Who wants to take risk?

Trump’s new tariffs hike goes into effect over the weekend (September 1) and given last weekend’s string of tweets how many traders are keen on taking risk into the weekend? We continue to argue that traders should not take the risk over the weekend and investors should increasingly turn portfolios defensive.

Is Brexit chaos coming?

Yesterday was another eventful day in London as the UK Prime Minister Boris Johnson advised the Queen to suspend Parliament raising strong discontent due to its timing leading up to the new Brexit deadline on October 31. The political developments around Brexit but also Italy are strong arguments for our continued stance that investors should underweight the European value trap in equities.

S&P 500 earnings momentum still surprisingly strong

Despite all the weakness being thrown at equity markets from macro fundamentals we were surprised to note yesterday that S&P 500 is still seeing EBITDA growth around 5% y/y. The slowdown in profit growth even seems to be stabilizing contrary to the sharp decline in 2015 due to rapidly falling oil prices that cut profits in the energy sector.

The key to S&P 500 earnings growth remains the technology sector. So far, more technology regulation in Europe and the US-China trade war have not hit earnings growth enough. But our view is that over the next six months earnings growth will begin surprise to the downside as even technology companies will begin to feel the heat.

Stocks to watch

While financial markets are sending clear signals that USD funding under pressure China’s largest technology company Tencent (00700:xhkg) just raised $6.5bn in what is the largest USD-denominated credit facility by any Chinese company. This is obviously a strong signal for Tencent that has been struggling for years with more competition and temporary gaming ban which has slowed revenue growth from 45% to around 20% over the past two years.

Pernod Ricard (RI:xpar) is not feeling the slowdown in China as the French alcoholic beverage company delivered its largest earnings growth in seven years due to strong Chinese demand. As a result, the company is planning to buy back more of its shares which seems like a potentially bad decision given the company’s high valuation (50% above MSCI World). Shares are up 19% year-to-date outperforming the general market.

Williams-Sonoma (WSM:xnys) raises its FY earnings forecast on strong quarterly earnings release. The stock price is flirting with resistance levels from Q3 2018 and mid-2015. The positive surprise in guidance could help the stock head into new territory.