RTRS - GERMAN ECONOMY MINISTER GABRIEL SAYS GERMAN GOVT DOESN'T HAVE A RISK ASSESSMENT FOR DEUTSCHE BANK
DBK low of the day 12.05 +0.17%
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