1、23/05/2019 1 FOCUS|EUROPE 23 July 2019 KEY MESSAGES European 2019 EPS forecasts have suffered morethan in the US from the global economic slowdownand trade tensions,given Europes inherent cyclicality.The STOXX Europe index is forecasting in aggregate3%y/y EPS growth this year(affected by a GBPslump)
2、,and 5%for the broad Euro STOXX index.At a sector level,profit momentum has eroded most inIndustrials,Chemicals and Banks;at a regional level,Germany has been hardest hit.In time,a weaker euro and a recovery in the Eurozonecomposite PMI should point to more resilient earningsmomentum but these tend
3、to work with a lag.21-26 July results season:Focus on Chemicals,Semiconductors.Fig.1:STOXX Europe has seen heavier downgrades than S&P EQUITY&DERIVATIVES TRADE IDEAS Investors may consider going long EU High ROCEbasket()relative to the SX5Eindex.Ref:EUR106.0Risk:The risk of entering this relative va
4、lue TRS trade is theoretically unlimited.Sources:Bloomberg Edmund Shing,Global Head of Equity&Derivative Strategy BNP Paribas London Branch Brace for Q2 impact on European earnings Fig.2:Where was the QE boost for European stocks?European earnings hit harder YTD Since the beginning of this year,STOX
5、X Europe has seen a cumulative earnings downgrade of Q2 2019e EPS of almost 3%.In contrast,US S&P 500 Q2 EPS forecasts have taken a more modest 1.8%hit.due to Europes greater cyclicality:Unsurprisingly,this can be attributed to the greater inherent economic sensitivity of the European index,at a tim
6、e when global macro momentum has slowed sharply.At the cyclical bottom?This is the crucial question for earnings for 2019 as a whole,in our view.With STOXX Europe now forecasting a mere 3.4%y/y EPS growth for calendar 2019(Fig.3),we are not far from a European earnings recession this year.Whether th
7、ere is any economic follow-through from the expected liquidity boost from renewed central bank easing remains to be seen though.At least European equity valuations have not seen a QE uplift:With the 12-month forecast P/E back to 14x,earnings and dividend yields are at similar levels to late 2009,whe
8、n the stock market recovery was just six months old(Fig.2).So while BBB credit and 20-year government bond yields both benefitted from(i)the collapse in long-term inflation expectations;and(i)the ECBs asset purchase programmes,there is no evidence of this in EU equity yields yet.Sources:FactSet,Bloo
9、mberg,BNP Paribas Please refer to important information and MAR disclosures at the end of this report 979899100May-19Jun-19Jul-19EPS Q2 2019(rebased)S&P 500STOXX Europe02468100246810122006200820102012201420162018Yield%STOXX Eur.EPS yieldEuro BBB credit(rhs)Euro govt.20y bond(rhs)ECB QE startsMar 201
10、5 23/05/2019 2 EQUITY&DERIVATIVES Economic momentum effect on cyclical Europe:Given that the Euro STOXX index is a cyclically-biased market index,it should come as no surprise that there is a close relationship between SXXE index earnings and macroeconomic indicators such as the Markit PMIs and econ
11、omic surprise indices.A weak H1 macro backdrop:The first half of 2019 has witnessed a sharp slowdown in global trade and manufacturing activity,with the Markit Eurozone manufacturing PMI sinking below the breakeven 50 level by mid-year(Fig.5)in response to slowdowns both in global trade(US-China tra
12、de tensions looming large)and slowing corporate investment activity.If we were to look at the traditional correlation between the coincident manufacturing activity indicator and Euro STOXX EPS,we would expect an earnings recession for Q2 2019 on a year-on-year basis.Downwards revisions in cyclical s
13、ectors reflect the industrial malaise:If we take the industrial cyclical sectors as a group(SXNP,SXAP,SX4P,SXEP,SXPP),we can see that the average industrial 2019 and 2020 earnings forecasts have declined by 8%since the beginning of 2019,building in the gathering global economic storm clouds as globa
14、l macro momentum has stalled.As an example,there has been a massive divergence between the two components of the German IFO survey,being(a)current assessment,and(b)expectations.In June,the current assessment component actually rose.In contrast,expectations continued to fall.The Markit German manufac
15、turing index agrees more with the IFO current assessment component,showing an upturn in new orders since March(from under 40 then to 44.3 in June).So manufacturing may overstate the negative drag on earnings:Manufacturing is not the whole economy,even in Europe.Services activity and household consum
16、ption have clearly held up far better than industrials,off the back of falling unemployment and relatively buoyant wage growth.Remember that European employment has been growing consistently since end-2013.This is reflected in the upturn in both Eurozone services and composite PMIs since the beginni
17、ng of 2019,with services thus more than outweighing the drag from manufacturing in the last 6 months.Looking at the historical relationship between the composite PMI and Euro STOXX EPS,the composite PMIs positive momentum would suggest an improvement in European earnings trends over the next 1-2 qua
