Searching for direction in equities while tobacco mega merger takes shape Searching for direction in equities while tobacco mega merger takes shape Searching for direction in equities while tobacco mega merger takes shape

Searching for direction in equities while tobacco mega merger takes shape

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  In today's equity update we highlight the lack of direction and zoom in on the mega merger between Philip Morris and Altria. With the intense focus on clean energy due to climate change we also take a look at how investments in the energy sector have done since the Great Financial Crisis in 2008.


As we alluded to in recent equity updates the market is boxed in. Across the major equity futures markets such as S&P 500, FTSE 100, DAX and Nikkei all futures are finding themselves trapped into a tight trading range. Our thesis remains that the next move will be big and given the negative trajectory in macro fundamentals and the ongoing escalation in the US-China trade war we think the odds favour a decline. Longer term we see the reconfiguration of the global supply chain as a negative for companies’ profitability because of increased capital expenditures. Today Google announced that’s moving its Pixel phone production from China to Vietnam. More of this news will hit the market over the coming months as the trade war heats up.

Has oil and gas attractiveness peaked?

With all the focus on clean energy these days due to climate change we have set up a monitor to track the investment returns on the oil & gas industry and the clean energy industry. We were quite shocked to the see the appalling returns in the energy sector. The oil & gas industry has only delivered a total return of 50% since early 2009 compared to 300% for the S&P 500. But clean energy has done even worse losing 34%. In absolute terms old energy peaked out in 2014 before the big rout in the oil price but on a relative basis the clean energy industry has outperformance the oil & gas industry since late 2012.

In general, we are negative long-term on the oil & gas industry as the world’s political capital is firmly behind clean energy. On the other hand, the last 10 years show that energy investing has been terrible so the most sensible thing for an investor is to be very selective and not buy into the whole industry.

Stocks to watch

While equities in general are looking for direction things are happening beneath the surface. Autodesk (ADSK:xnas) delivered a downward revision to its FY outlook on both EPS and revenue. Shares were down 8% in aft-mkt trading. The revision was clearly a shock to investors as analysts are overall very bullish on the stock with 73% having a buy recommendation on the stock. But the reaction to the Q2 earnings was natural as the company has an aggressive valuation that needs constant hits against estimates.

After having been separated for 10 years the two giant tobacco companies Philip Morris (PM:xnys) and Altria (MO:xnys) are in advance talks to merge and become the world’s biggest tobacco company with a market value of $195bn. The reaction to the news yesterday was quite negative after initial positive reaction. Watch the two stocks today for any signs of a reversal.

Thomas Cook (TCG:xlon) shares are down 95% since June last year as profitability has deteriorated and investors have questioned the company’s ability to honour its liabilities. But the big news today is a rescue plan led by Chinese Fosun Tourism Group providing $522mn in capital in an overall rescue deal of $1.1bn. While the news is positive for bondholders, shares are down 17% in today’s trading session as Fosun is acquiring 75% of the tour operator division and 25% of the airline. The 2022 6.25% bond was up 48% initially but is now only up 7% for the session.

Source: Saxo Bank

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992