Equity MFs See Strongest Outflows Since Dec. 2015
Domestic and international equity outflows drive equity MF deterioration, partially offset by strength in fixed income.
Executive summary:
Long-term mutual funds continue to post outflows for the fourth consecutive week, according to the latest data from EPFR Global. Outflows this week were primarily driven by a sharp increase in domestic equity fund outflows and the largest outflows in international equity funds since the end of June. All style categories of domestic equity funds posted deteriorating outflows, while an inflection to outflows in global DM funds drove international equity funds into outflows. Strong bond fund inflows partially offset equity fund outflows. Domestic taxable funds posted accelerating inflows, as shortterm and total return funds generated stronger inflows w/w. International taxable funds also inflected to inflows, primarily due to an improvement in all style categories. Muni funds inflows accelerated w/w while balanced funds generated outflows. ETF outflows deteriorated, as US equity ETFs inflected back to outflows, partially offset by an improvement in global DM equity ETFs. Bond ETFs continued to generate inflows, albeit at a slower pace than last week.
ECB’s Vasiliauskas: Deutsche Bank Doesn’t Pose Systemic Risk to Europe
Lithuanian central bank leader also says the governing council hasn’t discussed tapering asset purchases
WASHINGTON—Struggling German lender Deutsche Bank won’t drive the eurozone economy into the ground, a member of the European Central Bank’s governing council said Thursday, adding a fresh dose of calm into a case that has raised concerns about the continent’s ability to confront the struggles of Germany’s largest lender.
“I don’t think that problems related with one of the banks somehow can influence overall financial stability,” said Vitas Vasiliauskas, the head of Lithuania’s central bank, in an interview with The Wall Street Journal. The small Baltic state has used the euro since last year and therefore has a voice on the 25-member governing council that sets monetary policy in the currency bloc. The ECB also serves as supervisor of the eurozone’s largest banks. “I don’t think that we face something systemic,” he said on the sidelines of the annual meetings of the International Monetary Fund.
The comments come as government officials, bankers and economic leaders scramble to find a way to assuage investor concerns over the future of Germany’s largest bank, which faces a multibillion-dollar fine from the U.S. Justice Department over a scandal before the financial crisis. Analysts worry that if the bank has to pay the floated $14 billion in full, it will cut the bank’s capital cushion to dangerously low levels, perhaps forcing it to seek a rescue from Germany’s government. The bank has said that worries about its future are exaggerated.
Mr. Vasiliauskas didn’t shed much light on what moves the ECB might take at its coming meetings, but stressed that the governing council hasn’t discussed how it will end its monthly €80 billion ($90 billion) asset-purchase program, known as quantitative easing. Earlier this week, Bloomberg reported that a consensus had emerged at the ECB on how to gradually reduce its asset purchases.
Asked about media reports of tapering, Mr. Vasiliauskas said, “We hadn’t discussed anything. I was surprised by such media interpretations.”
Many analysts expect the ECB to take some action near the end of this year to further enhance its asset-purchase program. Mr. Vasiliauskas said it was “premature to discuss now possible steps in the future,” adding that ECB committees are looking at “all possible options.”
Still, he hinted that the central bank would be careful about dropping its deposit rate further into negative territory. Currently, the rate is minus 0.4%, meaning commercial banks pay to park money with the central bank overnight. Banks are complaining that these rates are eating into their earnings, and top central bank officials in recent days have flagged the damaging side effects of the very low deposit rate.
With respect to future use of a negative deposit rate, Mr. Vasiliauskas said, “We should take into consideration financial stability issues and impacts to the banking business as such in Europe.”
Still, he stressed that for setting monetary policy the “inflation target is the main thing for us.” Like most major central banks, the ECB targets inflation over the medium term of around 2% (officially for the ECB, “close to, but below 2%”), a target that it has consistently missed for more than three years. The most recent data put inflation at just 0.4%.
The Lithuanian official also voiced objections to banks blaming the ECB for their troubles. “Banks should understand that we live in new realities,” he said. “We are continuing to help to improve the lending situation…we are working hand in hand with the banking sector.”
