WEEKLY MARKET UPDATE
Transcription
WEEKLY MARKET UPDATE
Weekly Market Update | 17 December 2014 WEEKLY MARKET UPDATE 17 December 2014 Oil price hit multi-year lows Modest yet improving macro environment Citi Economic Surprise Index US equities posted one of their worst weekly performances of 2014, courtesy of lackluster data out of China, Japan and the eurozone, along with a tumble for Greek stocks on political uncertainty. As a result, we saw oil prices hit multi-year lows, with pressure exacerbated by OPEC and the IEA both cutting their global oil demand forecasts for 2015. Energy stocks and materials issues were the worst performers, with WTI crude closing below the $58 per barrel mark for the first time since May 2009 This week, the FOMC's statement will be in focus. Recent US data has resuscitated rate hike expectations and speculation has ramped back up regarding a significant change to the language of the Fed's statement. Citi is sticking to the view that the Fed may hike rates only in Dec 15. CESIUSD Index CESIEUR Index CESICNY Index 60 30 0 -30 -60 -90 Sep-14 Oct-14 Nov-14 Source: Bloomberg as of 12 December 2014 High Yield Bonds hardest hit Accumulated 3-month Bond Index Returns World Govt Bonds Index HY Index Global EMD Index 2% Performance 1% 0% Global equities tumbled 3.77% in the week led by weakness in oil & gas stocks as crude oil prices continue to fall to levels not seen in over five years. The S&P 500 and Dow Jones fell 3.52% and 3.78% respectively. The European equity markets plunged with the Stoxx Europe 600 losing 5.82%. Japanese equities also finished lower as the Nikkei and Topix fell 3.06% and 3.18% respectively. Within Emerging Markets, MSCI Latin America and MSCI Emerging Europe slid 8.66% and 8.78% hit by the sharp declines in oil prices. Meanwhile, MSCI Asia ex Japan stocks lost 2.62%. Within the region, the only market which closed on a positive note was China as the Shanghai Comp gained 0.02%. -1% -2% -3% -4% -5% Sep-14 Oct-14 Nov-14 Source: Bloomberg as of 12 December 2014 EM equities dragged down by oil prices Accumulated 3-month Equity Index Returns MSCI World MSCI EM MSCI Asia 2% 0% -2% -4% -6% -8% -10% -12% -14% Asset Allocation Equities — Despite a more constructive view for 2015, very near-term caution is warranted. Sharp declines in crude oil have re-ignited fears and equities seem vulnerable to pullbacks. Credit — We see further spread tightening in our base case. Given the potential ECB QE, we prefer European over US credits. Lower oil prices are a risk to US HY where the energy is the biggest sector. Rates — Medium term, we forecast higher yields across the major government bond markets. EMU and Japanese bonds may outperform on a relative basis. Commodities — We expect flaccid commodity demand growth through 2015 and are neutral-to-bearish across the complexes. Sep-14 Oct-14 Nov-14 Source: Bloomberg as of 12 December 2014 Week Ahead Key Data and Event Date Country 15-Dec US Industrial Production MoM Data & Event 16-Dec CH 16-Dec 16-Dec Period Survey Prior Citi Fct Nov 0.7% -0.1% 0.9% HSBC China Manufacturing PMI Dec P 49.8 50.0 -- EC Markit Eurozone Services PMI Dec P 51.5 51.1 50.2 EC Markit Eurozone