(GS) 2016 Volatility Forecast

Our Forecast: Average VIX of 19, S&P 500 realized vol 17 in 2016

Our View: Average VIX of 19; SPX realized vol of 17 in 2016
Our forecast points to higher VIX levels in 2016 relative to 2015. Using our
macro volatility model and the views of our U.S. Economics team, we
forecast average VIX levels of 19 and S&P 500 realized volatility of 17 in
2016. In this report we estimate volatility levels based off of U.S. and global
GDP as well as various other economic indicators. Knowing what to expect
across different economic environments could make a big difference when
navigating the volatility environment in 2016.

Navigating the volatility cycle: numbers to remember in 2016
* High-twenties to low-thirties VIX levels equate to recession volatility.
* Regressions of volatility on U.S. GDP growth suggest VIX levels of 20
and S&P 500 realized volatility of 16.5 relative to our 2016 U.S. growth
forecast. Zero GDP growth corresponds to VIX levels of 24-26 with VIX
levels pushing to around 30 as growth drops to -2%.
* Volatility estimates are higher based upon our global growth forecast,
with expected VIX levels of 22 and S&P 500 realized vol of 19 in 2016.
* While it depends upon the external shock, we are more likely to fade
VIX spikes into the high-twenties to low-thirties when the economy is
on solid footing. That said, a high-teens VIX is our base case for 2016
suggesting declines in VIX back to the low-teens may serve as volatility
buying opportunities.

VIX scenarios: Base, bull and bear case
Entering 2016: The 20+ VIX levels we have seen in early 2016 are
consistent with the recent ISM manufacturing numbers below 50.

Base Case: A variety of growth metrics and economic surveys also point to
average VIX levels of 18-20 in 2016 under our U.S. GDP forecast.

What gets the VIX back to the mid-teens? Continued improvement in
the labor market and ISM non-manufacturing in the high 50’s.

What keeps the VIX above 20? We estimate that VIX levels above 20
would be consistent with the ISM composite survey below 53, the nonmanufacturing
survey below 54, and ISM manufacturing below 52, even if
the unemployment rate continues to fall modestly.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: GPRO -26.4%, (lowers Q4 guidance; will cut workforce by ~7%; SVP of Entertainment resigns, takes Board seat), PSG -15.6%, BBY -8.6%, SAR -3.5%, ATML -3.1%, WTR -1.9%

Select EU related names showing weakness with the DAX -2%+ today: IHG-4.2%, DB -2.1%, CS -1.5%, RCL -1.5%, RACE -1.3%, CCL -1.3%, BCS -1%


Other news: CGG -24.8% (following yesterday's rights offering), AMBA -10% (in symp GPRO guidance), AUY -2.2% (provides preliminary 2015 operational results; also downgraded to Equal Weight from Overweight at Barclays),SBUX -0.5% (issues statement on Jarkarta attacks; reports indicate explosion occurred in one of its stores)

Analyst comments: YELP -6.5% (downgraded to Sell from Neutral at B. Riley & Co), NVDA -2.6% (downgraded to Underweight from Equal Weight at Barclays), UBNT -2% (downgraded to Mkt Perform from Outperform at Bernstein)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: BGFV +6.8%, INFY +5.7%, MTN +3.3%, (Season-to-date lift ticket rev +19.4%; expects to exceed EBITDA guidance ), JPM +1.8%, CLC +1.6%, WNS +1.1%, BCE +0.5%

M&A news: WBMD +7.1% (in talks with a number of potential buyers over parts or all of its business, according to the FT), FORTY +2.9% (Formula Systems and Israel Aerospace Industries acquire military unit of Ness Tech (NSTC) for $50 mln)

Select financial related names showing strength after JPM earnings: MS +1.6%, C +0.8%, BAC +0.7%

Select metals/mining stocks trading higher: HMY +3.9%, BBL +2.4%, VALE +2.2%, BHP +1.8%, RIO +1.5%

Select oil/gas related names showing strength: EPE +5.8%, SN +3.9%, TOT +2.7%, BP +2.3%, OAS +2%, COG+1.8%, RDS.A +1.2%, CHK +1.1%

Other news: IPCI +11.8% (announces successful bioequivalence results for abuse deterrent Rexista Oxycodone XR),MNKD +5.1% (cont pre-mkt volatility), ERIC +2.4% (extends patent cross license agreement with Huawei)

Analyst comments: TRGP +5.3% (upgraded to Buy from Hold at Jefferies), CMG +1.8% (upgraded to Buy from Outperform at Credit Agricole)

