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Setting the investment agenda

28.09.2020

Monthly Agenda September 2020 - International Equities

The correlation between the global money supply and global equities suggests that the correction underway will be of limited magnitude. The new high in money supply against a 7% correction in the SPX could be viewed as a bullish divergence.

Chart 8: Global equities driven by global money supply

Enlarge Source: Bloomberg

 

The message from a sliding AUD/USD is not a happy one for Asian stocks. The Aussie is viewed as a risk barometer, so its rapid slide this week will be read by equities as bearish. With the help from a strengthening USD, the Aussie may extend its decline. Even if stocks don’t make a complete reversal of the past three months gain, the read across from the Aussie is that downward momentum is unlikely to pause just yet.

Chart 9: Follow the Aussie

Enlarge Source: Bloomberg

 

Rates, dividends and consolidation are the three big catalysts for European banking stocks. The prospect of rising rates has moved further away since the latest central bank comments. The other two may look more promising, yet they have failed to boost the sector’s performance so far.

Valuations have been destroyed, a reflection of low profitability, as lenders remain under pressure from negative interest rates, increased regulatory and IT costs, and the potential impact on asset quality from the pandemic.

Chart 10: Feeling unloved – European banks

Enlarge Source: Bloomberg

 

 

 

Tracey McNaughton
Chief Investment Officer

 

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