Trade and Brexit optimism sparks rally in equities Trade and Brexit optimism sparks rally in equities Trade and Brexit optimism sparks rally in equities

Trade and Brexit optimism sparks rally in equities

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  While macro data continue to be weak and the recession probability is arguably high for the global economy equities are having a small party up 1% today on trade deal and Brexit deal hopes. In today's equity update we also take a look on earnings growth and which sectors have seen the worst growth decline as we kick-start the Q3 earnings season next week.


Global equities are staging an impressive rally with S&P 500 futures up 1% as Trump tweets are indicating a potential narrow trade deal. China’s announcement today of moving the timetable forward on ownership caps for foreign financial firms is also interpreted as indication that the negotiations are moving forward. But as we learned so many times in this US-China trade war sentiment can change quickly. As we wrote in yesterday equity update a deal or no deal is irrelevant because the downside dynamics are already so strong that a small sentiment shift on trade will not avoid a further slowdown, but it will probably soften the slowdown.

Source: Saxo Bank

Adding to sentiment in equities is what seems to be a breakthrough in the Brexit negotiations. The EU and UK negotiators are both describing the meetings as constructive and the speculation is that UK PM Boris Johnson maybe gave some concessions to Irish PM Varadkar on the Northern Ireland border issue. The reaction is primarily concentrated in the FTSE 250 Index, which comprises of domestically oriented companies, up 2% today whereas FTSE 100 is almost flat for the day except for a few gainers among the banks. Our view is that if a Brexit deal can be made foreign interest in the FTSE 100 will rise as the valuation is attractive with an attractive 5% dividend yield. Tactically UK stocks could become one of the best equity markets next year if we avoid an ugly global recession and UK can kickstart growth again.

Source: Saxo Bank

The Q3 earnings season is also starting next week although a few companies of less importance have reported this week. Earnings growth has been slowing for the past two years in line with the slowdown in OECD’s global leading indicators. Emerging market companies were holding up longer than companies in the developed world but during 2019 the conditions for emerging markets have deteriorated significantly. EBITDA growth among emerging market companies slipped into negative in June this year while developed market companies are still seeing growth. As we have said repeatedly in the past couple of weeks, we expect earnings growth to go negative and outlook to disappoint as the Q3 earnings season unfolds.

As the table below shows all sectors except health care have seen its profit growth declining significantly from a year ago. The headwinds have been the biggest for financials, energy and materials sectors which is not a surprise given their cyclical nature.

Among the 2,000 companies we track during the earnings season around 84 of them will report next week. The 30 largest companies reporting next week are mostly US companies (see table) with the most interesting from a market impact being:

§  Kweichow Moutai – reports Q3 earnings on Tuesday. Being China’s largest beverage companies it’s a good indicator on consumer spending in China.

§  JPMorgan Chase – reports Q3 earnings on Tuesday. The largest US bank with a big international footprint. Will give insight into how falling rates are impacting banks profitability.

§  Citigroup – reports Q3 earnings on Tuesday. Compared to JPMorgan Chase, Citigroup has a larger footprint in emerging market countries and thus typically gives good insight into sentiment in these economies.

§  ASML – reports Q3 earnings on Wednesday. The first European semiconductor company to report earnings with analysts expecting revenue growth to climb back into positive territory (+8.4%) following two negative quarters.

§  Netflix – reports Q3 earnings on Wednesday. The online TV streaming service has gone from growth darling to worries over competition, pricing pressure, too much debt and profitability concerns. Very important earnings release for longer term sentiment.

§  Honeywell – reports Q3 earnings on Thursday. One the largest industrial companies in the US and thus provide insight into industrial demand and investments in the economy.

§  American Express – reports Q3 earnings on Friday. Good indicator on consumer credit and thus spending. Still a cost efficiency play as the company depends on a mature US market with contained growth rates.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.