>>> JPMorgan Chase on Energy Reserve Builds

JPMorgan Chase on Energy Reserve Builds
  • The provision for credit losses was $1.3 billion, up 49%, due to reserve increases in the current quarter versus reserve releases in the prior year quarter, partially offset by lower net charge-offs. The reserve increases in the current quarter reflected an increase in wholesale reserves of $185 million, driven by downgrades, including $124 million in the Oil & Gas portfolio and $35 million in Metals/Mining.
Prior Commentary
  • Energy Exposure- Approx $43 bln;
  • Fox Business News Maria Bartiromo tweeted yesterday that JPM's Jamie Dimon said that if oil stays were it is then the bank will need to increase reserves by $500 mln.
  • For a comparison Citigroup (C) has approx $60 bln in exposure to energy loans and has said it would need to increase reserves by $400 mln.
Q3 Impact
  • Net reserve release of $281 million pre-tax, which reflected a little less than $600 million of consumer reserve releases as favorable credit trends continue; offsetby a build of a little over $300 million in wholesale, approximately $160 million of which is additional reserves associated with the oil and gas sector, given expectations that energy prices will remain lower for longer.
  • "So if energy prices stay around these levels and recover slowly, we're expecting net not to have a material incremental reserve in the next quarter".

>>> JPMorgan Chase beats by $0.02, beats on revs --> +1.76% pre open

JPMorgan Chase beats by $0.02, beats on revs (57.34)
  • Reports Q4 (Dec) earnings of $1.32 per share, $0.02 better than the Capital IQ Consensus of $1.30; reported revenues rose 0.6% year/year to $22.89 bln vs the $22.34 bln Capital IQ Consensus; Managed revenue was $23.74 bln.
  • Fourth-quarter results included $99 million of after-tax impact from legal-related matters ($0.03 per share decrease in earnings) n Includes $417 million of after-tax Firmwide legal expense and $318 million of after-tax benefit related to a legal settlement.
  • Credit Costs
    • The provision for credit losses was $1.3 billion, up 49%, due to reserve increases in the current quarter versus reserve releases in the prior year quarter, partially offset by lower net charge-offs. The reserve increases in the current quarter reflected an increase in wholesale reserves of $185 million, driven by downgrades, including $124 million in the Oil & Gas portfolio and $35 million in Metals/Mining.
  • Key Metrics
    • Return on Tangible Common Equity 11% compared to 15% in Q3.
    • Return on Assets 0.90% compared to 1.11% in Q3.
    • Average core loans up 16% y/y (+5% q/q)
    • Overhead Ratio 62% compared to 67% in Q3.
    • Interest Rate Spread 2.12% compared to 2.06% in Q3.
    • Net Yield on Interest Earning Assets 2.23% compared to 2.16% in Q3.
    • Tangible book value per share of $48.13, up 8% n Basel III common equity
    • Tier 1 capital of $173 billion; ratio of 11.6%
    • Firm SLR of 6.5% and Bank SLR of 6.6%
  • CIB Unit
    • Net income was $1.7 billion, an increase of 80%, driven by lower legal expense. Net revenue was $7.1 billion, a decrease of 4%.
    • Banking revenue was $2.8 billion, down 6%. Investment Banking revenue was $1.5 billion, down 11%, on lower debt underwriting fees, partially offset by higher advisory fees.
    • Markets & Investor Services revenue was $4.3 billion, down 3%. Excluding the revenue decline related to business simplification, both total Markets and Fixed Income Markets revenue would have been down 1%, while Equity Markets revenue would have been flat. Fixed Income Markets revenue reflected continued weakness in Credit, lower revenue in Currencies & Emerging Markets and lower Commodities revenue, largely offset by strength in the Rates business. The decline also reflected higher interest costs on higher long-term debt.
    • Noninterest expense was $4.4 billion, down 20%, primarily driven by lower legal and compensation expense.
    • The provision for credit losses was $81 million, compared to a benefit of $59 million in the prior year quarter, primarily reflecting $76 million in higher reserves driven by $63 million in the Oil & Gas portfolio.
--> Follow Up
  • Firmwide Legal Expenses $644 mln (Approx $0.11 drag on EPS); Q3 expense was $1.34 or $0.26 per share.
  • Net Interest Income was $11.5 bln compared to $11.2 bln in Q3.
  • Expenses were $14.3 bln compared to $15.4 bln in Q3.
  • Credit Costs $1.3 bln compared to $600 mln in Q3.
  • NIM up 7 bps q/q to 2.23%.
  • Firmwide reserves at $14.3 bln coimpared toi $13.5 bln in Q3.
  • Deposit margin of 1.83%, down 28 bps YoY and 3 bps QoQ.
  • Mortgage originations of $22.5B, down 2% YoY and 25% QoQ.
  • Outlook
    • Expected 1Q16 NII and NIM to be flat to slightly up sequentially.
    • C&CB expected Mortgage Banking NIR to be down by approx $700 mln in 2016;
    • Expect Mortgage Banking NCOs to be approx $60 mln per quarter in 2016;
    • Expect 1Q16 Card Services expense to be relatively flat sequentially.

