17 June 2019Monday Report

Economy Markets

Swiss Market Equities

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Bonds

ATOS (Satellites) is winning market share in the supercomputer sector. The group estimates that it will hold 12-15% of this mar-ket within the next few years (with annual growth averaging 8%), generating revenue of just over €800m three years from now. Fol-lowing the inauguration of a supercomputer for the CEA (France’s Atomic Energy Commission), a number of machines (under the EC’s EuroHPC programme) are expected for 2021, together with two exaflop machines (one billion billion calculations per second!) in 2022-23.

DEUTSCHE TELEKOM (Satellites): Germany’s 5G frequency spec-trum auction is finally over (after 52 days and 497 rounds of bid-ding), raising a total of €6.55bn, beating the consensus of c. €5bn. In the end, the best-placed players are DT and Vodafone, based on the quality and choice of frequency blocks. The cost is not as high as it looks (€0.19 per inhabitant, vs. a European average of €0.17 and €0.41 in Italy).

INDITEX (Core Holdings): rival group H&M has reported online sales in line with expectations in Q2 to end May. Unsurprisingly, organic growth slowed to 3% in spite of a favourable base effect (down 4% a year earlier), while Inditex reported Q1 (Feb-Apr) growth of 2%, vs. a more demanding base effect (up 4.2% a year earlier). Including the uptick in May, Inditex’s organic growth comes in at 3.5% from February to end May.

WIRECARD (Core Holdings) and Crédit Agricole Payment Services (CAPS) have announced the next steps in their partnership. Wire-card’s digital payment platform will henceforth join CAPS payment services offerings for all the latter’s key accounts (Tier 1 retail chains and merchants). While the impact is hard to quantify, we can bank on a significant volume effect in Q4 2019 when the offering is launched.

To be monitored this week: KOF consensus forecast, FCA May for-eign trade and watch exports, FSO April construction price index and SNB Q1 balance of payments.In other news, NOVARTIS (Core Holdings) presented results over the weekend on the long-term effectiveness and tolerance of Cosentyx for multiple forms of psoriasis and ankylosing spondylitis, strengthening the product’s positioning relative to its competitors.

Stock marketAfter reassuring US statistics and a decline in Chinese production growth at the end of last week, this Wednesday’s Fed meeting should be even more hotly awaited. Markets are thus likely to re-main jittery until Jay Powell provides some indications.

CurrenciesGold has kept on climbing to $1,338/oz (Friday: $1,358). Bullion prices could reach $1,375 if there is an Iran/US conflict; otherwise, it should return to $1,320. Thomas Jordan’s comments favour a stable/firm CHF; EUR/CHF target: 1.1120. We expect EUR/USD to weaken to 1.1190 after 1.1110, with USD/CHF stable at 0.9850-1.0050 ahead of the G20. Caution: if GBP/USD breaks through 1.2560, the next support is at 1.2440-1.2480. Oil will continue to trade between $60 and $70 a barrel.

Ahead of the Fed meeting, risk appetite received a boost from these encouraging statistics and the lack of political news. Equi-ties thus gained 0.2% and credit spreads narrowed (down 10 bps on the US HY segment). Sovereign yields were more or less un-changed. The dollar was up 1.1% (dollar index), though this did not stop gold gaining 0.3%. To be monitored this week: confidence among homebuilders (NAHB), housing starts, building permits, Fed meeting, and manufacturing and services PMIs in the US; and new vehicle registrations, consumer confidence, and manufactur-ing and services PMIs in the eurozone.

US statistics were satisfactory overall. Confidence among SMEs (NFIB index) recovered from 103.5 to 105 in May, retail sales growth quickened to 0.5% MoM and industrial production rose by a higher than expected 0.4% MoM. Inflation remained under control (2% YoY), increasing the Fed’s room for manoeuvre. In the eurozone, the Sentix confidence index plummeted from 5.3 to -3.3 in June, while industrial production, unsurprisingly, contracted 0.5% MoM in April. In China, stable currency reserves confirmed that there is no panic. Improving liquidity indicators (with M2 up 8.5% YoY) and credit indicators bode well after disappointing industrial produc-tion and investment in May (up 5% and 5.6% YoY respectively). Reassuringly, consumption remains stronger for the time being, as indicated by higher retail sales (up 8.6% YoY).

As at 14.06.2019 07.06.2019 31.12.2018SMI 9 847.61 1.01% 16.83%

Europe Stoxx 600 378.81 0.35% 12.19%MSCI USA 2 751.34 0.47% 15.43%

MSCI Emerging 1 015.08 0.76% 5.11%Nikkei 225 21 116.89 1.11% 5.51%

As at 14.06.2019CHF vs. USD 0.9983 -1.11% -1.25%EUR vs. USD 1.1225 -0.99% -1.81%

10-year yield CHF (level) -0.58% -0.61% -0.24%10-year yield EUR (level) -0.26% -0.26% 0.25%10-year yield USD (level) 2.09% 2.08% 2.69%

Gold (USD/per once) 1 350.18 0.32% 5.37%Brent (USD/bl) 62.23 -1.07% 17.13%

Source: Datastream

Since

US yields held relatively steady, buoyed by lower inflation expecta-tions. We are monitoring the Fed, which should keep interest rates unchanged at its Wednesday meeting – as the ECB did last week, when it postponed its next prospective rate hike by a half-year to 2020. The international outlook is prompting more and more central banks to soften their monetary policy, boosting high-yield assets and duration. HY was up 0.45% and emerging assets 0.30%.