Now Might Be Time to Review Your Hedges: Taking Stock

(Bloomberg) -- With European stocks trading near eight-month highs, a number of voices are starting to warn that the rally might have gone too far, especially given mixed signals on the macro and micro fronts. We may be reaching a point where European stocks look too toppy to buy or cover, but not high enough to short. For now, “buy-on-weakness” still rules. The question is, for how long?

Yesterday, JPMorgan CEO Jamie Dimon warned investors to get ready for more wild rides like the one that hit markets at the end of 2018. Separately, the U.S. bank’s strategists recommend hedging against recession risks, raising holdings in cash and government bonds.

Now Might Be Time to Review Your Hedges: Taking Stock

JPMorgan isn’t alone. Edmond de Rothschild Asset Management CIO Benjamin Melman has noted the return of short positioning on volatility, coupled with low liquidity, is hinting at more uncertain times in financial markets. The investment manager has tactically reduced its equity weighting.

Pictet Asset Management Chief Strategist Luca Paolini goes further, anticipating a correction for stock markets. Slow earnings growth and poor economic trends are putting valuations at risk, so the strategist is now underweight equities and overweight cash.

Now Might Be Time to Review Your Hedges: Taking Stock

Investors have so far ignored warnings, and not for the first time, so this rally could have legs. Flows relentlessly departed equity funds, even during sustained market gains, while lackluster volumes suggest real money wasn’t really participating. But the S&P 500 is close to an all-time high and the Stoxx 600 is showing momentum. European shares have made a series of higher highs and higher lows, indicating the trend is undisputed.

Now Might Be Time to Review Your Hedges: Taking Stock

That might help explain why Citi strategists’ bear-market checklist only shows four out of 18 red flags, prompting them to keep buying the next dip in equities, arguing that in the short term, the market isn’t in “euphoria,” but only neutral.

In the meantime, Euro Stoxx 50 futures are up 0.1% ahead of the open.

  • Watch trade-sensitive stocks after China hailed a “new consensus” and U.S. President Donald Trump talked up the prospects of a “very monumental” deal, though this may still be a few weeks away. Watch miners, steelmakers, semiconductors, autos and other cyclical segments like industrials and chemicals.
  • Watch the pound and U.K. stocks as cross-party talks are said to be productive and the battle is centering on whether a second referendum should remain an option. Separately, the pound rose after the BBC reported European Council President Donald Tusk was said to propose a 12-month flexible delay to U.K.’s Brexit.
  • Watch banks after a survey said the European Central Bank will pay them to lend as it tries to find ways to support economic growth that looks increasingly shaky.


  • “While equity valuations remain attractive relative to fixed income, the global economic slowdown, the lack of earnings growth, and government policy uncertainty suggest a more prudent approach to equity allocations,” Amundi strategists write in an investment letter. “Given the uncertainty of the economy, trade, interest rates, key economic sectors and the possibility of an earnings recession, we are less optimistic about the outlook for cyclical stocks following their rally from the December lows.”


  • Swedbank Chairman Lars Idermark Steps Down (1)
  • Germany to Keep Stake in Merged Deutsche-Commerzbank: Focus
  • ECB to Ask Deutsche Bank to Raise New Funds for Merger: Rtrs (1)
  • Novartis Disputes Amgen’s Material Breach Notice ‘Vigorously’
  • ADP Sees 40%-50% Ebitda, Rev. Growth Between 2018 and 2025 (1)
  • Airbus Picks Up First Major Orders in 2019 Led by A350 Deals
  • DIA Board Asks BofA for Opinion on Letterone Bid: Confidencial
  • DBV Tech Underwriters Fully Exercise ADS Purchase Option
  • Oaktree, Bain Bid for Sabadell Real Estate Unit: Confidencial
  • KKR in Talks to Sell Acciona Energia Stake to Adia: Economista


