DAX futures close to all-time high; did the US economy bounce a bit in October

Equities 4 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  In today's equity update we take a look at DAX future which are closing in on all-time highs with today's IFO survey showing German industry is becoming a bit more optimistic. However, the recent rise in German equities come with rising valuation and based on 12-month trailing numbers European equities actually look a bit expensive against US equities. We also take a look at the US economy and the recent Tesla Cybertruck launch.


Despite negative earnings growth and weak economic fundamentals in Europe, DAX futures are approaching all-time highs and today’s IFO survey (Nov) showed improvement as expected lifting sentiment. STOXX 600 valuation could soon be a stopping point for the momentum rally as the index trades 20.2x on P/E compared to 20.7x for S&P 500 with the latter index clearly showing better numbers and powered by technology monopolies. However, on 12-month forward basis European equities are still trading on a P/E discount but that’s only because consensus EPS growth over the next 12 months is 34% which would require an impressive rebound in Asia growth.

Source: Saxo Group

Last week showed that US leading indicators are close to the weakest levels since late 2009 and combined with other indicators we expect the US economy to continue slowing down over the coming months. One of our preferred coincident indicators on the US economy is the Chicago Fed National Activity Index and this broad-based index has shown that the US economic activity is operating well below trend growth and the September reading was weak. Consensus is looking for a rebound in October but still at activity levels below trend. Despite the weak macro backdrop, the equity market is still grinding higher on central bank easing and fiscal stimulus coming from both China and the US. In addition, China’s concession on IP theft indicating willingness to raise the penalty has also seen the market being more buoyant on the trade deal scope widening after the “first phase” deal when it comes.

Source: Saxo Group

Tesla’s unveil of its new Cybertruck on Friday to compete against Ford’s F-150 has drawn many headlines as the truck’s bulletproof windows smashed on stage. Whether this was staged PR or not it got the Internet speaking about driving massive attention on the launch. Elon Musk tweeted earlier today that the company has now received 200K orders of Cybertruck paying a small $100 deposit. Tesla shares were down 6% on Friday after the product launch but the pre-order numbers are seeing bids coming in this morning with Tesla shares trading at $345 in pre-market session up from Friday’s close at $333. Regardless of Cybertruck the main risks to Tesla’s shares are the Chinese market share in 2020 as the Shanghai Gigafactory ramps up production in China and the production start and deliveries of the Model Y crossover. Wall Street has lowered their sales growth targets as consensus had FY20 revenue at $35bn in late December 2018 which has now been cut to around $29bn which is still 20% growth y/y. The share price declined throughout the first half of the year in tandem with lower FY20 revenue projections from analysts, but the recent rebound has happened while revenue expectations have continued to come down. This highlight a widening gap between investors and analysts.

Source: Saxo Group
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 is not intended to and does not change or expand on this. 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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S - Representative Office
Boulevard Plaza - Tower 1
30th floor, office 3002
Dubai Downtown, Burj Khalifa area
Dubai
UAE

UAE

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

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.