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Weekly Market Focus 19 November 2018

Markets

WEEKLY FOCUS: S&P500 – Expansion of PE ratios now critical for equity prices                         19 November 2018
 

 

The earnings season for Q3 is drawing to a close and earnings growth have led the 12 month forward PE ratio to fall below their 5 year average. The growth in the equity index has been supported by the continued rise in earnings over the past 9 quarters and by the expansion in margins of companies. The chart above indicates how each sector has performed at a time where margins are at cyclical highs. It is also worth noting that share buy backs have not contributed to the rise in the index. Moreover as the comparative base effects steepen, it is evident that the next leg higher in equity valuations can only be supported by an expansion in earnings multiples which would be driven by positive investor sentiment. The macroeconomic environment is conducive to such a scenario but the trade war situation, the Brexit dilemma in Europe and difficult political situation in a number of European capitals are headwinds.

 

The GDP figures released last week confirmed the slowdown in the Eurozone which posted a growth of only 0.2% qoq for Q3 2018 with Germany especially hit following car emission investigations in a sector which accounts for above 50% of its exports. The preliminary estimates of Manufacturing PMIs to be released on Friday should confirm that economic growth remains soft although the declines we saw at the start of the year is a thing of the past. The stand-off between the European Commission and Italy on its budget deficit should lead to the opening of an “Excessive Deficit Procedure” by the former which would widen bonds spreads and pressurize the Euro.

 

The release of ECB minutes this week should shed light on any possible dovish turn by the central bank and its expectations of growth and inflation. Although there are no major data releases from the UK, it will continue to monopolize attention as the political situation has become toxic for Prime Minister May following her draft agreement with the Commission.

 

 

 

 

Value

Week

YTD

Equity Indices

 

 

 

S&P500

2,736

-1.61%

0.86%

S. Africa

3,198

-1.61%

-15.44%

FTSE100

7,014

-1.29%

-8.57%

DAX

11,341

-1.63%

-12.62%

CAC40

5,025

-1.60%

-5.74%

Swiss Mkt.

8,907

-1.84%

-6.33%

FTSE MIB

18,878

-1.97%

-13.82%

Shanghai Comp

2,679

-3.72%

-17.86%

BSE Sensex

35,457

0.85%

4.92%

Nikkei

21,680

-2.56%

-4.15%

Major currencies

 

 

 

USDZAR

14.02

-2.12%

13.42%

EURUSD

1.14

0.74%

-4.94%

GBPUSD

1.28

-1.06%

-5.01%

USDCHF

1.00

-0.56%

2.33%

EURCHF

1.14

0.18%

-2.73%

USDJPY

112.83

-0.88%

0.29%

EURGBP

0.89

1.82%

0.06%

USDAUD

1.36

-1.52%

6.79%

Dollar Index

96.33

-0.41%

4.82%

 Commodities 

 

 

 

Brent

66.76

-4.87%

-1.59%

WTI Oil

56.46

-6.20%

-8.39%

Copper

2.80

4.35%

-13.38%

Aluminum

1,946.75

-1.05%

-12.80%

Platinum

848.00

-0.89%

-11.31%

Sugar

12.69

-0.31%

-17.11%

Corn

364.75

-1.35%

3.33%

Coffee

112.60

-1.10%

-12.44%

Gold

1,220.80

1.19%

-7.25%

Cotton

78.30

0.17%

0.27%

 Sovereign Yields

 

 

 

US10Y

3.07

(0.12)

0.62

UK10Y

1.41

(0.08)

0.20

Germany10Y

0.37

(0.04)

(0.07)

 
Contact: DBN +27 ( 0 ) 31 566 3365 | CPT +27 ( 0 ) 21 851 0920 | JHB +27 ( 0 ) 11 017 7230 | Email:enquiries@pegasuswm.com
Disclaimer: The research report has been prepared for information purposes and does not constitute an offer. While reasonable care has been taken to ensure that its contents are not untrue or misleading, no representation is made as to its accuracy or completeness and the company accepts no liability whatsoever for any direct or consequential loss, including without limitation any loss of profits, arising from reliance on this report.
 

 



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