The last positive narrative is collapsing The last positive narrative is collapsing The last positive narrative is collapsing

The last positive narrative is collapsing

Equities 5 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  Equities are selling off as a bunch of US macro data disappointed yesterday including the important Conference Board Consumer Confidence Index. Factors are now aligning around a negative environment for equities short-term and the recession risk has increased yet again. In today's equity update we also discuss the recent declines in shares of NIO, also called China's Tesla, and the UK-based Metro Bank.

All the talks about a recession in the manufacturing sector and US-China trade war dynamics more damaging to the global economy have been to no avail as investors have pushed the S&P 500 higher on the grounds that the consumer was doing well. This narrative was hit by a massive blow yesterday as Conference Board Consumer Confidence Index was 125.1 for September vs 133 expected and down from 134.2 (revised down) in August. The expectations subcomponent of the survey also declined massively taking out all the gains from January.

Source: Bloomberg

On top of that Richmond Fed Manufacturing Index hit -9 vs +1 expected showing weakness persists in the manufacturing sector. At the same time the Case-Shiller 20-City home index y/y fell to 2% the lowest house price gains since Q4 2012. And if weakening consumer confidence was not enough corporate insiders in the US are selling the most shares since the end of the financial crisis.

All these factors confirm us in our thesis for Q4, presented in yesterday’s equity update, that equity volatility will rise substantially in Q4 and that corporate executives will increasingly use the quarter as a kitchen sink in terms of asset write-downs and layoffs. We expect employment numbers and broader economic indicators to weaken over the coming three months confirming the feared spillover effects from a manufacturing sector in recession. What can change the outcome and avoid a recession, or maybe just making the blow soft? The only potent policy choice that with short notice can rectify the slowdown is intervention in the USD. This happens to be our theme for our upcoming Quarterly Outlook.

The price action in yesterday’s US session tells the story of investors being scared that equities might be in for a rough drawdown to reflect the underlying fundamentals. But it’s the only sensible alternative most will say. Sure, but what is small negative yield in a bond relative to a large drawdown? Investors can quickly change their reassessment of negative yielding bonds if a recession unfolds. Technically S&P 500 futures look weak and are rolling over in line with our view for weeks that unless the index could deliver new all-time highs then traders should be shorting the index. Our conviction trade for Q4 is long volatility. 

Source: Saxo Bank
Source: Saxo Bank

Technology stocks are under pressure lately with the failed WeWork IPO spectacle and Netflix downward revisions and growth concerns. Last night China’s version of Tesla, NIO, delivered disappointing Q3 guidance and misses horribly on Q2 EPS despite a positive surprise on Q2 revenue. The EV-maker will cut global workforce by 20% before year-end. Remember the kitchen sink? The stock is now down 65% from the IPO price and 84% from its all-time high. When the company IPO’ed in September 2018 we did an analysis of NIO which was mostly negative.

Source: Saxo Bank

Metro Bank shares are stabilizing in today’s session following yesterday’s 36% drop as the bank scrapped a crucial debt sale. It’s a major blow to the UK-based bank and the fact that demand was not strong enough despite an attractive coupon of 7.5% underscores the risk profile of the bank. Shares are down 96% from the peak in March 2018 and the downfall accelerated in January 2019 when regulators said the bank had not classified loans correctly. The situation for Metro Bank is that the bank needs to raise capital to comply with regulatory requirements and if it misses the 2020 deadline then the bank will be forced to sell assets under a potential grace period. Bloomberg’s default risk model saw its estimated 1-year default risk rise to a record high of 1.55% as of yesterday’s close.

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

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 (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

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

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.