25 June 2018Monday Report

Economy Markets

Swiss Market Equities

Sentiment of traders

PerformancesToday’s graph

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Bonds

Energy (view: Positive): OPEC and Russia have announced an agreement that is reassuring in two respects: a moderate increase in production that will offset – but no more than that – the reduc-tion in exports from Venezuela and Iran, and a renewed role for Saudi Arabia as coordinator of the system. This backs up our view on the sector.

ING (Satellites): the group issued a press release this morning indi-cating that legal action by the Dutch and US authorities could force it to set aside a provision for a fine as early as Q3.

ROCHE (Core Holdings) has announced the success of its IMpow-er133 trial evaluating Tecentriq (immunotherapy) in combination with chemotherapy in small-cell lung cancer (15% of lung cancer cases). Details of the trial will be published at an upcoming confer-ence. Roche is the first to publish findings in this indication. We await data from Merck & Co (US Core Holdings) at the beginning of 2019.

UNICREDIT (Satellites): activist fund Caius is cranking up the pres-sure on management to convert €3bn of CET1 hybrid debt to hard capital. UniCredit has already refused on the grounds that the mechanism of this issue is known to investors and accepted by the regulator.

WIRECARD (Core Holdings), in cooperation with Visa, is launch-ing a new all-digital platform (card and payment) for road haulage firms, dubbed Wirecard Fleet & Mobility, offering not only fleet management capability but also bank-to-filling-station payments and so forth. This trend towards strategic partnerships looks prom-ising to us and should continue over the coming quarters.

To be monitored this week: SNB Q1 balance of payments and inter-national investment position, KOF consensus forecast, SNB survey on banks in Switzerland in 2017, and KOF economic barometer.Elsewhere, Carlo Gavazzi is to report its 2017/18 results, while Lal-ique should see its first day’s trading on the Swiss stock exchange.

Stock marketIn spite of high-quality PMI numbers, equity indices marked time last week. Markets opened in the red after fresh economic sabre-rattling by Donald Trump, who is blowing hot and cold and thus dictating the direction taken by indices. In these conditions, we remain cautious.CurrenciesAfter testing support at EUR/USD 1.151, the euro bounced back against the dollar to EUR/USD 1.1637. The climate of economic warfare is dampening investors’ risk appetite and putting currencies under pressure as the US, China and Europe counter each other’s import tariffs. Against this backdrop, safe haven currencies like JPY and CHF are gaining ground: USD/JPY 109.44; EUR/CHF 1.1490; GBP/CHF 1.307. Gold has broken through support at $1,275/oz; next support is at $1,240/oz. Our ranges – EUR/USD: supp. 1.151, res. 1.1720; USD/CHF: supp. 0.9830, res. 1.005; EUR/CHF: supp. 1.14, res. 1.171.

Trade tensions between the US and rest of world intensified. With no solution found to the migrant crisis over the weekend, the Eu-ropean summit later this week looks set to be awkward. These un-certainties caused equities to decline (down 0.9% in the US, 1.1% in Europe and 2.3% in emerging markets) and corporate spreads to widen slightly in the US (up 6-7 bps) and more so in the eurozone (up 7 bps on IG and 22 bps on HY), while sovereign yields fell (US: -3 bps; DE: -7 bps; CH: -1 bp). Oil rallied 1.8% following the OPEC decisions. Gold (down 0.9%) did not benefit from the slight decline in USD (with the dollar index down 0.3%). To be monitored this week: new home sales, consumer confidence, regional lead-ing economic indicators (Richmond, Dallas, etc.), durable goods orders and PCE inflation in the US; and EC confidence indicators and preliminary inflation in the eurozone.

US statistics, though generally somewhat short of expectations, re-mained very satisfactory. Confidence among home-builders (NAHB index) fell from 70 to 68 in June; a disap-pointing building permits number in May (1.301m) was offset by housing starts (1.350m). Existing home sales held steady at 5.430m, whereas they had been expected to rise. Lastly, the manufacturing and services PMIs were more or less unchanged in June (at 56 and 56.5 respectively), com-patible with continuation of the cycle. In the eurozone, consumer confidence fell to -0.50 in June (from 0.2 in May). A disap-pointing manufacturing PMI, down from 55.5 to 55, was offset by a rebound in its services counterpart (from 53.8 to 55) in June. The Chinese authorities eased credit to offset the coming increase in customs barriers.

As at 22.06.2018 15.06.2018 31.12.2017SMI 8616.56 -0.30% -8.16%

Europe Stoxx 600 385.01 -1.06% -1.07%MSCI USA 2629.85 -0.89% 3.35%

MSCI Emerging 1088.00 -2.31% -6.08%Nikkei 225 22516.83 -1.47% -1.09%

As at 22.06.2018CHF vs. USD 0.9899 0.52% -1.56%EUR vs. USD 1.1638 0.18% -3.08%

10-year yield CHF (level) -0.04% -0.03% -0.13%10-year yield EUR (level) 0.34% 0.40% 0.42%10-year yield USD (level) 2.89% 2.92% 2.41%

Gold (USD/per once) 1 269.52 -0.90% -2.60%Brent (USD/bl) 74.67 1.77% 12.10%

Source: Datastream

Since

Greece’s European creditors have reached agreement on easing the country’s debt. A total of €96.6bn of debt will have its maturity extended by ten years. In addition, €15bn will be paid out to top up the country’s liquidity reserves in order to secure its return to the markets after eight years of crises and bailout packages. While many challenges remain, this is a positive outcome.

Source: Thomson Reuters Datastream, 25.06.2018

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Shaded areas represent U.S. recessions