Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
Access all our platforms from a single account.
China's extraordinary decoupling and why you should watch BASF
Peter Garnry
Chief Investment Strategist
Summary: Just because China's stock market is roaring doesn't mean the rest of the world will follow suit. A better indicator of how things will pan out for equities globally may be found in Tuesday's earnings report from BASF.
Chinese equities jump 6.7%
This week is starting with one of the biggest decoupling moves in many years. Chinese mainland equities were up today at one point by 8.3%, ending the session up 6.7%, as the US president extends the trade deal deadline.
With macro data disappointing everywhere and with global leading indicators at their worst since late 2009, it seems as if the trade deal has removed investor focus away from the real issue. The global economy is extremely fragile. Why else would the Fed go from a hawkish view in December to suddenly Vice Chairman Clarida talking about yield caps?
The Fed has recognised the weakness and with the growing supply of US Treasuries due to the expanding fiscal deficit, the Fed wants to tell the market that it will not allow the supply-demand imbalance to cause interest rate volatility.
As we pointed out last week, Chinese sentiment does not seem to be bought to the same degree in Germany and South Korea, markets that have high sensitivity to changing economic activity in China. As long as we are not seeing those two markets confirming the Chinese sentiment we remain cautious on equities. The risk of mean reversion is extremely elevated.
This week is starting with one of the biggest decoupling moves in many years. Chinese mainland equities were up today at one point by 8.3%, ending the session up 6.7%, as the US president extends the trade deal deadline.
With macro data disappointing everywhere and with global leading indicators at their worst since late 2009, it seems as if the trade deal has removed investor focus away from the real issue. The global economy is extremely fragile. Why else would the Fed go from a hawkish view in December to suddenly Vice Chairman Clarida talking about yield caps?
The Fed has recognised the weakness and with the growing supply of US Treasuries due to the expanding fiscal deficit, the Fed wants to tell the market that it will not allow the supply-demand imbalance to cause interest rate volatility.
As we pointed out last week, Chinese sentiment does not seem to be bought to the same degree in Germany and South Korea, markets that have high sensitivity to changing economic activity in China. As long as we are not seeing those two markets confirming the Chinese sentiment we remain cautious on equities. The risk of mean reversion is extremely elevated.
CSI 300, S&P 500 and KOSPI 200 Index futures since early December 2018 (Jan 4 = 100)
BASF Q4 earnings on Tuesday are critical to watch
BASF, the world’s second largest chemical company measured on revenue, is set to report Q4 earnings tomorrow at 06:00 GMT with analysts expecting EPS €0.64 down 51% y/y and revenue of €14.6bn down 9% y/y. The chemical industry is one of the most important industries in the global economy because of its frontal position in the global supply chain.
Demand for chemicals goes up when companies anticipate demand and vice versa. Naturally, chemical companies were leading the decline in Q4 but have not lead the rebound, which is a sign that the rebound is simply sentiment-driven and not based on changes in underlying macro fundamentals. BASF’s outlook is key for global investors to get an understanding of whether economic activity is changing for the better in Europe and Asia. Our take is that the outlook will be very uncertain and to the downside.
BASF weekly share price the past five years:
BASF, the world’s second largest chemical company measured on revenue, is set to report Q4 earnings tomorrow at 06:00 GMT with analysts expecting EPS €0.64 down 51% y/y and revenue of €14.6bn down 9% y/y. The chemical industry is one of the most important industries in the global economy because of its frontal position in the global supply chain.
Demand for chemicals goes up when companies anticipate demand and vice versa. Naturally, chemical companies were leading the decline in Q4 but have not lead the rebound, which is a sign that the rebound is simply sentiment-driven and not based on changes in underlying macro fundamentals. BASF’s outlook is key for global investors to get an understanding of whether economic activity is changing for the better in Europe and Asia. Our take is that the outlook will be very uncertain and to the downside.
BASF weekly share price the past five years:
Five-year chart on index futures for regulatory requirements.
Cumulative return on CSI 300, S&P 500 and KOSPI 200 Index futures the past five years
Cumulative return on CSI 300, S&P 500 and KOSPI 200 Index futures the past five years
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Q3 Macro Outlook: Less chaos, and hopefully a bit more clarity
John J. Hardy
Global Head of Macro Strategy
After the chaos of Q2, the quarter ahead should get a bit more clarity on how Trump 2.0 is impacting... -
Quarterly Outlook
Equity outlook: The high cost of global fragmentation for US portfolios
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: Commodities rally despite global uncertainty
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
Upending the global order at blinding speed
John J. Hardy
Global Head of Macro Strategy
We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ... -
Quarterly Outlook
Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever
Jacob Falkencrone
Global Head of Investment Strategy
-
Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy