15 May 2017Monday Report

Economy Markets

Swiss Market Equities

Sentiment of traders

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Bonds

AGEAS: we have removed the share from our Satellite Recom-mendations after the company reported its Q1 results last week. UK operations show no sign of improving, Asia is slowing and cash generation no longer appears sufficient to continue with share buybacks.

ALSTOM (Satellites) has won another major contract, worth €355m, to supply 61 Citadis trains in Canada. The market is buoyant and, in our opinion, enables Alstom to remain selective in its contracts so as to achieve its target 2020 operating margin.

GEMALTO (Satellites) should see renewed interest in its cybersecu-rity products (Safenet, its enterprise security division, accounts for c. 15% of group sales) after this week-end’s massive attack affecting some 200k companies in 150 countries.

NOVARTIS (Core Holdings): according to a rumour in the weekend press, GSK is to buy out Novartis’s stake (36.5%) in the Consumer Healthcare joint venture (OTC) for £8bn. Remember that Novartis has a put option that it could exercise (in full or in part) with effect from 2 March 2018.

PRO7SAT.1 (Core Holdings), which has reported stronger than expected results, has nevertheless downgraded the 2017 TV ad-vertising trend (from 2-3% to 1.5-2.5%), noting weak TV ad revenue in Q2 (stable in April but weaker than expected in May; June will be decisive).

SAP (Satellites) could axe some 1,000 jobs (through voluntary redundancies or an early retirement programme), 250 of them in Germany, in its service businesses, following an analysis by McKin-sey (‘Focus’ performance plan).

To be monitored this week: OFS April producer and import prices.

The following companies are due to release their Q1 results: Oras-com DH, Sonova (2016/17), VAT and Züblin (2016/17).

Also, Partners Group (CHF 15) and Temenos (CHF 0.55) go ex-dividend today, and Sika this morning replaced Syngenta in the SMI following its takeover by ChemChina.

Stock marketLike last week, this week gets underway with no real trend, with implied volatility even falling to an all-time low. The focus will be on quarterly company results as well as housing starts and industrial production in the US, while, in the eurozone, we are expecting the ZEW and CPI. We remain positive.

CurrenciesUSD/CHF: after reaching the 1.01 target last Thursday, support at 0.9850 should hold. Pending appointments to the new Macron government, we anticipate a EUR/USD range of 1.0820-1.1020. Sterling could correct as far as GBP/USD 1.28 and GBP/CHF 1.2750. EUR/CHF: the 1.08 moving average is holding, which makes us think 1.10 is not far off. We are bullish on gold, with a target of $1,241/oz.

Equity markets got their breath back last week, with Europe (up 0.3%) and emerging regions (up 2.5%) outperforming the US (down 0.4%). Emerging assets were helped by the upturn in commodity prices (with oil up 2.7% and agricultural commodities up 2.8%). The dollar recovered slightly (with the dollar index up 0.6%), without hurting gold (up 0.1%), which was helped by the stabilisation in US long yields (down 1 bp). Credit risk continued to outperform in the asset class (with global HY and US corporate debt down 4 bps and local currency EM sovereign debt down 7 bps). To be monitored this week: confidence among homebuilders (NAHB index), housing starts, building permits and industrial pro-duction in the US; Q1 GDP (second estimate), trade balance and consumer confidence in the eurozone; and producer and consumer price indices, industrial production and retail sales in China.

In the US, SME confidence (NFIB index) stabilised at a high level of 104.5 in April (up from 104.7 in March). Pricing pressure was reflected in import and producer prices (up 0.5% MoM each) in April, though not yet in consumer prices (up 0.2% MoM; up 2.2% YoY), slightly lower than expected in April. Lastly, while retail sales were disappointing in April (up 0.4% MoM, vs. 0.6% expected), the previous month’s figures were revised upwards and consumer confidence (Univ. of Michigan) rose from 97 to 97.7 in May. In the eurozone, the Sentix economic confidence index continued to rise in May (to 27.4, vs. 23.9 in April), but industrial production was disappointing in March (down 0.1% MoM; up 1.9% YoY). Finally, in China, activity slowed very slightly, remaining robust in April, with investment up 8.9% YoY, industrial production up 6.5% and retail sales up 10.7%.

As at 12.05.2017 05.05.2017 31.12.2016SMI 9123.41 1.18% 10.99%

Europe Stoxx 600 395.63 0.28% 9.47%MSCI USA 2276.97 -0.40% 6.93%

MSCI Emerging 1002.37 2.46% 16.25%Nikkei 225 19883.90 2.25% 4.03%

As at 12.05.2017CHF vs. USD 1.0027 -1.45% 1.36%EUR vs. USD 1.0923 -0.59% 3.56%

10-year yield CHF (level) -0.06% -0.06% -0.20%10-year yield EUR (level) 0.40% 0.42% 0.11%10-year yield USD (level) 2.34% 2.35% 2.45%

Gold (USD/per once) 1'229.69 0.16% 6.24%Brent (USD/bl) 50.63 2.74% -10.72%

Source: Datastream

Since

US inflation figures were disappointing, triggering renewed inter-est in USTs, though without casting doubt on the expected June rate hike. Spreads and yields were favourable last week. We note strong Q1 results from Petrobras, which reported higher FCF and lower debt, in line with our investment rationale.

Source: Thomson Reuters Datastream, 15/05/2017

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