* European shares rise 0.5%
* Autos help lift DAX to all-time high
* Eyes on final PMIs, UK budget
* Wall Street futures rise
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BUY EU VALUE, HOLD U.S. GROWTH (1153 GMT)
Whether the U.S. stock markets have peaked or not is up to
debate, but most analysts agree that some of the current
valuations could be a bit over the top.
Credit Suisse takes a significant step in this matter and
decides to lower its weighting on U.S. growth to benchmark,
after being overweight since 2010.
Meanwhile it reiterates its overweight of European value,
which typically outperforms when bond yields rise.
It also reduces European and U.S. small caps to benchmark
after raising them to overweight in June 2020.
No doubts fiscal stimulus and pent-up demand will lead to
positive growth surprise in the U.S. but “growth stocks have
peaked on 45-72x earnings in the past 50 years and are now
trading at around 49x earnings,” Credit Suisse analysts say.
They are not going underweight on U.S. growth as they expect
cost of equity to fall, with Treasury Inflation-Protected
Securities (TIPS) yields not rising.
They like “European value sectors that are not disrupted,
are real asset plays and are helped by government policy; this
includes homebuilders, cement and mining.”
European value is trading close to multi-decade lows on P/E
and P/B relative to growth, they say.
“Super eCaps” inexpensive and which have a positive
correlation with Bund yields include Smiths Group and
Adecco, according to CS analysts.
They also like U.S. quality growth with low leverage such as
Home Depot, Texas Instruments.
In the chart below European value stocks (in orange)
underperforming both EU (green) and U.S. (purple) growth stocks.
SAMSUNG OF THE EV WORLD: TESLA OR VW? (1055 GMT)
Pointing to VW's potential to profitably scale-up EVs, UBS
says it would compare the German carmaker to Samsung in the tech
It begs the question, who's the Apple of the EV industry?
Tesla, of course. UBS highlights the Elon Musk-led EV
maker's admired piece of hardware in combination with a
cutting-edge software ecosystem.
Let's look into VW today, the red-hot Tesla's EV dominance
UBS thinks VW will "master" the transition into electric
vehicles and says "the market under-estimates the value in VW's
EV transformation story". It sees VW selling 1.2 million battery
EVs in 2022, becoming joint no. 1 in the space with Tesla.
VW is neck on neck with Toyota for the world's top car
seller spot and most of its EV success hinges on the success of
the ambitious ID.3, a mass-market electric vehicle launched in
On market cap, the race is a bit tougher for VW, sitting at
just 1/6th of the size of Tesla. UBS sees VW shares
hitting 300 euros in the next 12 months.
VW shares rose 5% this morning, outperforming the 2.8% rise
in the European autos index.
"Groundbreaking (UBS' take on VW)... and it shows that the
competition is closing in much faster on Tesla than the market
admits," a Berlin-based trader tells us.
Trading at 6 times forward earnings, investors are probably
discounting VW's role in EV transition and that's a far cry from
Tesla's whopping 160x valuation.
What's more, UBS says the current market cap of about 94
billion euros almost backs VW's EV business by 2025 and that's
before taking into account its cashflow-rich legacy business.
IN FAVOUR OF SUSTAINABLE DIVIDENDS (0909 GMT)
With equities across the globe flirting with their all-time
highs, dividends are coming back, probably stronger than ever,
as a key point in stock investing.
According to Columbia Threadneedle, the pandemic is likely
to change the mix of capital return as many companies understood
that “a focus on sustainable dividends is vital”, while better
recognising "the flexibility that share repurchases and special
The asset manager expects global dividends “to rise 10% (in
2021) despite the continuing pandemic,” with the materials
sector likely to see a growth “of more than 15% driven by
buoyant commodity prices.”
“Banks and insurers are likely to see dividends resume later
this year, but this may be slower than investors would like with
the regulator waiting until we are out of the woods.”
"This pandemic will likely make genuine dividend
sustainability even more greatly prized in this disrupted
world,” Columbia Threadneedle's portfolio manager Jonathan Crown
says in a research note.
NEW RECORD PEAK FOR THE DAX (0833 GMT)
It's clearly risk-on at the open in Europe.
Cyclicals are steaming ahead led by auto stocks continuing
their rally and driving Germany's DAX to a new all-time high, as
Merkel prepares to gradually relax COVID curbs.
Defensives are generally weaker as bond yields steadied well
below recent worrying levels.
The DAX is rising 0.9%, while the FTSE is well bid too, up
1%, ahead of UK budget measures to boost the economy.
In the chart the German index.
SHOTS HAVING EFFECT (0807 GMT)
Covid-19 contagion rates are falling steadily, central
bankers are making soothing noises, economic data looks robust
and vaccination campaigns are proceeding. And bond markets too
have calmed, with the U.S. 10-year Treasury yield even dipping
under 1.4%, well off last week's peaks above 1.61%.
No wonder, world stocks are marching back toward peak
levels. After a positive session in Asia, European and U.S.
futures are both heading north, up 0.5-0.9%.
We get another snapshot of the world economy from final PMI
figures in a range of countries but advance readings have looked
good. Australia's GDP data smashed estimates by expanding 3.1%
in Q4. And while Chinese services sector activity grew at its
slowest pace in 10 months, it remained above the 50-mark
separating growth from contraction.
As demand for safe-havens abated, the U.S. dollar slipped
from near one-month highs. Commodity currencies such as the
Aussie dollar and Norwegian crown benefited, building on the
chunky gains of the past two days.
Central bankers will another chance to dissipate any fears
over inflation or the timing for tapering stimulus, with Fed's
Bostic and ECB's de Guindos among those due to speak.
Finally the UK budget. Will British finance minister Rishi
Sunak choose to enlarge budget holes or seek to fill them?
Probably a mix. Goldman Sachs analysts are among those who see
recent his hawkish tone as political positioning. They
anticipate 60 billion pounds in fiscal stimulus.
Key developments that should provide more direction to
* The U.S. will have enough COVID-19 vaccine for every adult
by the end of May, President Joe Biden said
* Final services PMI
* Euro zone PPI
* Poland’s central bank meeting
* UK budget
* US ADP employment
* Fed speakers: Atlanta Fed’s Raphael Bostic 1900 GMT;
Philadelphia President Patrick Harker 1500 GMT; Chicago Fed’s
Charles Evans; Dallas Fed’s Rob Kaplan 2300 GMT
* ECB speakers: Board member Fabio Panetta 1300 GMT; Vice
President Luis de Guindos 1500 GMT; ECB board member Isabel
Schnabel 1930 GMT
* BOE speakers: board member Silvana Tenreyro 1600 GMT
MORNING CALL: EUROPE ON THE UP (0623 GMT)
European shares look set for a third straight session of
gains helped by optimism about the economic recovery, while bond
markets stabilise after flaming up last week.
The mood in Asia was positive overnight and that's spilling
over to Europe where futures point to gains of around 0.3-0.5%.
Wall Street futures are also heading north, up 0.4-0.6%,
after retreating on Tuesday led by a drop in big tech stocks.