20170405-法国巴黎银行-BNP_PARIBAS_MARKETS_CALL_OUR_WEEKLY_CROSS-ASSET_MARKET_VIEW_22页_2mb

BNP PARIBAS MARKETS CALL Summary

Core Content

The BNP Paribas Markets Call for April 5, 2017, provides a weekly cross-asset market outlook, focusing on inflation, US earnings, and the impact of Article 50 on the UK economy. It highlights global economic strength, the role of financial conditions in supporting risky assets, and the divergence in inflation trends between the US, UK, and Eurozone.

Main Views and Key Information

Global Economic Outlook

• Economic data remain robust globally, supporting risky assets.
• Inflation trends differ:
  • Eurozone inflation has surprised on the downside, influenced by base effects from oil prices.
  • US and UK headline inflation are strong, while core inflation in the Eurozone remains subdued.
  • US core inflation is rising, suggesting a more favorable medium-term outlook for inflation compared to the Eurozone.

US Market Outlook

• Equity market focus is on earnings, with the market pricing in a 10% rise in 2017.
• Nominal GDP growth supports earnings, but margin erosion due to USD strength and wage cost increases may be underpriced.
• Non-financial EPS has improved since 2007, but sales growth has slowed.
• Margins have compressed due to the rise in the DXY index, which has been driven by USD strength.
• Earnings growth estimates have been revised lower, but the S&P 500 still prices in strong growth, leaving room for disappointment.

European Market Outlook

• Political risk in France is low, with stable opinion polls, suggesting lower risk premia in European equities.
• European asset outperformance is expected as political risk abates.
• Eurozone real yields have declined, supporting risky assets and potentially pushing EURUSD lower.
• Equity Risk Premium (ERP) for European shares is still higher than for the S&P 500, indicating potential for value capture.

UK Market Outlook

• The UK economy has held up, but inflation is likely to rise, affecting consumers.
• Consumer sentiment towards Brexit has faded, with all regions becoming more pessimistic.
• Consumer spending may fall due to declining real wages and credit.
• Weak GBP supports the UK economy, narrowing the trade deficit and improving export competitiveness.

Trade of the Week

• Short a basket of low margin UK stocks versus the Euro Stoxx 50 (SX5E).
• The trade is executed via a total return swap, targeting a 15% return by year-end.
• Screening criteria for the basket:
  • Companies with average daily volume over USD 10m.
  • Excluding financials (no EBITDA margin reported).
  • EBITDA margin below 12% over the last three years.
  • Negative analyst sentiment.
  • Recent EBITDA margin below 3-year average.

Market Indicators and Projections

Key Drivers

• Inflation trends: US and UK have higher headline inflation, while Eurozone is affected by oil base effects.
• US earnings: Market is pricing in a 10% rise, but margin erosion and wage costs could impact results.
• UK consumer sentiment: Negative impact of Brexit is evident, with a decline in overall confidence.
• Political risk: Lower in Europe due to stable French election polls, leading to lower risk premia.
• USD strength: Expected to continue, supporting US yields and potentially pushing EURUSD lower.

Conclusion

The report highlights a global economic upswing, with US and UK inflation outperforming the Eurozone. European equities are seen as having more room for risk premium adjustments, while the UK remains a mixed bag with low margin stocks being a target for shorting. US earnings are a key focus, with potential for underperformance due to margin compression and FX pressures. Political stability in Europe and USD strength are the main drivers for the week's trade recommendation.