Mr. Vasiliauskas also expressed concern about rising protectionist and isolationist rhetoric in major economies. “All those populistic ideas, all those ideas how to isolate, how to not think internationally, not to think about positive developments in globalization, so that scares me a lot,” he said. He said that such thinking was akin to the “19th century.”
European Consumer Staples
Reason for optimism despite weak Q3
Neutral on Consumer Staples but support possible through Q3 earnings: Despite a period of limited downward earnings revisions to Staples through Q2 results season and still less than the wider market, Staples stocks have struggled to make headway over the summer months. Absolute PEs are still high, BUT relative valuations are no-longer so stretched, while dividend yield support vs. bonds remains attractive. With the economic/political backdrop in Europe still uncertain, and if Staples positive relative earnings momentum continues through Q3 earnings, we believe the sector is set to hold, or even re-rate a little, through Q4. However, despite period discussions and ‘Nifty 50’ type comparisons, we still find it hard to argue for a further structural re-rating without moving to a structurally lower long term cost of capital. With this report we consolidate all stocks in European Beverages & Tobacco and European Food & HPC into one enlarged European Consumer Staples sector, and maintain our Neutral stance. As a result, we remove Unilever as a Top Pick (Food & HPC), and retain Imperial Brands as our Top Pick across European Consumer Staples.
--> FUNDAMENTAL PICKS: Imperial, PMI, Pernod Ricard, Rémy, Danone, Unilever
Valeo : The power of Growth
We reiterate our OW rating with a new €62 PT (vs. €49) and revise our 2017/18 estimates by 11%. Valeo offers best-in-class organic growth thanks to a diversified portfolio and solid positions on automotive megatrends. Book to bill continues to stand at record high levels, and Valeo detailed last week an impressive roadmap for its CDA and Powertrain divisions. We believe one of the highlights of it was the record number of contracts (25) it has secured for its 48V technology. We still see the French supplier as a cyclical automotive company but also believe its 15% EPS CAGR over 2011/2016E deserves to be recognized. We don't apply growth company multiples to Valeo but equally we upgrade our multiples to better reflect this.
Full note attached
What’s it all about?
E.ON deserves credit for coming up with the idea of splitting conventional from new energy. RWE only followed, but then implemented a split without many of E.ON’s troubles. The only concern could relate to the timing of the IPO before the nuclear situation is resolved. We compare RWE AG (which retains a majority holding in Innogy for now) and Innogy. We also look at RWE once the majority of Innogy is sold (which we expect to happen). We recently published in-depth reports on both groups: RWE: Not out of exile (219pp) 5 October 2016, Innogy: Getaway car (196pp) 5 October 2016). With a EUR10 target price, we are sellers of RWE. Innogy will have its first trading day on Friday 7 October. With a EUR34 target
price, we would buy up to levels of EUR32, hold the shares between EUR32 and EUR35, and sell above EUR35 (pure income investors will probably disagree).
Dow -0.07% S&P +0.05% Nasdaq -0.17% Russell -0.17% VIX 12.83 (-1.23%) VXX 33.20 (-0.90%)
US Market closed near closed to the flat line ahead of job report today. Long-term interest rates continued their recent climb despite some dovish-sounding minutes from the European Central Bank's (ECB) September meeting and accommodative jawboning from ECB Vice President Vitor Constancio. Real Estate, Consumer Staples, Utilities & and telco (yield plays) closed off their worst levels after underperforming this week with yield higher. Six sectors ended in the green today with materials (+0.8%) and technology (+0.2%) leading the advance. Crude oil ($50.44/bbl; +$0.68; +1.4%). IBB -2.3%. Twitter (TWTR 19.87, -5.00) tumbled 20.2% after reports signaled that Apple (AAPL 113.89, +0.84), Alphabet (GOOG 776.86, +0.39), and Disney (DIS 92.83, +0.38) are unlikely to pursue bids for Twitter. Volume were below average with 796mil shares. US After Hours GPS +6% on September comps, RT -10% on earnings/discontinuation of guidance. GBP/USD "flash-crashed" unexpected in low-liquidity early Asian trade, falling by over 8 handles from just above 1.26 to below 1.18. There was no associated news with the event, though some analysts have noted the mention of a hard Brexit by French President Hollande in late US hours. FX traders await more details on what was likely a large order setting off brisk algo selling in what has already been a one-way trade over the past week. China FX reserves outflows have accelerated, falling over $20B to $3.166B - the biggest decline in 4 months and also 3rd straight month of outflows. Analysts suggest the data signifies the extent of PBoC intervention in China currency. Japan PM Abe's economic adviser Honda made a more vocal plea for increase in fiscal stimulus and expanded monetary easy by the BOJ as soon as next month, attributing limited progress on inflation to fiscal restaint of the govt.