Composite PMI Dec P 51.5 51.1 50.4 16-Dec EC Markit Eurozone Manufacturing PMI Dec P 50.5 50.1 49.7 17-Dec US CPI MoM Nov -0.1% 0.0% -0.2% 17-Dec SG Non-oil Domestic Exports YoY Nov 3.9% -1.5% 5.2% 18-Dec US Leading Index Nov 0.6% 0.9% 0.6% 18-Dec US Initial Jobless Claims 13-Dec 295K 294K 290K 19-Dec JN All Industry Activity Index MoM Oct 0.0% 1.0% 0.1% Source: Bloomberg as of 12 December 2014 Page 1 Weekly Market Update | 17 December 2014 Drivers and Risk By Market United States Driver: The Fed recently released the quarterly US Flow of Funds data for Q3 2014 which is a very useful indicator to get a sense of the stage of the credit cycle. So far the credit cycle continues to be supportive of equity outperformance over credit in our view. US corporates are still taking advantage of low rates to finance equity friendly activity via credit markets, and we have seen increased M&A activity, share buybacks and dividend payouts. Risk: While strong 2015 earnings outlook and other fundamental metrics do signal equity upside, sentiment appears to be not supportive. Implication: Sector preferences next year remain Information Technology and Financials alongside large caps and value styles. End-2014 Target: 2000 End-2015 Target: 2200 2200 2100 2000 1900 1800 1700 1600 Source: Bloomberg as of 12 December 2014 Europe Driver: We stay bullish on European equities with our end-2015 Stoxx target of 400. Our bull case is based on (1) the ECB’s QE; (2) modest nominal GDP growth; (3) 10-15% earnings growth; (4) cheap valuations and; 5) rising equity demand. S&P 500 1500 End-2014 Target: 370 End-2015 Target: 400 360 350 340 330 Risk: Recent developments in Greece have highlighted political risks in the Eurozone. The situation in Greece is unique and we do not expect events there to trigger a major crisis in the region, but political risks may rise more broadly in 2015. Implication: We prefer Financials/Cyclicals and strong balance sheet sectors/surplus cash flows. We overweight Banks, Insurance, Resources, Autos, Health Care and Tech. 320 310 300 290 DJ Stoxx TMI 280 Source: Bloomberg as of 12 December 2014 Japan Driver: Abe’s coalition won more than two-thirds seats with the LDP winning 291 seats in Lower House election and Komeito 35 for a total of 326. Without major disruptions in Abenomics, Japanese equities may receive more inflows on the GPIF’s expansion in Japanese equity investment and the BoJ’s additional purchases. Risk: The Business Outlook Survey for the 4Q revealed a notable downward revision of capital investment plans at small firms, as well as some delay in actual spending at large firms. If PM Abe’s growth strategy does not prove a catalyst, business leaders may not step up capex. Implication: We overweight financials, which are appealing in valuations and positively affected by Abenomics; consumer cyclicals, which should benefit from yen weakness and the recovery in the US economy; and industrials, which should benefit from improvement in capex in Japan and the US. End-2014 Target: 1390 End-2015 Target: 1650 1500 1450 1400 1350 1300 1250 1200 1150 1100 1050 1000 Japan Topix Source: Bloomberg as of 12 December 2014 Asia Driver: In the week of 10 