  • JPMorgan Chase on Energy Reserve Builds
    • The provision for credit losses was $1.3 billion, up 49%, due to reserve increases in the current quarter versus reserve releases in the prior year quarter, partially offset by lower net charge-offs. The reserve increases in the current quarter reflected an increase in wholesale reserves of $185 million, driven by downgrades, including $124 million in the Oil & Gas portfolio and $35 million in Metals/Mining.
    Prior Commentary
    • Energy Exposure- Approx $43 bln;
    • Fox Business News Maria Bartiromo tweeted yesterday that JPM's Jamie Dimon said that if oil stays were it is then the bank will need to increase reserves by $500 mln.
    • For a comparison Citigroup (C) has approx $60 bln in exposure to energy loans and has said it would need to increase reserves by $400 mln.
    Q3 Impact
    • Net reserve release of $281 million pre-tax, which reflected a little less than $600 million of consumer reserve releases as favorable credit trends continue; offsetby a build of a little over $300 million in wholesale, approximately $160 million of which is additional reserves associated with the oil and gas sector, given expectations that energy prices will remain lower for longer.
    • "So if energy prices stay around these levels and recover slowly, we're expecting net not to have a material incremental reserve in the next quarter".

>>> US Early premarket gappers

Early premarket gappers
Gapping up: MNKD +8.5%, HMY +4.6%, INFY +4.5%, SN +3.9%, MTN +3.3%, BBL +2.6%, BP +2.3%, TOT +1.7%, JPM +1.7%, KBH +1.6%, BHP +1.6%,CLC +1.6%, RDS.A +1.4%, RIO +1.3%, AU +1.3%, BXLT +1.2%, WNS +1.1%, C +0.8%, BAC +0.7%, AEO +0.6%, BCE +0.5%

Gapping down: CGG -29%, GPRO -24.2%, PSG -15.6%, AMBA -9.3%, BBY -6%, AUY -5.5%, YELP -5.4%, IHG -4.9%, SAR -3.5%, SUNE -2.8%, CS -1.9%,WTR -1.9%, RCL -1.7%, RACE -1.6%, DB -1.6%, AZN -1.6%, CCL -1.2%, SBUX -0.8%, BCS -0.8%

>>> Communiqué de presse Groupe Renault - pdf attached

Après la révélation publique par l'EPA - Agence américaine de protection de l'environnement - de l'existence d'un logiciel de type Defeat Device chez un constructeur automobile de premier plan, une Commission technique indépendante a été mise en place par le gouvernement français.
Cette Commission technique indépendante - dite Commission Royal - a pour objet de vérifier que les constructeurs français n'ont pas équipé leurs véhicules de logiciels équivalents.
Dans ce cadre, l'UTAC teste actuellement 100 véhicules en circulation, dont 25 véhicules Renault, ce qui reflète la part de marché de Renault en France. A fin décembre 2015, 11 véhicules ont déjà été testés, dont 4 véhicules Renault, ce qui a permis aux pouvoirs publics français d'engager un dialogue nourri et fructueux avec l'ingénierie de Renault.
D'ores et déjà, la Direction Générale de l'Energie et du Climat (DGEC), qui est, au titre du ministère de l'Ecologie, du Développement durable et de l'Energie, l'interlocuteur pilote de la Commission technique indépendante, considère que la procédure en cours ne mettrait pas en évidence la présence d'un logiciel truqueur équipant les véhicules Renault.
C'est pour Renault une bonne nouvelle.
Les tests en cours permettent d'anticiper des solutions d'amélioration pour les véhicules Renault qui sortiront des usines comme pour les véhicules en circulation, que le groupe Renault a décidé de présenter rapidement sous la forme d'un Plan Emissions de Renault, qui aura pour objectif de renforcer la performance énergétique de nos véhicules.
En parallèle, la DGCCRF a décidé de faire procéder à un complément d'investigation sur pièce et sur site, qui a vocation à valider définitivement les premiers éléments d'analyse réalisés par la Commission technique indépendante.
La DGCCRF s'est rendue au Siège social, au Centre Technique Renault de Lardy et au Technocentre de Guyancourt.
Les équipes de Renault coopèrent pleinement aux travaux de la Commission Royal et aux investigations complémentaires décidées par le ministère de l'Economie.
Après le succès de la COP 21, Renault entend accélérer son investissement au service de solutions industrielles utiles à la préservation de la planète.
Le Groupe Renault est d'ores et déjà dans le top 3 (1er en 2013, 2ème en 2014) des programmes d'amélioration de l'empreinte CO2. Depuis 3 ans, le Groupe Renault a concrètement réduit de 10% l'empreinte carbone de ses véhicules.