Nikkei -0.31% Hang Seng -0.50% CSI Closed Shanghai Closed
Eur$ 1.1121 CNH 6.7134 CNY 6.6718 JPY 103.93 GBP 1.2465 CHF 0.9823 RUB 62.1890 WTI $50.49 (+0.10%)
S&P -0.22% EuroStoxx -0.13% FTSE +0.62% Dax -0.22% SMI +0.02%
Macro :
- Fed Survey Reports Expected Changes Due to Money-Fund Reforms
- Fed Running Out of Excuses to Avoid Rate Hike, TIAA’s Nick Says
- Pound Flash Crash Has Traders Blaming Algos for Selling Frenzy
- Fed Hike Odds Jump to 64% From Coin Toss as Payrolls Test Looms
- Foreigners in London ‘Horrified’ by May’s Immigration Vision
Keep an eye on :
- ABEO FP : Abeo to Raise EU20.7M in Paris IPO; Price Set at EU16.84/Share
- ABN NA : Nordea Said to Have Held Talks to Merge With ABN; Plan Rejected
- AIR FP : Airbus Said to Have Made Offer for Leonardo’s MBDA Stake: Sole
- ASML NA : ASML CEO Still Sees Full EUV Machine Production in 3 Yrs: FD
- CBK GY : Commerzbank to Cut Management Posts by 3 to 41: Boersen-Zeitung
- DL NA : Holder Dasym May Not Oppose NN Bid for Delta Lloyd: Telegraaf
- DL NA : Delta Lloyd Said Planning to Reject Approach From NN Group
- DBK GY : Deutsche Bank Said to Eye Asset Management Unit IPO: FT
- DBK GY : German DAX CEOs Said to Have Discussed Deutsche Bank Support: HB
- DBK GY : Deutsche Bank Hires Two for Structured-Products Team in New York
- EOAN GY : Cevian Said to Evaluate Buying Stake in Eon: Rheinische Post
- INDUC SS : Industrivaerden Wants to Own Shares in Both SCA Companies: DI
- LEO GY : Leoni Evaluates Takeovers, Divestments in Asset Review: Wiwo
- LDI IM : Airbus Said to Have Made Offer for Leonardo’s MBDA Stake: Sole
- NDA SS : Nordea Said to Have Held Talks to Merge With ABN; Plan Rejected
- RWE GY : RWE Sells 55.6m Innogy Shares at EU36 in Frankfurt IPO
- SAF FP : Safran CEO Says Organic Growth Is Priority: La Tribune
- SAN FP : Sanofi Gets $37.6m U.S. Government Contract to Supply Leukine
- SFR FP : SFR Group Mulling Plan to Move Headquarters Within Paris: Echos
- SNAP IPO : Snapchat Said to Prepare Documents for IPO as Soon as March
- FP FP : Total Close to Selling Atotech to Carlyle: Les Echos
- TUI LN : TUI Fly Scraps Operations Friday After Employees Call in Sick
- TWTR US : Charles Gasparino: @salesforce @Benioff facing pressure from his own execs AND investors to rebuff poss $twtr deal
- VIV FP : Vivendi Starts Premium Music-Video Service in Brazil With Vivo
- VOW3 GY : VW Plans to Shift Decision-Making to Brands, Regions: Boersen Z
- ZC FP : Safran CEO Says Organic Growth Is Priority: La Tribune