December, Asia funds saw inflows while US, European and other EM funds suffered outflows. We remain bullish on EM Asia on cheap valuations, strong earnings, and main beneficiary of weaker commodity prices support. We also expect China’s authorities to take more easing measures to, including two rate cuts (25bps each) by mid-2015 and 3-4 RRR cuts (50bps each) in 2015 (with one rate cut and RRR cut in Q1). Risk: In China, M2 growth edged down from 12.6% in Oct to 12.3% in Nov, lower than market expectations. While property investment remains a drag, there is no sign of a quick reversal of the growth downtrend yet. Implication: Citi’s 2015 MSCI Asia ex Japan target is 630 currently. With outlooks for a stronger US$, higher rates and commodity prices, we prefer China, Taiwan and Singapore. End-2014 Target: 610 End-2015 Target: 630 620 600 580 560 540 520 500 480 MSCI Asia ex JP 460 Source: Bloomberg as of 12 December 2014 Page 2 Weekly Market Update | 17 December 2014 Currency Forecast Currency 12-Dec-14 Weekly Market Performance Forecasts Last price Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 G10-US Dollar (8 – 12 December 2014) (04/07/2014~04/11/2014) Euro EURUSD 1.25 1.16 1.12 1.09 1.07 1.05 Japanese yen USDJPY 118.8 121 124 126 128 130 British Pound GBPUSD 1.57 1.48 1.44 1.40 1.37 1.35 Swiss Franc USDCHF 0.96 1.04 1.08 1.11 1.15 1.18 Australian Dollar AUDUSD 0.82 0.84 0.81 0.80 0.79 0.78 New Zealand NZDUSD 0.78 0.75 0.73 0.71 0.69 Canadian Dollar USDCAD 1.16 1.15 1.17 1.18 1.19 Hong Kong USDCNY 6.19 USDHKD 7.75 6.19 7.78 6.23 7.79 6.23 6.18 7.80 7.79 Citi World Broad Inv Grade 0.0% China Shanghai Composite -1.9% Taiwan TAIEX -2.4% Citi High Yield -2.5% Citi Global Emerging Mkt Sovereigns 0.68 -2.6% MSCI AsiaXJapan 1.19 -3.1% China HSCEI EM Asia Chinese Renminbi Gold 2.5% 0.5% 6.13 USDIDR 12467 12,265 12,414 12,500 12,500 12,500 Indian Rupee USDINR 62 62.2 62.4 62.5 62.6 62.7 Korean Won USDKRW 1103.14 1,107 1,119 1,124 1,122 1,120 Malaysian Ringgit USDMYR 3.50 3.37 3.39 3.40 3.39 3.39 Philippine Peso USDPHP 44.58 45.3 45.6 45.7 45.5 45.4 Singapore Dollar USDSGD 1.31 1.31 1.32 1.33 1.33 1.33 Thai Baht USDTHB 32.83 33.2 33.5 33.5 33.4 33.3 Taiwan Dollar USDTWD 31.31 31.1 31.4 31.4 31.1 30.8 HK Hang Seng -3.2% Japan TPX Index -3.3% Korea KOSPI -3.5% US S&P 500 7.78 Indonesian Rupiah -3.1% MSCI AC World -3.8% Europe Stoxx Europe 600 -5.8% UK FTSE 100 -6.6% MSCI Latin America -8.7% MSCI Emerging Europe -8.8% Oil -12.2% -20% -10% 0% 10% Source: Bloomberg as of 12 December 2014 EM Europe Russian Ruble USDRUB 58.28 49.4 50.2 50.9 51.2 2.6 South African Rand USDZAR 11.59 11.22 11.34 11.41 11.43 0.00 Market Performance (Year-To-Date) EM Latam Brazilian Real USDBRL 2.65 2.69 2.73 2.76 2.79 2.82 Mexican Peso USDMXN 14.76 13.5 13.4 13.4 13.3 13.2 (As of 12 December 2014) 38.9% Source: Citi Research and Bloomberg as of 12 December 2014 Citi World Broad Inv Grade 7.5% Short Rates and 10-Year Yield Forecasts Forecasts Last price 12-Dec-14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 Short Rates (End of Period) US 0.25 0.25 0.25 0.25 0.25 0.50 0.50 Japan 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Euro Area 0.05 0.05 0.05 0.05 0.05 0.05 