Senior Quantitative Analyst, Saxo Bank
Summary: The construction industry in Europe took a hit last week due to the hawkish surprise from ECB, and the theme was the biggest mover in our weekly thematic ETF screener.
In our weekly publication series we monitor trends in a pool of around 40 equity themes via ETFs and equity indices. Every week we focus on one themes which have moved the most in the previous week relative to its usual trading pattern and volatility, and we provide an unbiased sample of companies within the theme. This week the we describe the theme which has made the largest deviation from the usual trading pattern.
On Thursday the European Central Bank gave a hawkish outlook by warning of more rate hikes as “the Governing Council judges that interest rates will still have to rise significantly at a steady pace”. Market participants were caught by surprise which resulted in a broad decline in across European equity markets. The construction industry was also affected significantly, as increasing yields as well as higher recession risk is a double whammy for the industry. The construction and materials theme was the theme which moved the most from its regular pattern of all the themes we track, as it faced a big weekly decline.
2023 may turn out to be a tough year for the construction industry if the high inflation persists, and companies will have to keep a strict eye on how their backlogs will be impacted by a potential economic slowdown. With the tight labour market, companies may also have to increase the employee salaries further to retain their current work force. On the other hand, construction companies are to a larger extend leveraging automatized processes and robots to reduce costs in the long run, such as 3d-printing of larger components, as well as moving bigger robots onsite for tasks such as site grading, rebar tying and bricklaying. And if inflation turns out to come down faster than the market expects, this will likely boost the construction industry significantly.
The list below illustrates 10 different companies within the theme. They are spanning a broad area of the theme and is intended as an inspirational list only:
How the list was created: Each theme consists of a number of companies from the ETFs and indices within the given theme. The list above is created by sampling 10 different companies from the theme, making sure that the companies have a low mutual correlation within the theme, such that they span a broad part of the overall theme. Note that this is based on historical performance which is not an indicator for future returns. The list is for inspirational purpose only and should not be considered as trade recommendations in any way.
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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.
