Investment Meeting: Summary of Views 18 April 2018

Transcription

1 Investment Meeting: Summary of Views 18 April 2018 Macro Overview No change in view from last meeting. Market is still pricing in 80% probability of a 25 bps at June 13 meeting. Current data are not supportive of the case for higher inflation with the key data (PCE deflator, US Capacity Utilization and US Financial Conditions Index) showing inflation under control. Europe: the ECB s primary focus is the target inflation rate (2%) over the medium-term. EZ Financial Conditions remain relatively loose, EZ All-Item Inflation index has picked up to 1.40% but EZ Capacity Utilization is nearing levels which could lead to more inflationary pressures. Current Market Conditions Markets mixed start to April with an upbeat note but nervous and low volumes since our last bi-weekly review. Equity markets (range trading with muted reactions to initial earnings releases, fixed income getting a bid. USD Fixed Income: UST short-term rates moving gradually higher while 10s largely unchanged resulting in a gradual flattening of the yield curve. Credit spreads tighten slightly for both Inv. Grade and High Yield but largely due to UST rate increases. Current Market Conditions (cont d) EUR Fixed Income: Government 5 & 10 yr. rates coming back down on a lack of rising inflation even as 2s remain relatively flat driving the yield curve to flatten slightly. Emerging Market Fixed Income: Credit spreads coming back in somewhat and reflective of UST rates. Trade issues remain in focus albeit signs out of China seem to indicate potential easing. Equity Market: US valuations are now somewhat more attractive post correction. Expected earnings growth (market pricing in 15-20% growth in 2018). Europe and Japan show value on P/B and some value on P/S. EM markets are priced at the most attractive levels in comparison to DM. Market Technicals Key Levels and charts on slide 10. Fund Holdings Updates on our current holdings / target funds in the attached Summary.

2 Market Performance Update Returns As of: 17-Apr-18 YTD Equity Indices (USD Mar'18 16-Apr-18 MSCI WORLD -2.4% -0.2% MSCI ACWI -2.4% -0.1% S&P % 0.2% NASDAQ COMP. -2.9% 3.7% RUSSELL % 1.8% STXE 600 $ Pr -1.5% 0.0% EM Asia USD -1.5% 2.1% MSCI AC ASIA x JAPAN -1.6% 0.6% EM Latin America USD -1.1% 5.5% EM Europe -4.9% -5.1% Asset Class Comparative Performance Bl.-Barc. Bond Mar'18 16-Apr-18 Global Aggregate 1.1% 1.4% U.S. Corp 0.3% -2.3% US Corp High Yield -0.6% 0.4% Pan-Euro Agg Corp 0.1% -0.1% Pan-Euro HY Unh Eur -0.1% 0.7% EM USD Aggregate 0.1% -1.5% EM Pan-Euro Agg. Unh. 0.3% -0.2% EM Local CY Aggregate 1.3% 2.1% Alternative Assets Mar'18 16-Apr-18 HFR Macro/CTA -0.8% -1.5% HFR Global Hedge -1.0% -0.6% HFR Absolute Return -0.1% 0.5% BBG Commodity TR -0.6% 1.4% BBG Agriculture TR -2.8% 2.8% BBG Energy TR 4.9% 3.5% BBG Industrial Metals TR -4.4% -0.1% Gold vs USD 0.5% 3.3% Source: Bloomberg

3 Currency Performance Update Returns As of: 17-Apr-18 USD Returns vs FX 3 Mos. To Mar'18 Mar'18 YTD USDMXN -3.3% -7.5% -8.5% USDBRL 1.8% -0.2% 3.2% USDCAD 0.7% 2.6% -0.1% USDEUR -0.9% -2.6% -3.3% USDCHF 1.0% -2.1% -1.5% USDGBP -1.6% -3.6% -6.0% USDRUB 2.0% -0.6% 5.8% USDJPY -0.4% -5.7% -5.1% USDAUD 1.4% 1.6% 0.2% USDCNY -0.9% -3.6% -3.5% USDINR 0.0% 2.0% 2.8% XAUUSD 0.5% 1.7% 3.3% Source: Bloomberg USD performance in March has been more reflective of idiosyncratic risks rather than any predominant theme. The big moves have been limited to a few notable currency pairs. The ever-shifting US trade policy has been reflected in a stronger MXN vs USD as talk of progress in NAFTA talks has brought buyers back into the currency. Geopolitics has been evident in the significant rise of the USD vs RUB as the Skripal poisoning led to increasing diplomatic and economic sanctions against Russia. The other big USD gains this past month have been against the commodity exporters (USDBRL and USDAUD) reflective of the drop in industrial metals prices. Unlike 2017, the year to date picture for the USD shows no clear patterns.

