Mind the Signals! Things Are Starting to Get Real: Taking Stock

Mar 15 2019, 7:15 AMMar 15 2019, 7:39 AMMarch 15 2019, 7:15 AMMarch 15 2019, 7:39 AM

(Bloomberg) -- Trade worries live on after the news that a U.S.-China deal isn’t likely until April at the earliest. Investors weren’t too fazed on Thursday though as the market rallied, and European shares are up 12 percent this year. Still, in these uncertain times, here’s a few things to keep in mind:

Real money is coming back. Bank of America Merrill Lynch’s positioning note shows that funds reduced cash and increased exposure to stocks in February, with Europe the largest beneficiary ($11.8 billion). But after a lackluster year for volumes in 2018 -- the lowest since 2000 -- there’s no real sign of a related bounce with the rally. Average volume kept falling so there could be scope for stronger positioning, especially since equity flows are still negative, according to the latest EPFR data.

The markets are losing their swing. The Euro Stoxx 50 volatility index (V2X) has reached its lowest level since September, while the S&P’s volatility is beneath Europe’s. A prolonged Brexit saga and delayed trade-talks haven’t triggered any spike. On top of that, the Bull-Bear index is not showing any euphoria, which can also be considered a positive sign.

So, is this sideways consolidation or topping out? Charts are sending a mixed picture to investors. Low trading volume can be the source of erratic moves and cause either bulls or bears to give in easily. Since the Euro Stoxx 50 broke above its 200-day moving average there were multiple times when a “top” was building up, with intraday high and lower close. Yet the uptrend was not broken, and moving averages hint at a bullish picture.

Technically speaking, banks look very interesting. While the latest monetary policy decision was seen as a downer, a low rate environment could be something the market is now used to. The Euro Stoxx Bank Index (SX7E) managed to bounce out of its downtrend, while the Relative Strength Index (RSI) is showing a “positive divergence.”

On this triple witching expiry day, Euro Stoxx 50 futures are little changed ahead of the open.

COMMENT:

“We remain defensive and continue to prefer energy, healthcare and IT over industrials, utilities and communication services,” the Credit Suisse Investment Committee wrote in a report. “We also continue to favor emerging market over euro-zone equities. With IP momentum expected to rebound and central banks having turned more dovish, a potential return of volatility could soon offer an entry opportunity for equities. For now, we continue to prefer option structures to reduce selected equity beta and monetize the current low volatility.”

COMPANY NEWS AND M&A:

NOTES FROM THE SELL SIDE:

Citi cut Wirecard to sell from neutral saying co. is likely to take longer to resolve allegations against it than the market is pricing. Price target cut to 100 euros from 144 euros.
U.K. consumers are reverting to more cautious spending patterns given the political and economic uncertainties they face and this could weigh on food manufacturers, Berenberg writes in a note downgrading its recommendations on Bakkavor and Greencore.
Britvic is cut to neutral at Citi because of strong share price moves as well as a lack of obvious catalysts such as for material near-term earnings upgrades, the broker says in a note. Citi sees better risk/reward at Coca‑Cola HBC at the moment.
RBC says the chance for a quick payout from Cairn Energy’s Indian arbitration case has been delayed and there are now few short-term catalysts to get excited about for the London-listed oil explorer. RBC downgrades Cairn to sector perform from outperform, slashes PT to a tangible net asset value-based 225p from an event-driven 380p previously.

TECHNICAL OUTLOOK for Stoxx 600 index:

Resistance at 379.9 (23.6% Fibo); 383 (trend line)
Support at 369.3 (200-DMA); 365.1 (38.2% Fibo)
RSI: 69

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

Resistance at 3,358 (trend line); 3,466 (23.6% Fibo)
Support at 3,315 (38.2% Fibo); 3,281 (200-DMA)
RSI: 69.4

MAIN RESEARCH AND RATING CHANGES:
UPGRADES:

Cerved upgraded to buy at HSBC; Price Target 10 Euros
Dufry upgraded to buy at Baader Helvea; Price Target 116 Francs
GEA Group upgraded to overweight at Barclays; PT 28 Euros
Galenica upgraded to buy at Kepler Cheuvreux; PT 54 Francs
Raiffeisen raised to equal-weight at Morgan Stanley

DOWNGRADES:

Bakkafrost downgraded to sell at DNB Markets; PT 400 Kroner
Bakkavor downgraded to sell at Berenberg
Britvic downgraded to neutral at Citi
Cairn Energy downgraded to sector perform at RBC; PT 2.25 Pounds
Greencore Group downgraded to hold at Berenberg
Grieg Seafood downgraded to sell at DNB Markets; PT 110 Kroner
Leroy downgraded to sell at DNB Markets; PT 63 Kroner
Mowi downgraded to sell at DNB Markets; PT 170 Kroner
Norway Royal Salmon cut to sell at DNB Markets; PT 170 Kroner
Salmar downgraded to hold at Berenberg
Schaeffler cut to hold at Pareto Securities; PT 7.50 Euros
Scottish Salmon downgraded to sell at DNB Markets; PT 16 Kroner
Wirecard downgraded to sell at Citi; PT 100 Euros

INITIATIONS:

B&M European reinstated overweight at Barclays; PT 4.50 Pounds

MARKETS:

MSCI Asia Pacific down 0.3%, Nikkei 225 up 0.8%
S&P 500 down 0.1%, Dow little changed, Nasdaq down 0.2%
Euro up 0.14% at $1.132
Dollar Index down 0.14% at 96.65
Yen up 0.04% at 111.66
Brent up 0.2% at $67.4/bbl, WTI up 0.3% to $58.8/bbl
LME 3m Copper up 0.5% at $6438/MT
Gold spot up 0.4% at $1301.6/oz
US 10Yr yield down 1bps at 2.62%

MAIN MACRO DATA (all times CET):

10am: (IT) Jan. Industrial Sales WDA YoY, prior -7.3%
10am: (IT) Jan. Industrial Sales MoM, prior -3.5%
10am: (IT) Jan. Industrial Orders NSA YoY, prior -5.3%
10am: (IT) Jan. Industrial Orders MoM, prior -1.8%
10:30am: (IT) Jan. General Government Debt, prior 2.32t
11am: (IT) Feb. CPI FOI Index Ex Tobacco, prior 102.2
11am: (EC) Feb. CPI Core YoY, est. 1.0%, prior 1.0%
11am: (EC) Feb. CPI MoM, est. 0.3%, prior -1.0%
11am: (EC) Feb. CPI YoY, est. 1.5%, prior 1.4%
11am: (IT) Feb. CPI EU Harmonized YoY, est. 1.2%, prior 1.2%