0.05 US 2.08 2.35 2.70 2.85 2.90 2.95 3.00 Japan 0.40 0.45 0.45 0.45 0.55 0.55 0.60 10-Year Yield (Period Average) Euro Area 0.62 0.65 0.65 0.85 1.00 1.15 1.25 7.5% Japan TPX Index 6.1% Citi Global Emerging Mkt Sovereigns 4.8% Taiwan TAIEX 3.9% China HSCEI 1.4% Gold 1.1% MSCI AsiaXJapan 0.7% Europe Stoxx Europe 600 0.0% MSCI AC World -0.1% Citi High Yield -0.2% HK Hang Seng -4.5% Korea KOSPI -6.6% UK FTSE 100 MSCI Latin America -18.4% MSCI Emerging Europe -35.7% -41.3% -50% Source: Citi Research and Bloomberg as of 12 December 2014 China Shanghai Composite US S&P 500 8.3% Oil 0% 50% Source: Bloomberg as of 12 December 2014 Page 3 Weekly Market Update | 17 December 2014 World Market At Glance Historical Returns (%) Last price 52-Week 52-Week 12-Dec-14 High Low 1 week 1 month 1 year Year-to-date US / Global MSCI World 408.74 434.24 382.57 -3.77% -2.70% 4.23% 0.05% DJIA 17280.83 17991.19 15340.69 -3.78% -1.88% 9.79% 4.25% S&P 500 NASDAQ 2002.33 4653.60 2079.47 4810.86 1737.92 3946.03 -3.52% -2.66% -1.76% -0.46% 12.78% 16.39% 8.33% 11.42% MSCI Europe 433.81 506.61 411.49 -4.78% -2.12% -4.89% -10.06% Stoxx Europe 600 330.54 351.04 302.48 -5.82% -1.36% 6.54% 0.69% FTSE100 6300.63 6904.86 6072.68 -6.56% -4.70% -2.24% -6.64% CAC40 4108.93 4598.65 3789.11 -7.03% -1.70% 0.98% -4.35% DAX 9594.73 10093.03 8354.97 -4.88% 4.17% 6.41% 0.45% NIKKEI225 17371.58 18030.83 13885.11 -3.06% 1.01% 13.23% 6.63% Topix 1399.65 1454.22 1121.50 -3.18% 1.64% 12.67% 7.48% MSCI Emerging Market 938.41 1104.31 913.65 -4.80% -5.79% -5.36% -6.41% MSCI Latin America 2610.44 3720.81 2610.44 -8.66% -13.20% -17.22% -18.44% MSCI Emerging Europe 128.81 201.75 127.89 -8.78% -16.84% -34.12% -35.67% MSCI EMEA 267.13 341.09 267.13 -7.73% -11.39% -16.34% -18.66% 48001.98 62304.88 44904.83 -7.68% -9.39% -4.23% -6.81% 799.18 1467.85 784.53 -12.06% -23.53% -42.65% -44.61% Europe Japan Emerging Markets Brazil Bovespa Russia RTS Asia MSCI Asia ex-Japan 557.69 608.06 508.53 -2.62% -2.25% 1.95% 1.13% Australia S&P/ASX 200 5219.57 5679.50 5047.50 -2.17% -4.46% 3.10% -2.48% China HSCEI (H-shares) 11236.39 11949.99 9159.76 -3.14% 4.72% 2.50% 3.89% China Shanghai Composite 2938.17 3091.32 1974.38 0.02% 17.79% 33.38% 38.86% Hong Kong Hang Seng 23249.20 25362.98 21137.61 -3.14% -2.88% 0.13% -0.25% India Sensex30 27350.68 28822.37 19963.12 -3.89% -2.35% 30.70% 29.19% Indonesia JCI 5160.43 5262.57 4109.31 -0.53% 2.21% 22.51% 20.74% Malaysia KLCI 1732.99 1896.23 1698.13 -0.94% -4.58% -5.50% -7.18% Korea KOSPI 1921.71 2093.08 1885.53 -3.27% -2.32% -2.35% -4.46% Philippines PSE 7224.21 7413.62 5709.34 -0.09% -0.12% 25.37% 22.66% Singapore STI 3324.13 3387.84 2953.01 -0.01% 1.23% 8.67% 4.95% Taiwan TAIEX 9027.33 9593.68 8230.46 -1.95% 1.22% 7.97% 4.83% Thailand SET 1514.95 1603.89 1205.44 -5.18% -3.01% 11.70% 16.65% 57.81 107.73 56.25 -12.20% -25.10% -40.71% -41.26% 1222.50 1392.22 1131.24 2.51% 5.15% -0.25% 1.40% Commodity Oil Gold spot Source: Citi Research and Bloomberg as of 12 December 2014 Page 4 Weekly Market Update | 17 December 2014 Disclaimer “Citi analysts” refers to investment professionals within Citi Research (“CR”), Citi Global Markets Inc. 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