These Market-Beating Shares Deserve a Franc Debate: Taking Stock

(Bloomberg) -- The equity rally still has legs judging by the price action of yesterday, with traders buying and covering on any weakness, and futures pointing to a higher open again this morning. While investors seem to have regained an appetite for risky assets, it’s surprising that a defensives-heavy index like the Swiss SMI has kept up with European peers this year. Novartis, Nestle and Roche account for about half of the benchmark, and they have performed well so far in 2019. So how does the country’s currency play into this?

These Market-Beating Shares Deserve a Franc Debate: Taking Stock

The franc is popular among investors at times of heightened market stress. It hit a 20-month high against the euro last week and is hovering near the 1.12 euro key level. Investors usually turn to the currency when sentiment is souring, which could be a sign that concerns are mounting. In fact, forex options traders are betting on further gains for the franc.

These Market-Beating Shares Deserve a Franc Debate: Taking Stock

The strengthening of the franc could become a problem for Switzerland’s exporters, notably its manufacturers. Kepler Cheuvreux highlighted recently that companies with high sensitivity to fluctuations in the currency include Straumann, Sonova, Partners Group and Georg Fischer. Swiss watchmakers could also be sensitive, especially as the demand for luxury watches has been slowing. This could become a potential drag for Richemont and Swatch, with about 20 percent and 23 percent of sales in Europe respectively.

These Market-Beating Shares Deserve a Franc Debate: Taking Stock

Since 2015, the Swiss National Bank has used a deposit rate of minus 0.75 percent and pledged to wage interventions, if needed, to maintain the interest rate differential with the euro area and keep the franc from appreciating. SNB’s Governing Board Member Martin Schlegel said earlier this week that the bank still has room to ease monetary policy, and Kepler Cheuvreux sees a surge beyond 1.12 franc per euro as “unsustainable,” as the SNB won’t tolerate a strong Swiss franc.

Makor Capital Markets strategist in Geneva, Stephane Barbier de la Serre, says the SNB stance explains the actual floor, but thinks the franc is “quietly, discreetly, almost stealthily” breaking the key support against the euro. The strategist sees no particular trigger, just another demonstration of the ongoing endless appetite for defensive assets, saying that the next medium-term target for the franc is 1.1060 per euro.

These Market-Beating Shares Deserve a Franc Debate: Taking Stock

Is there a balance between the defensive features of the Swiss currency and the protective profile of Swiss equities? As the pound can weigh on the FTSE 100, there could be a point where Swiss stocks become less attractive because of the currency’s strength against the euro. They have managed well so far.

In the meantime, Euro Stoxx futures are trading up 0.7% ahead of the open.

  • Watch the pound and U.K. stocks after Theresa May reached across the aisle for cross-party talks to help work out a joint plan that would stand a chance of getting approved by Parliament, while planning to ask the EU for a further delay.
  • Watch miners as iron ore prices surged again on increasing supply concerns, after Brazil’s mining regulator ordered that 56 tailings dams should close. Watch shares in companies like BHP, Rio Tinto, Anglo American and Ferrexpo among miners and keep an eye on steel stocks including ArcelorMittal and Evraz.
  • Watch trade-sensitive sectors after U.S.-China talks kick off again Wednesday and after a report that the U.S. and China have ironed out most of their differences in trade negotiations.


  • “Global equities had a strong run in Q1 and recouped most of their losses from October-December,” Barclays strategist Emmanuel Cau writes in a note. “The bulk of the rebound is likely behind us and our year-end targets imply limited upside from the current levels. However, we continue to find the risk-reward for equities more attractive than for bonds, and advise using the cheap volatility to hedge downside risks.”


  • UniCredit Is Said Near $900 Million Sanctions Accord With U.S.
  • Carlos Ghosn to Be Re-Arrested by Japan Prosecutors, Sankei Says
  • SAS May Order Additional Narrow-Body Aircraft in Long-Haul Push
  • Dermapharm Full Year Revenue EU572 Mln
  • Novartis’s Sandoz Resubmits Pegfilgrastim To FDA After Prior CRL
  • Equinor CEO Says Higher Oil Prices Putting Pressure on Costs: DN
  • Trelleborg CEO Says Demand Continues to be ‘OK,’ DI Reports
  • Roche Extends Offer for Spark to May 2, Terms Unchanged
  • Santhera Considers Options to Monetize Assets for Addl Funding
  • Shop Apotheke Sees Full Year Revenue About +30%
  • Rockwool Faces Local Opposition to Factory in West Virgina: DR
  • Nilfisk To Focus on Optimizing Consumer Business After Review
  • Total Invests $700 Million in U.S. LNG With Tellurian Agreement
  • Daimler, BMW Narrow Talks to Compact Electric Car: Sueddeutsche
  • BMW Pulls Ahead of Mercedes in U.S. Luxury Race as Lexus Gains
  • Santander Tweaks Corporate Governance After Orcel: Expansion


