Trade talks continue moving in a positive direction sending $CNH below 7 yesterday for the 1st time since the beginning of August.

If the FT article is true and US will consider dropping the September tariffs, the market would be definitely be positively surprised!

The melt-up of markets is also coming along with extremely low bearish protection. The chart is showing the S&P (black line) vs the 10-day Moving Average of the Put/Call ratio.

The number of puts vs the number of calls is the lowest since January 2018 and the 10-day average (blue line) is indicating a potential top for the markets.

The same message is given by the number of short contract on the Volatility Index (histogram) vs the the S&P (line).

They are both very powerful contrarian indicators.

For the moment, the pro-cyclical rotation is continuing and it is interesting to note that on average in Europe, the rotation lasted 4 months and generated an outperformance of 15%. If we consider this average we should be therefore currently around half way through a typical cyclical rotation.

We believe that this rotation could eventually last more provided that the macro improvement is validated.

In 2016, the rebound in economic activity was particularly powerful and helped the pro-cyclical rotation beyond the 15% outperformance.

Interesting also to spot that every one of the 14 rotation periods over the past decade has been accompanied by a rise in US bond yields and also coincided with a rebound in survey data like the PMIs.

We should therefore continue to monitor the PMI components in order to better understand if this recent move could go ahead further.

The Bloomberg US Pure Momentum portfolio is showing further weakness and is now down 4% Ytd.

Macro-wise, mixed data in US with the most closely watched ISM Non-Manufacturing, rising to 54.7 vs 53.5 in October, mainly supported by some measures of improved employment, orders and business activity in the US Service sector, indicating stable but moderate growth in the biggest part of the economy. Another gauge of Services, respectively Markit index, fell to 50.6 vs 51 consensus/prior while the Composite PMI came a bit lower than expectation, at 50.9 vs 51.2 prior. Further, overall U.S. trade deficit narrowed in line with estimates to a five-month low, in September, after the most recent tariffs against China were imposed, with overall exports decreasing 0.9% to while imports sliding 1.7%. The USD dollar strengthened after the ISM Non-Manufacturing release. This morning a very hopeful positive, risk-on, pro-cyclical data in Germany with Factory orders bucking the previous trend and rising 1.3% MoM vs 0.1% estimates and vs prior -0.6% in September.

The Oil Sector has started to outperform the market (we have been pushing this idea lately) with the European SXEP Index sector breaking to the highest levels since July.

The key upside catalysts are the positive data emerging on demand (market expectations too bearish) and slowing rate of non-OPEC growth.

The OPEC+ is set to meet on the 5th of December in Vienna, should consider to further cut its output in order to balance the market and support the oil price. Current oil prices, just above $60, are too low for many OPEC+ countries which are unable to cover their government costs at this level, among which Saudis.

The Aramco Ipo will possibly bring not enough to the Government as the Kingdom is currently running a budget deficit of 6.5% with a Debt to Gdp that will rise to 28% in 2020 (from just 1.4% in 2014). The European Oil sector has a FCF yield for 2020 of 9% and dividend yield of 6% vs an Aramco rumoured yield of 5%.

This morning the FT has reported an article where it says that German finance minister boosts push for Eurozone Banking Union. Olaf Scholz said he is supporting a common European deposit insurance scheme to shield depositors during banking collapse (Germany previously rejected that proposal). Has something changed after Brexit among EU leaders? Is the much-awaited EU banking union closer?

A potential positive news for EU Banks!

On a separate note, curiously, the universe of CoCos, known as AT1, could expand as much as €25Bln in the next quarters. So far, there are €181Bln of European Banks AT1 outstanding, but it seems momentum could be trending higher if certain regulatory proposal were to be implemented. In 2019, CoCos have returned almost 20%, on average, outpacing European High Yield and Investment Grade. In addition, we are seeing more banks issuing AT1 or Tier2 (lower quality) subordinate for the first time, in an effort to lower regulatory costs.

Quick heads up on Q3 numbers:


Intesa, strong beat with revenues up 5% vs consensus and up 6% YoY, core income up 2% vs consensus and net income in line with consensus (-6% YoY well priced in). Overall solid results, mainly driven by outperformance in Trading (+41% vs consensus) and Insurance (+9% vs consensus). The balance sheet continues to improve, with Non-Performing Exposure drifting lower (better quality). Performance YTD +23%.

Trainline, in line results and revenue guidance reiterated. In September the company guided for FY20 revenue growth of low to mid 20% range, citing strong performance in UK consumer. It means the company will require +20% revenues in H2 to meet expectations. CEO is bullish and expects high-speed rail network in Europe to triple in size over next 10 years (open to M&A). Performance since IPO +20%.

Associated British Foods, strong results, +5.5% yesterday, with earnings better than consensus, Primark’s EBIT 1% ahead of estimate, grocery well ahead, sugar in line, ingredients slightly below and agriculture well below. Firm expects a small reduction in Primark operating margin for the coming year sees potential for higher cash returns in FY20 given ABF’s strong balance sheet.

Dufry, strong results and related short squeeze, up 7% yesterday. Q3 sales below expectations but organic growth momentum improved and better Free cash flow generation, benefiting from a low previous-year level, good growth in Europe and strong ongoing double-digit growth in Asia Pacific and Middle East. Main drag was South America and slowing momentum in North America. However, Company reiterates its guidance on FCF and revenues. Performance since August +25%.

Peloton, the largest interactive fitness platform in the world, delivered better results and higher guidance, stock up low-mid digits. Q1 Revenues more than doubled, higher than consensus, Q1 loss narrower than expected (EBITDA to be negative at least until 2023), but now sees sales to be $1.45-1.5Bln, higher than consensus. Performance YTD, -15%

BMW, strong beat on revenues and key metrics with operating profit jumping 33% as sales of high-margin models and a cost-cutting program offset the pressures of investing in electric cars. BMW’s automotive EBIT margin up  6.6% (+50% YoY). Guidance and €12Bln savings in cost-cutting program confirmed.

Adidas, strong beat on earnings +2% vs consensus, revenues +1.5% vs consensus and operating profit +2.5% vs consensus, mainly driven by good momentum in US after some quarters of supply issues. For 2019, the company backed its guidance of 5-8% currency-neutral sales growth, a gross margin of about 52% and operating margin of about 11.3-11.5%.

Wirecard, decent numbers with beat on revenues +2% vs estimates and EBITDA +1% vs estimates. Guidance for 2019 confirmed. Sees FY EBITDA €765-815Mln, estimate €790.8Mln. The Company is set to enter the Chinese market.


Societe Generale, miss on revenues (global markets -4% YoY) and net income mainly driven by a 20% decline in its key Equities business (lower activity in trading and structured products), although strengthens capital with its key capital ratio rising to 12.5%.