A very useful report.. (Many thanks to Async for this one. Much appreciated by all i’m sure).
Rich
A few updates as i go through all these reports.
On Barc one of their key recommendations is re european cyclicals. They provide alot of data on the 12m, 3m and 1m performance of the various sectors. 12m good with the rises skewed to the near term time horizons.
(Ie they are over bought within a strong year. Buyer beware. Only buy on a pull back).
Check the data points:
“E17: “Final” manufacturing PMI, index Aug 51.3 P 51.3 51.4 – Strong August manuf. PMIs confirm cyclical turn”.
(Please recall – 50 is no change – 51 is within statistical room for error.. ie perhaps the euro is contracting not expanding. Either way hardly a ‘strong no’ as they state?
E17: Final composite PMI, index Aug 51.7 P 51.7 51.5 August PMIs bode well for growth in H2.
A move of .2 increase. (wow!) And as above, just over 50.
E17: Final GDP, % q/q Q2 0.3 P 0.3 0.3 Euro area GDP should grow at close to Q2’s 0.3% q/q pace in H2 13.
Please recall – this is all above credit expansion or not. Unless something changes the euro banks remain under pressure and its hard to see where money supply expansion will come from.
France: ILO unemployment rate Q2 10.40 – 10.50 Unemployment up 0.1pp in Q2.
Germany: Factory orders, %m/m (y/y) Jul 5.0 (5.6) R -1.5 (2.0) -2.7 (2.0) German factory orders lower in July after
surging the previous month.
E17: ECB interest rate announcement, % Sep 0.5 0.5 0.5 Interest rate was unchanged.
France: BdF industrial business sentiment index Aug 94.7 – 97.0 BdF business sentiment recovery on track, Q3 13 GDP estimate at +0.2% q/q.
Italy: Final GDP, % q/q Q2 -0.2 -0.2 -0.3 Early signs of growth stabilisation. (Really? Political issues, credit deleverging, etc, hardly a model for growth).
E17: Industrial production, % m/m (y/y) Jul 0.6 (-0.4) R -1.3 -1.5 (-2.1) Euro area industrial production: a very disappointing start to Q3.
Agreed. Why? Credit deleverging. Spain -15% for 2013 so far.
E17: Final HICP, % m/m (y/y) Aug … (1.3) P 0.1 (1.3) 0.1 (1.3) Dropped to 1.3% y/y in August; moderate
increase expected by year-end.
Germany: ZEW economic expectations index Sep 42.0 – 58.6 Climb to new 2013 high. (Agree – German Expectations are high. But, given the data, a reason to sell or buy? I suggest sell).
Ireland: Preliminary GDP, % q/q Q2 -0.6 1.0 0.4 Economy returns to growth. (Just but to sustain credit must expand and ireland’s banks are in a mess).
E17: “Flash” composite PMI, index Sep 51.5 51.7 52.1 Still on track for a subdued recovery. (Very subdued).
Germany: IFO business climate, index Sep 107.6 R 108.5 107.7 Inches up to end Q3 on a strong note. (Sell or buy signal – as above).
France: Business climate, index Sep 98.0 – 97.0 Continues to improve in September. E17: M3, % m/m (y/y) Aug 0.5 (2.2) 0.1(2.2) 0.1 (2.3)
Growth broadly stable in August, despite continued weakness in bank lending to the corporate sector.
The only story in town is credit growth – the euro banks need to be fixed until then take profits if you see decent gains.
France: Hhsld consum. goods, % m/m (y/y) Jul/Aug -0.8 (-0.5) 0.3/0.0 0.4/-0.4 Household consumption flat over
July/August. (Of course. Its not rocket science this).
Look at all this wonderfully positive data that Barclays sites as a reason to chase the rally in the cyclical euro stocks. Really? Really this data is so good that we should chase the +30 % gains in the last 9 months with more longs?
You make your own minds up.
In my view I would not chase the cyclicals yet. When the euro banks are fixed then will be the time to chase. For now the best game in euro equity remains momentum trading euro cyclicals on the short term or value plays on strong balance sheets but even here valuations are becoming very stretched.
It seems to me we have a topping global equity market here. Participants are rushing around trying to find the next asset to perform but the choices are narrowing. Capital is being forced to eek out a return as valuations are stretched. Forward earnings projections have an ever increasing gap to the macro data that is feeding through. When PMIs of 51 are called “strong” and are used as a call to chase +30% price gains into cyclical stocks as credit contracts be very very careful. That sounds to me like someone is trying to find an exist for their own position rather than offering clear and best impartial advise!
Just my comments from the data
The best to all
Rich
P.S. Rather than the banks looking cheap as Barc say take a look at the Euro Insurance Sector. The sector table on page 30 is very useful table. Note the euro insurance pe and note the earnings growth. To my mind there are some excellent value plays in the euro insurance sector. For as long as euro credit continues to flat line or even contract its hard to see how the banks can ramp up their earnings. Euro bond prices inc junk are very high. The easy margins have gone for the banks. Until euro banking union no easy ride for them. Until there is a banking union the euro insurance sector stands out almost alone as a value play. I don’t love the sector but i am overweight it in a market where there remains much yield and value compression. (I should probably say here that I have recently increased cash weighting to the most in 5 years).