Equities rebound on positive trade news Equities rebound on positive trade news Equities rebound on positive trade news

Equities rebound on positive trade news

Equities 5 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  Nikkei futures are leading the gains in equities on positive trade news from China. We also take a look at the massive quant quake that took place in momentum stocks yesterday. Finally we focus on Uber following California passing a new bill that will most likely force the company to reclassify its contractors as employees.

China has announced exemptions from the 25% extra tariffs put in place last year in some product categories such as pharmaceuticals and lubricant oil. This softer stance is being viewed a move by China to restart the trade negotiation on good terms in October. This has lifted sentiment in Asia combined with a technical rebound generally in equities.

Risk-on with Nikkei futures leading the gains

Leading the rally in equities is once again Japanese equities with Nikkei futures up 1.1% erasing the losses from the intermediate peak in July. As we said repeatedly over the last week, we prefer German and Japanese equities as high beta play on risk sentiment and general optimism. As we highlighted in yesterday’s equity update economic surprises have become less and less negative with Citi’s Economic Surprise Index G10 turning almost positive. If we are right that central banks will deliver enough monetary stimulus, with ECB starting tomorrow, and macro data begin to surprise positively then the rally could continue.

Source: Saxo Bank
Source: Saxo Bank

Momentum crash and value pops

Beneath the surface of equity markets yesterday a quant quake 2.0 escalated in US session with neutral momentum (long stocks with the highest momentum and short those with the lowest momentum) strategies experiencing massive losses. Bigger than the first quant quake in August 2007. As the chart shows the reverse has happened in neutral value strategies. 

Source: Bloomberg

Our hypothesis is that over the past year momentum stocks have increasingly got characteristics of high growth and high valuation stocks which means that momentum stocks have become long duration assets. This is because these stocks derive a larger share of their present value from cash flows far into the future. As a direct result these stocks are more sensitive to interest rate changes. Value stocks on the other hand have increasingly become short duration assets with companies deriving most of their present value from near-term cash flows. When US 10-year interest rate rise by 28 basis points then long duration assets will go down relative to short duration assets.

Judging from price action in the European session the sell-off in momentum stocks is over so we would not be surprised to see short-term rebound and outperformance among momentum stocks.

Stocks to watch

With California’s Assembly Bill 5 passed Uber’s shares will be in focus today as the new bill could force Uber (UBER:xnys) and other companies selling contractors on their platforms to classify contractors as employees. As Uber stated in their S-1 filing before going public this was one of the key risks for investors. It could potentially erode the entire price differential between traditional taxi companies and Uber drivers. Is Uber then just a taxi company with a fancy app? Uber shares were up 4% yesterday as the company announced further layoffs to rein in accelerating losses.

Source: Saxo Bank

Assembly Bill 5 says that people in California can only be a contractor if their work is outside the usual course of the company they work for.

Apple (AAPL:xnas) introduced its iPhone 11 yesterday which now comes in three different versions with cheapest version selling for $699 which a price cut aimed to lure smartphone buyers back into Apple’s realm. The stock market reacted positively to the news, but criticism has surfaced that Apple is falling behind as the new iPhone 11 is not coming with a 5G integration which makes almost impossible for Apple to have growth in China where local smartphone makers such as Huawei is introducing smartphone with 5G integration. Beginning in the second half of 2020 this will be a constraint for Apple.

Source: Saxo Bank

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.