  • There is unlikely to be any material reversal in the short term of the rough environment U.K. estate agents have experienced over the past couple of years, Berenberg writes in a note double-downgrading Purplebricks while upgrading Foxtons and Countrywide. Overall fee pool is expected to continue to decline by about 1% a year as house price inflation is offset by pressure on fees and lower existing home transactions; lettings still a long-term growth market and improved cross-selling an opportunity for the bigger players.
  • Jefferies becomes only bank of 10 surveyed by Bloomberg to recommend selling Stagecoach, saying the U.K. transport firm’s bus business could be source of “long-term pain” for investors. Cuts full-year 2021 EPS by 9%; rating to underperform from hold, price target to a Street-low 125p from 145p.
  • Volvo and Metso are estimated to report the biggest beats in 1Q with catalysts throughout this year, Citi says in a European machinery note. Says Kone and Atlas Copco seem more vulnerable at new peak relatives against declining EPS momentum.

TECHNICAL OUTLOOK for Stoxx 600 index:

  • Resistance at 392.7 (July high); 403.7 (100% Fibo)
  • Support at 385.7 (76.4% Fibo); 374.5 (61.8% Fibo)
  • RSI: 69.1

TECHNICAL OUTLOOK for Euro Stoxx 50 index:

  • Resistance at 3,516 (76.4% Fibo); 3,596 (May high)
  • Support at 3,403 (61.8% Fibo); 3,309 (50% Fibo)
  • RSI: 71.4


  • DSV upgraded to buy at HSBC; PT 650 Kroner
  • Sodexo upgraded to equal-weight at Barclays; PT 105 Euros


  • BASF downgraded to hold at Bankhaus Lampe
  • Bravida cut to sell at SEB Equities; Price Target 74 Kronor
  • Centrica downgraded to add at AlphaValue
  • Dunelm Downgraded to Add at Peel Hunt
  • Elisa downgraded to sell at SEB Equities; PT 36.50 Euros
  • Fastighets AB Balder cut to sell at SEB Equities; PT 260 Kronor
  • Hembla cut to sell at SEB Equities; Price Target 180 Kronor
  • Klovern cut to sell at SEB Equities; Price Target 11 Kronor
  • Kungsleden cut to hold at SEB Equities; Price Target 76 Kronor
  • Latour cut to sell at DNB Markets; Price Target 120 Kronor
  • Schneider cut to neutral at Oddo BHF; Price Target 74 Euros
  • Stagecoach cut to underperform at Jefferies; PT 1.25 Pounds
  • Vestas downgraded to hold at Santander; PT 585 Kroner


  • Nestle Reinstated at BofAML With Buy; PT 111 Francs


  • MSCI Asia Pacific down 0.2%, Nikkei 225 up 0.3%
  • S&P 500 up 0.2%, Dow up 0.6%, Nasdaq down 0%
  • Euro up 0.07% at $1.1229
  • Dollar Index down 0.08% at 97.23
  • Yen down 0.01% at 111.67
  • Brent down 0.2% at $69.3/bbl, WTI up 0.1% to $62.1/bbl
  • LME 3m Copper little changed at $6449.5/MT
  • Gold spot down 0.2% at $1289.2/oz
  • US 10Yr yield up 1bps at 2.53%

MAIN MACRO DATA (all times CET):

  • 8:45am: (FR) Feb. Trade Balance, est. -4.55b, prior -4.19b
  • 8:45am: (FR) Feb. Current Account Balance, prior 900m
  • 9am: (SP) Feb. Industrial Output NSA YoY, prior 1.8%
  • 9am: (SP) Feb. Industrial Output SA YoY, est. -0.1%, prior 2.4%
  • 9am: (SP) Feb. Industrial Production MoM, est. -1.0%, prior 3.43%
  • 9:30am: (UK) March Halifax House Prices MoM, est. -2.8%, prior 5.9%
  • 9:30am: (UK) March Halifax House Price 3Mths/Year, est. 2.1%, prior 2.8%
  • 10:30am: (UK) 4Q Unit Labor Costs YoY, prior 2.8%
  • 11am: (IT) Istat Releases the Monthly Economic Note

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