型產業
地產 222.9 205 210
能源 207.3 203 207
天然資源產業
原物料 250.2 248 245
公用事業 137.3 132 130
核心消費 231.7 230 230
防禦型產業
健護 245.0 238 260
電信 68.4 65 69
Source: Compiled by CTBC Bank, 2019/3/29
20Target Price
Target Price – FX/Commodity
第二層 第三層 2019/3/28 2019Q2 2019Q3
美元指數 97.202 96 94
美元兌日圓 110.63 112 110
成熟國家 歐元兌美元 1.1221 1.14 1.17
美元兌瑞郎 0.9956 0.99 0.96
英鎊兌美元 1.3044 1.34 1.32
澳幣兌美元 0.7074 0.69 0.69
商品貨幣 紐幣兌美元 0.6777 0.66 0.65
美元兌加幣 1.3438 1.34 1.35
美元兌台幣 30.856 30.8 30.6
美元兌星幣 1.3565 1.35 1.34
新興貨幣
美元兌人民幣 6.7391 6.85 6.75
美元兌南非幣 14.6077 13.8 13.5
布蘭特原油 67.16 66 70
鐵礦砂 84.75 78 80
黃金 1290.42 1330 1350
Source: Compiled by CTBC Bank, 2019/3/29
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markets product to an expert investor or (c) any Government securities;
(3) Regulations 36(1) and (2) – Exemption from complying with sections 25, 26, 27, 28, 29, 32, 34 and 36 of the FAA when providing any financial advisory service to any person outside of Singapore
who is (a) an individual and (i) not a citizen of Singapore; (ii) not a permanent resident of Singapore; and (iii) not wholly or partly dependant on a citizen or permanent resident of Singapore; or (b)
in any other case , a person with no commercial or physical presence in Singapore.
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