Head of Saxo Strats
Summary: In our weekly update on theme baskets performance we highlight energy storage which declined 9.7% last week driven by declines among energy storage and battery providers including German-based Varta declining 38% as the company has withdrawn its fiscal outlook due to elevated energy costs and raw materials. The best relative performer was our defence basket which was bid up due to the Russian mobilisation announcement increasing the need for more weapons to Ukraine and thus lifting the outlook for the defence industyr in the US and Europe.
Everything is in free fall
Last Monday, we wrote our first weekly update on our equity theme baskets and the last week’s performance turns out to be a continuation of what had been doing badly two weeks, namely themes such as crypto, nextgen medicine, green transformation, e.-commerce, and energy storage. Normally, we would write about the worst and the best performing theme, but in this update we will zoom in on the energy storage theme basket because last week had some dramatic moves in this basket.
Energy storage: higher energy costs complicates the transition
The green transformation has more political capital behind it than ever as the European continent is set to replace its dependence on Russian energy in the years to come. But higher primary energy costs are complicating the transition making everything in manufacturing more costly. One of the companies in the energy storage basket that is under pressure from higher energy costs is Varta announcing last week that it is withdrawing its fiscal outlook for 2022 as rising raw materials and energy costs are making the business of energy storage products unpredictable. Varta’s share price was down 38% last week. The only reason why the energy storage basket is not down more last week is because the basket contains lithium and cobalt miners which are doing well due to high prices on these two metals as supply continues to be lower than demand.
Defence: Russia’s mobilization lifts European defence stocks
Russia’s decision last week to mobilize its reserves to drastically increase its manpower in its war in Ukraine has increased the stakes in the war and also the demand for more weapons to Ukraine. Our defence basket was the best performing basket last week down only down 3.3% with the German military company Rheinmetall being the best performing up 6.9%. Analysts remain bullish on Rheinmetall with revenue set to increase from €5.7bn in 2021 to €9.7bn in 2025 as the EU is expected to significantly increase its military spending. It could very well be that the current growth estimates are too low depending on the future outcomes in the war in Ukraine.
Today we are also updating our defence basket by removing Ultra Electronics a UK-based defence and security company that has been bought by Cobham back in August. The new stock in the basket is Hensoldt which is a German military technology company which offers solutions across space, air, land, sea, security, and cyber.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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)
