Daily Morning Call
From the Floor: Could Europe surprise in 2018? — #SaxoStrats
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• GOP tax bill passes, equities 'fail to convincingly extend gains': Garnry
• US long yields a critical FX factor and the key driver of USDJPY: Hardy
• Spanish housing data reveal strongest market in 10 years
• Samsung shares decline as analysts move targets lower
• SEK lower following Riksbank outing, no new QE from Stockholm
By Michael McKenna
European equities lagged their US counterparts throughout 2017, with both earnings and share prices failing to match the record-setting pace set across the Atlantic. In Saxo Bank head of equity strategy Peter Garnry's view, however, this could be set to change.
"European corporate earnings and releases were disappointing throughout 2017, and particularly in Q3, but I think we could see a turnaround into Q4," says Garnry.
According to Saxo's equities chief, credit is picking up, activity is on the rise, and valuations remain comparatively modest in Europe (at some 25% below US levels – all factors that could see EU shares pick up the pace into 2018.
"I really think Europe will push through," says Garnry, pointing to a new Spanish housing release that shows the strongest market in 10 years. "This isn't just a Spain story, it's a Europe story: confidence and credit access are picking up".
On the day, Garnry reports that markets failed to "convincingly extend gains" on the passing of the US tax reform bill, noting that the "only bright spot" overnight was the Chinese tech sector.
In single shares, Garnry says that Samsung is 3% lower as analysts bet on the memory chip cycle peaking, but notes that Micron's massive Q1 earnings beat suggests that this may not be the case. "Our model is extremely positive on Samsung," says Saxo's equities head.
Samsung (hourly):
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Source: Saxo Bank
The post-tax bill surge was just as elusive in the forex space as it was in equities, reports Saxo Bank head of FX strategy John J Hardy, who notes that "EURUSD is even at new local highs as the dollar reaction fizzles out".
"The key factor to watch in the FX (and USD) space right now are long US yields – USD bonds are currently under massive pressure [pushing yields higher] and this is the key driver for USDJPY," says Hardy.
Elsewhere in the FX space, Saxo's forex head says that the Swedish Riksbank outing yesterday saw no new QE measures announced with the central bank reporting that it will not consider hiking rates until well into 2018.
"We saw EURSEK head back into the middle of the range on post-Riksbank krona weakness," says Hardy, who adds that technical measures are set to temporarily swell the Riksbank's balance sheet over the coming months.
Finally, Hardy reports that USDHKD stands at cycle highs near 7.83 with no announcement from policy authorities that they will take any measures to counter the move; this pair could be one to watch in the short- to medium-term.
