Also Unreliable Entities? Dip Buyers in the Rout


(Bloomberg) --

If you were rolling your eyes disapprovingly over the equity melt-up earlier this year, what a vengeance.

It turned out we were wrong about the imminence of a U.S.-China trade deal -- so wrong, in fact, that the spat has morphed into a tit-for-tat of further tariff hikes and company restrictions. Right after markets took a breather on Thursday, U.S. President Donald Trump shocked everyone with threats of higher levies on Mexican goods over immigration, and China announced it will set up a list of “unreliable entities” in retaliation of America’s Huawei ban.

Also Unreliable Entities? Dip Buyers in the Rout

Here’s how bad it got: The Stoxx Europe 600 had its worst month since January 2016. Its cyclical shares dropped for a sixth straight week, the longest streak for an index going back to 2010. Autos have hit the lowest versus the broader benchmark since 2013, while banks have reached an all-time relative low.

Also Unreliable Entities? Dip Buyers in the Rout

Time to buy the dips? It’s not uncommon still to hear the argument that mutual interest will bring Beijing and Washington to an accord. Gregory Perdon, co-chief investment officer at U.K. private bank Arbuthnot Latham, points out that the Chinese President is under pressure from an economic slowdown while his U.S. counterpart is sensitive to stock losses and his re-election prospects. He’s counting on the Group of 20 summit in June for a detente.

And with bond yields plunging -- the German 10-year rate reached a record low on Friday -- equities’ relative appeal is growing. For now, earnings estimates have stayed steady, but it’s hard to price the risk premium amid an uncertain economic outlook, especially for Europe, which is trade-sensitive and already seeing slowing growth. Stocks could get another boost from further monetary easing, but in this part of the world, central banks hardly have room to cut rates.

Also Unreliable Entities? Dip Buyers in the Rout

“The market is finding it difficult to price in any overnight Trump tweet about tariffs or a reaction from China to possibly restrict rare earth minerals to the U.S.,” says Punit Patel, a fund manager at London & Capital Asset Management. “For the moment it’s less about deteriorating fundamentals with regards to near-term earnings estimates and it’s just the market trying to gauge what sort of multiple does it want to compensate for the tail risks building on the 2020 EPS backdrop.”

Ahead of the open, Euro Stoxx 50 futures are trading down 0.7%.

  • Watch semiconductor stocks after Infineon said it plans to buy U.S. peer Cypress Semiconductor for EU9b. Watch the likes of STMicroelectronics, AMS and Dialog Semi.
  • Watch warehouse and logistics property owners after U.S. investment group Blackstone agreed to spend $18.7b on U.S. logistics assets from Singapore’s GLP.
  • Watch European energy firms as crude oil prices tumble again amid worries over U.S.-China trade tensions. Futures in New York fell as much as 2.6% after slumping 5.5% Friday; oil has now fallen around 20% from late April.
  • Watch trade-sensitive sectors after President Trump defended his decisions to impose or raise levies against imports from Mexico and China, and added that “TARIFF is a beautiful word indeed!” Meanwhile, Beijing warned Sunday that it won’t be forced into concessions by the U.S.’s pressure tactics.
  • Watch German stocks after Andrea Nahles, the leader of Angela Merkel’s junior coalition partner, stepped down in a surprise move that puts into question the survival of the German government itself.


  • “Equity funds have now seen outflows of -$132bn ytd and -$237bn since December, Deutsche Bank strategists write in a note. “Outflows over the last 6 months in dollar terms have now been larger than over any prior 6-month period. As a percentage of AUM they were exceeded only by those seen around the 2008-09 recession and the European financial crisis.”


  • Infineon to Buy Cypress for $23.85/Share in Cash; EV of EU9b (1)
  • France Presses for Concessions From Fiat in Renault Proposal
  • Prisa Mulls Refinancing of Up to EU1.2B: El Confidencial
  • Danske to Sell Estonian Private Loan Portfolio to AS LHV Pank
  • Piraeus Bank to Announce NPL Management Partnership With Intrum
  • William Hill, Caesars Explored GBP6 Billion Merger in 2018:Times
  • BC Partners Studying Joint Bid for Bayer Animal Health Unit: FT
  • Porsche CEO Confirms His Office Among Those Raided: Handelsblatt
  • Airbus Nears Deal to Sell A330neo Jets to Virgin, Reuters Says
  • Novartis’s Xolair Meets Primary Endpoints in Phase 3 Studies
  • Wirecard CEO Says Expects ’Outstanding’ First Half 2019 (June 2)


  • Jefferies cut Tate & Lyle to underperform from hold, with broker seeing FY20 guidance as tough to achieve because of IFRS 15 and tax headwinds alongside lapping windfall profits in sucralose. PT cut to 620p vs 720p.
  • Wacker Chemie has “near-insurmountable challenges” but receives upgrade to hold as Berenberg says in note that it is not a seller “at any price.” Co. is now one of the cheapest in European chemicals, trading on 5x 2019 EV/Ebitda, even on Berenberg’s below consensus numbers.
  • Ocado’s valuation has reached a point where it assumes very significant future wins, Jefferies says in a note, cutting the rating to underperform from hold.
  • Pirelli loses its only sell rating as Berenberg ups its view to hold with the shares now viewed as reflecting co.’s risks and downside limited following a de-rating.

TECHNICAL OUTLOOK for Stoxx 600 index:

  • Resistance at 374.5 (61.8% Fibo); 382.6 (50-DMA)
  • Support at 368.6 (200-DMA); 365.5 (50% Fibo)
  • RSI: 34.9

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

  • Resistance at 3,309 (50% Fibo); 3,410 (50-DMA)
  • Support at 3,266 (March 2018 Low); 3,270 (200-DMA)
  • RSI: 36.9


  • Experian upgraded to equal-weight at Morgan Stanley
  • Pirelli upgraded to hold at Berenberg
  • Wacker Chemie upgraded to hold at Berenberg


  • Covestro downgraded to add at AlphaValue
  • Elior Group downgraded to add at AlphaValue
  • Ocado downgraded to underperform at Jefferies; PT 6 Pounds
  • Tate & Lyle cut to underperform at Jefferies; PT 6.20 Pounds


  • SDX Energy rated new buy at Peel Hunt; PT 38 Pence


  • MSCI Asia Pacific up 0.1%, Nikkei 225 down 1.1%
  • S&P 500 down 1.3%, Dow down 1.4%, Nasdaq down 1.5%
  • Euro up 0.06% at $1.1176
  • Dollar Index down 0.08% at 97.68
  • Yen up 0.09% at 108.19
  • Brent down 1% at $61.4/bbl, WTI down 0.6% to $53.2/bbl
  • LME 3m Copper up 0.2% at $5842.5/MT
  • Gold spot up 0.5% at $1311.5/oz
  • US 10Yr yield little changed at 2.13%

MAIN MACRO DATA (all times CET):

  • 9:15am: (SP) May Markit Spain Manufacturing PMI, est. 51.3, prior 51.8
  • 9:45am: (IT) May Markit/ADACI Italy Manufacturing PMI, est. 48.5, prior 49.1
  • 9:50am: (FR) May Markit France Manufacturing PMI, est. 50.6, prior 50.6
  • 9:55am: (GE) May Markit/BME Germany Manufacturing PMI, est. 44.3, prior 44.3
  • 10am: (EC) May Markit Eurozone Manufacturing PMI, est. 47.7, prior 47.7
  • 10:30am: (UK) May Markit UK PMI Manufacturing SA, est. 52.2, prior 53.1
  • 6pm: (IT) May New Car Registrations YoY, prior 1.47%

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