20181031-法国巴黎银行-BNPP_MARKETS_CALL_RISK_CORRECTION_FURTHER_TO_RUN_BUT_NOT_A_BEAR_MARKET_26页_1mb

BNP PARIBAS MARKETS CALL Summary

Core Content

This document provides a weekly cross-asset market outlook from BNP Paribas, focusing on global equity, bond, and credit markets, with an emphasis on the current risk correction, economic trends, and investment strategies.

Main Points

Market Outlook

• Risk Correction: The current equity market correction is expected to continue but is not indicative of a bear market. The US economy shows strong fundamentals, supporting USD and US risky assets despite the correction.
• Global Bonds: The reaction to the stock market pullback has been muted due to already rich bond valuations. IG and HY credit spreads have widened, but contagion remains limited.
• Earnings Outlook: US earnings are strong, with $25%$ y/y growth, but concerns about next year's growth could lead to further corrections. Buybacks are expected to support a rebound after the earnings season.
• Europe: European sales and EPS growth are flat, while dispersion is rising, especially in the oil sector. The ECB confirmed the end of QE in December, and policy remains accommodative.
• Emerging Markets (EM): EM economic outlook remains weak, with China's growth expected to slow despite stimulus measures. EM currencies face pressure due to a stronger USD and idiosyncratic issues.
• Volatility: The document highlights increasing dispersion in equity markets and suggests a trade involving volatility swaps on a global dispersion basket versus SPX and SX5E.

Economic Indicators

• US Economic Strength: Strong and sustained, with personal consumption driving growth and inflation remaining contained.
• Eurozone (EZ) Economic Strength: Weak, with GDP growth below expectations and a loss of momentum.
• EM Economic Strength: Deteriorating, with weak manufacturing PMIs and a declining GDP trend.

Risk Appetite

• MarFA™ Analysis: The model identifies 10y real yields and falling global risk appetite as key factors. The current sell-off is not due to fund liquidation, but rather to increased dispersion and sector-specific flows.
• Risk Premium Index: The index has reached levels where markets have historically rebounded, suggesting potential for recovery.

Fund Flows

• Equity Fund Flows: Limited outflows from equity funds and ETFs in the US, indicating that the correction has not triggered large-scale selling.
• Sector Flows: Energy sector is under pressure, while broader markets receive inflows. In Europe, financials have underperformed due to political and economic uncertainty.
• Credit Flows: Outflows have spread to leveraged loan funds, and credit bonds are expected to underperform into year-end.

Credit Market Outlook

• Credit Bonds: Expected to underperform in 2018 due to rising yields and spreads. EM credit and hard currency debt are likely to correct further due to USD strength and US real yields.
• US HY vs. IG: US HY bonds are expected to underperform due to rising yields and spreads, while US IG bonds have seen negative returns.

Key Information

Trade Idea

• Recommended Trade: Long a dispersion basket relative to SPX and SX5E.
• Basket Composition: 14 stocks with expectations of supply chain disruption and uncertain global demand.
• Volatility Swap: Indicatively offered at 14.00 vol for Dec 19 swaps.

Market Prognosis

Economic Strength and Surprise Index

• US: Economic strength is strong, with ERP still rich but expected to rebound.
• EZ: Economic strength is weak, with negative ERP and dispersion.
• EM: Economic strength is poor, with ERP cheapened but dispersion at extreme levels.

Trade Idea Details

• Long Dispersion Basket: Reflecting the increasing divergence in equity markets.
• Short SPX and SX5E: As these indices are expected to underperform in the context of dispersion.

Key Contributors

• Robert McAdie: Global Markets Head of Strategy Research, BNP Paribas London Branch
• Pierre Mathieu: Senior Cross Asset Strategist
• Benedicte Lowe: Cross Asset Strategist
• Kris Gjini: Cross Asset Strategist
• Ankit Kumar Gheedia: Equity & Derivative Strategist

Dial-in Numbers

• UK Toll Free: 0808 109 0700
• London: 14:00, Password: "The BNP Paribas Markets Call"
• USA Toll Free: 1 866 966 5335
• Other Countries: See the table for full list of dial-in numbers.

Additional Notes

• VAR Simulation: Indicates a de-risking environment into year-end.
• MarFA™ Model: A PCA-based model used to identify macroeconomic and market factors influencing asset prices.
• Funds and ETFs: Inflows into US Treasuries ETFs and funds have increased at the expense of IG funds.

This summary captures the key insights and recommendations from the BNP Paribas Markets Call, highlighting the current market dynamics, economic indicators, and suggested investment strategies.