* The biggest monthly fall in macro data in 2 years
Our European Composite Macro Index (CMI) had the biggest monthly fall in 2 years
as falling 1) government bond yields, 2) leading indicators and 3) EPS revisions
outweighed the improvement in 4) GDP expectations, 5) inflation data and 6)
business confidence. We remain in the ‘slowdown’ phase and our model
recommends a more cautious/defensive approach to investing in Europe.
* A ‘Slowdown’ is good for high quality, low risk, large caps
Novo-Nordisk, Shire, Anheuser-Busch InBev, Next, Geberit, Hennes & Mauritz,
Whitbread and Kerry Group are the top ranked ‘slowdown’ stocks (high quality,
low risk and large size). Alstom, Bouygues, Royal Bk Scot Grp, Erste Bank, RSA
Insurance Group, Barclays, Telecom Italia and Yara International are the bottom
ranked ‘slowdown’ stocks. For additional top and bottom ‘slowdown’ names
* Let Mr Bund be your guide, ‘slowdown’ = rotation
Pan EU government bond yields have been trending down since the start of the
year yet equity investors have yet to react sufficiently to this. The fall in German
bund yields is typical in a ‘slowdown’ where equities often drift sideways and a
“rotation” out of cyclicals/risk and into defensives/quality remains the key story.
* ‘Boom’ stocks down 5% in 2 weeks, ‘Slowdown’ outperforms
The May rotation is proving painful for those long high risk stocks. ‘Boom’ (-5.3 rel)
and ‘Recovery’ (-2.2 rel) stocks have been the underperformers. Elsewhere
‘Recession’ (+2.2 rel) and ‘Slowdown’ stocks (+0.3 rel) have outperformed.