4 The Week s Macro Indicators US Fed under Chairman Powell is unlikely to diverge from its data-driven approach to setting the Fed Fuds target rate. The market is pricing in a 88.6% probability that Fed Funds will move up to % range (+25bps). We currently expect an additional +75bps (3 x 25bps) over the course of 2018 to proceed in a well-telegraphed manner subject to economic growth coming through as expected. U-3 Unemployment rate: Mar data remained steady at 4% but US Labor Force Participation rate (62.9%) is still near multi-decade lows. US Capacity Utilization: Feb. At 77.7% moving up but still not above the 80-82% levels which would lead to increased inflation fears. PCE (Personal Consumption Expenditure) Deflator: Jan. At 1.6% is edging closer to the Fed's 2% target level. Bloomberg Financial Conditions Index: somewhat tighter financing environment need to watch. Mr. Draghi's ECB is largely focused on the expected inflation rate and, like the US Fed, targets a 2% level over the medium term (subject to interpretation). the data in Europe seems to indicate a higher probability of the ECB tapering its QE policies as three out of four indicators are flashing potential inflationary pressures. The most important data point (EZ All-Item Inflation) is not showing much sign of life yet as it lingers below 1.5%. We expect policy rates to remain unchanged for the rest of The Latest Data show limited pressure for faster policy decisions. Euro Zone Unemployment rate: December data (8.70%) shows continued improvement. EZ Capacity Utilization: last print for December (83.8%) approaching levels indicative of capacity constraints. EZ All-item Inflation: February print at 1.10% shows no inflationary pressures forthcoming.

5 Fixed Income: US & EUR Overview US Treasuries: 2s, 5s and 10s (%) EUR Govies: 2s, 5s and 10s (%) USD: Global IG and Global High Yield Corp. Spreads (bps) EM Debt: USD & EUR Aggregate Spreads (bps)

6 Global Equity: Overview Equity Market Valuation vs 7yr Hi-Lo As of: 17-Apr-18 Price/Book 7 Yr Price/Sales 7yr Dividend Trailing 12 Est. EPS Growth Current P/B % From Current P/S % From Index Last Price Yield (%) Mo EPS* Earnings** Est Est P/E Pr/Book Low Hi Hi Pr/Sales Low Hi Hi SP500 2, % % % Dow Jones Industr 24, % % % Nasdaq 7, % % % Stoxx 600 Europe % % % Nikkei 21, % % % MSCI Asia X-Japan % % % MSCI Emerging 1, % % % MSCI Emerging Eur % % % MSCI Emerging Asi % % % MSCI Emerging Lat 2, % % % MSCI India 1, % % % MSCI China % % % Source: Bloomberg * - diluted eps from continuing ops. includes one time, extraordinary gains/losses ** -Bloomberg consensus EPS GAAP estimates excluding one time, extraordinary gains/losses We look at market levels on three key metrics (current Price to next 12 months estimated Earnings (Est P/E), current Price to Book Value (P/B) and current Price tosales. While these measures alone do not necessarily account for markets' potential to continue to move higher, they do provide a good sense of the relative value of different global equity markets. The US market valuation has improved post the recent sell-off combined with the improving earnings picture. At 16.9x the estimated PE levels (12 mos forward) is now trading near the historical median and both a Price/Book and Price/Sales basis are 5 percent below this cycle highs. European markets continue to look more attractive with some upside to valuations acroos all measures. Japanese markets are have come off from the 7 year highs and look attractive. Emerging markets look the best value on these metrics across the board.

7 No change in SP500 EPS growth expecations for the coming quarter. Earnings and Sales Growth Expectations GS vs Consensus JPM seeing împroving revisions on both Sales and EPS growth for full year 2018 Source: Goldman Sachs

8 S&P500 Market Valuations

9 IDAR Performance Snapshot

10 Market Technicals Key Slides

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