  • RBC says more visibility on earnings will be needed for European investment bank shares to re-rate from what are currently optically cheap levels. Sector does look cheap but is only attractive if earnings start to recover. UniCredit rated top pick and outperform ratings on ING and BNP Paribas.
  • French banks coverage is reinstated at BofAML with a cautious view, setting Credit Agricole at buy, BNP Paribas and Natixis at neutral and SocGen at underperform. BofAML says in note that even with valuations low as they currently are, they remain unattractive overall as approach late cycle. Cites failure of the French banks to deliver on medium-term targets, says profitability is structurally low, and capital positions are tight.
  • Arkema is the second-cheapest stock among European industrial-chemical makers, although this is fair as reflects concerns about co.’s past and future performance, Berenberg says in note. Broker initiates stock at hold, with PT EU97.
  • Jefferies downgraded Halma’s to hold from buy, saying the share price rally and valuation after “stellar” performance can’t justify its positive view anymore. Expects co. to continue to trade well, but doesn’t see any significant consensus upgrades.

TECHNICAL OUTLOOK for Stoxx 600 index:

  • Resistance at 385.7 (76.4% Fibo); 392.7 (July high)
  • Support at 374.5 (61.8% Fibo); 370.3 (50-DMA)
  • RSI: 67.5

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

  • Resistance at 3,403 (61.8% Fibo); 3,516 (76.4% Fibo)
  • Support at 3,309 (50% Fibo); 3,274 (200-DMA)
  • RSI: 65.8


  • Generali upgraded to buy at Nord/LB; PT 18.50 Euros
  • Just Group upgraded to neutral at JPMorgan; PT 78 Pence
  • Panalpina upgraded to sector perform at RBC; PT 215 Francs


  • Anima downgraded to neutral at Citi; PT Set to 4 Euros
  • De’ Longhi downgraded to hold at Berenberg
  • Ferrexpo cut to neutral at JPMorgan; Price Target 2.70 Pounds
  • Halma downgraded to hold at Jefferies; PT 16.75 Pounds


  • Anglo Pacific rated new buy at Berenberg; PT 2.26 Pounds
  • Arkema rated new hold at Berenberg; PT 97 Euros
  • DCC rated new buy at Jefferies; PT 81.20 Pounds
  • TT Electronics rated new outperform at RBC; PT 3.10 Pounds
  • Varta rated new outperform at MainFirst; PT 49 Euros
  • Vifor Pharma rated new buy at Goldman; PT 150 Francs


  • MSCI Asia Pacific little changed, Nikkei 225 up 1%
  • S&P 500 little changed, Dow down 0.3%, Nasdaq up 0.3%
  • Euro up 0.18% at $1.1224
  • Dollar Index down 0.18% at 97.18
  • Yen down 0.05% at 111.38
  • Brent up 0.6% at $69.8/bbl, WTI up 0.5% to $62.9/bbl
  • LME 3m Copper up 0.7% at $6473.5/MT
  • Gold spot little changed at $1293.1/oz
  • US 10Yr yield up 3bps at 2.5%

MAIN MACRO DATA (all times CET):

  • 9:15am: (SP) March Markit Spain Services PMI, est. 55, prior 54.5
  • 9:15am: (SP) March Markit Spain Composite PMI, est. 53.8, prior 53.5
  • 9:45am: (IT) March Markit/ADACI Italy Services PMI, est. 50.8, prior 50.4
  • 9:45am: (IT) March Markit/ADACI Italy Composite PMI, est. 49.8, prior 49.6
  • 9:50am: (FR) March Markit France Services PMI, est. 48.7, prior 48.7
  • 9:50am: (FR) March Markit France Composite PMI, est. 48.7, prior 48.7
  • 9:55am: (GE) March Markit Germany Services PMI, est. 54.9, prior 54.9
  • 9:55am: (GE) March Markit/BME Germany Composite PMI, est. 51.5, prior 51.5
  • 10am: (EC) March Markit Eurozone Services PMI, est. 52.7, prior 52.7
  • 10am: (EC) March Markit Eurozone Composite PMI, est. 51.3, prior 51.3
  • 10am: (IT) 4Q Deficit to GDP YTD, prior 1.9%
  • 10:30am: (UK) March Markit/CIPS UK Services PMI, est. 50.9, prior 51.3
  • 10:30am: (UK) March Markit/CIPS UK Composite PMI, est. 51.1, prior 51.5
  • 10:30am: (UK) March Official Reserves Changes, prior $73.0m
  • 11am: (EC) Feb. Retail Sales MoM, est. 0.3%, prior 1.3%
  • 11am: (EC) Feb. Retail Sales YoY, est. 2.3%, prior 2.2%

©2019 Bloomberg L.P.