Who wants to take risk? Who wants to take risk? Who wants to take risk?

Who wants to take risk?

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  In today's equity update we discuss the fresh macro data from Japan and New Zealand showing consumer and business confidence are still falling. On top of bad macro data, US tariffs on Chinese goods are hiked over the weekend and Boris Johnson added drama to Brexit with his advice to suspend Parliament. The big question is who wants to take risk here and how it should be done.


Macro fundamentals disappointed overnight again. New Zealand business confidence in August fell to lowest levels since 2008 and Japan consumer confidence in August missed expectations by a mile and accelerating to the downside. Based on incoming data we are again raising the recession probability – the next six months are going to be critical. Yesterday, Ray Dalio the founder of Bridgewater Associates wrote a piece comparing the current situation to the period 1935-1945 in which central banks no longer have the fire power to control and stimulate growth. Ray Dalio says the global economy is entering the final stage of the long-term debt cycle where interest rate cuts are increasingly impotent. Only fiscal stimulus can alleviate the slowdown.

Trump’s new tariffs hike goes into effect over the weekend (September 1) and given last weekend’s string of tweets how many traders are keen on taking risk into the weekend? We continue to argue that traders should not take the risk over the weekend and investors should increasingly turn portfolios defensive.

Is Brexit chaos coming?

Yesterday was another eventful day in London as the UK Prime Minister Boris Johnson advised the Queen to suspend Parliament raising strong discontent due to its timing leading up to the new Brexit deadline on October 31. The political developments around Brexit but also Italy are strong arguments for our continued stance that investors should underweight the European value trap in equities.

S&P 500 earnings momentum still surprisingly strong

Despite all the weakness being thrown at equity markets from macro fundamentals we were surprised to note yesterday that S&P 500 is still seeing EBITDA growth around 5% y/y. The slowdown in profit growth even seems to be stabilizing contrary to the sharp decline in 2015 due to rapidly falling oil prices that cut profits in the energy sector.

The key to S&P 500 earnings growth remains the technology sector. So far, more technology regulation in Europe and the US-China trade war have not hit earnings growth enough. But our view is that over the next six months earnings growth will begin surprise to the downside as even technology companies will begin to feel the heat.

Stocks to watch

While financial markets are sending clear signals that USD funding under pressure China’s largest technology company Tencent (00700:xhkg) just raised $6.5bn in what is the largest USD-denominated credit facility by any Chinese company. This is obviously a strong signal for Tencent that has been struggling for years with more competition and temporary gaming ban which has slowed revenue growth from 45% to around 20% over the past two years.

Pernod Ricard (RI:xpar) is not feeling the slowdown in China as the French alcoholic beverage company delivered its largest earnings growth in seven years due to strong Chinese demand. As a result, the company is planning to buy back more of its shares which seems like a potentially bad decision given the company’s high valuation (50% above MSCI World). Shares are up 19% year-to-date outperforming the general market.

Williams-Sonoma (WSM:xnys) raises its FY earnings forecast on strong quarterly earnings release. The stock price is flirting with resistance levels from Q3 2018 and mid-2015. The positive surprise in guidance could help the stock head into new territory.

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 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 Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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 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 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 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 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 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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.