18、rters.Edmund Shing,Global Head of Equity&Derivative Strategy|BNP Paribas London Branch Fig.4:Euro economic surprise suggests lower EPS Sources:BNP Paribas,.Bloomberg Fig.6:A weaker euro should lift EPS over time Sources:BNP Paribas,Bloomberg Fig.3:STOXX Europe:just 3.4%EPS growth in 2019e Sources:BN
19、P Paribas,I/B/E/S Fig.5:Rising composite PMI should help trailing EPS Sources:Bloomberg,BNP Paribas Macro slump=earnings recession?0%1%2%3%4%5%6%May-19Jun-19Jul-19EPS%y/ySTOXX Europe EPS Q2 2019eSTOXX Europe FY 2019e444648505254565860810121416182022242010 2011 2012 2013 2014 2015 2016 2017 2018 2019
20、Euro STOXX T12m EPS(lhs)Markit eurozone comp.PMI(rhs)-100001000200030004000500020222426283020102012201420162018Euro STOXX EPS+12m(lhs)Cumulative Euro econ.Surprise(rhs)510152025-15-10-50510200920112013201520172019Euro index%y/y(lhs,inverted)Euro STOXX trailing 12m EPS(rhs)23/05/2019 3 EQUITY&DERIVAT
21、IVES World forward EPS hesitates:The sharp upwards momentum in global forward earnings has shuddered to a halt over the last couple of months(Fig.7),with tax reform effects fading in the US and the slump in trade hurting European and Asian cyclicals.With the MSCI World forward P/E recovering to 15.7
22、 today from an end-2018 low of 13.0 x,the market recovery has been largely fuelled by multiple expansion rather than EPS growth.One caveat:as MSCI World is denominated in USD,dollar strength has held back ex-US EPS forecasts since early January.2019 looks like another year of low growth:2019 promise
23、s to be another year of low single-digit sales and earnings growth for European stocks(Fig.8),dragged down by the weak industrial outlook and hesitation over investment thanks to the ongoing US-China trade tensions and Brexit.That said,5%EPS growth in Europe would support a total return(including di
24、vidends)of close to 9%,were the P/E multiple to stay stable on a year-on-year basis,and not contract.At a country level,Germany has suffered most:Rather predictably given its heavy reliance on the autos,chemicals and capital goods sectors,German stocks have suffered the heaviest rate of earnings dow
25、ngrades since last December(Fig.9).Equally,as might be expected given sterlings recent weakness and the FTSEs high share of overseas earnings,UK earnings forecasts in aggregate have held up well since February,if anything threatening to drift slightly higher.Luxury demand holds up,but Banks drag:At
26、a sector level,luxury goods earnings forecasts have been relatively stable YTD despite the Chinese growth slowdown(6.2%reported for Q2 2019).In contrast,ever-lower bond yields,weaker nominal economic growth and negative ECB deposit rates have all contributed to an 8%fall in SX7E Bank EPS forecasts s
27、ince January(Fig.10).Edmund Shing,Global Head of Equity&Derivative Strategy|BNP Paribas London Branch Fig.8:In Europe,2019 set to be another low-growth year Sources:BNP Paribas,FactSet Fig.10:Heaviest EPS downgrades in Banks,Industrials Sources:BNP Paribas,FactSet Fig.7:World forward EPS takes a bre
28、ather Sources:BNP Paribas,FactSet Fig.9:UK 2019e EPS holds up best,Germany the laggard Sources:BNP Paribas,FactSet Earnings forecasts under attack in Germany,Industrials 4060801001201402002 2004 2006 2008 2010 2012 2014 2016 2018MSCI World Index:EPS+12m80859095100105Jun-18Sep-18Dec-18Mar-19Jun-19Fra
29、nceGermanyItalySpainSwitzerlandUK(3)(1)(2)+2(3)+2+4+3+4+9(0)+17+0+5+11+8-5051015202014201520162017E 2018E 2019E 2020E 2021ESXXE SPS y/y(%)SXXE EPS y/y(%)9092949698100102Jan-19Mar-19May-19Jul-19BanksIndustrialsPersonal Goods&services 23/05/2019 4 EQUITY&DERIVATIVES Edmund Shing,Global Head of Equity&
30、Derivative Strategy|BNP Paribas London Branch European sectors and countries dashboard Sources:Bloomberg,BNP Paribas Of defensive sectors,beware Telecoms:Following profit warnings in this space already this year,Telecoms has been the one defensive sector to languish close to 2019 lows,hurt by weak e
31、arnings momentum(6%downwards revision in 2019e aggregate EPS over the last 3 months).The double-digit EPS growth forecast for this year looks vulnerable to further downside surprises.At a country level watch Switzerland:While we may think more of Health care and Food&Beverages when thinking of Helve
32、tia,in fact the national stock market is also home to a high proportion of engineering concerns and banks.The combination of this more cyclical exposure plus a 17x forward P/E multiple and a 10%2019e EPS growth forecast leaves the Swiss market susceptible to a derating,if the stronger Swiss Franc le
33、aves its mark on earnings(EURCHF at its lowest level since mid-20176).CountryTickerPerformance(YtD,%)FY19 earnings rev.(YtD,FY19 EPS y/y growthROE(NTM)5Y%-ile rankPE(NTM)4W chg in PE(%)5Y%-ile rankDividend yield(NTM)FranceMXFR16.5-1%11%9.979%14.21.313%3.3GermanyMXDE10.7-4%13%9.689%12.73.315%3.3Italy
34、MXIT17.2-2%7%8.786%10.31.99%4.9SpainMXES8.4-2%8%8.775%11.40.05%4.7SwitzerlandMXCH19.4-2%10%14.435%17.01.042%3.1UKMXGB11.00%7%10.284%12.50.05%4.8SwedenMXSE14.2-1%-7%13.995%14.1-8.84%4.2SectorTickerPerf.(YtD,%)FY19 earn.rev.(3m)FY19 EPS y/y gr.ROE(NTM)5Y%-ile rankPE(NTM)4W chg in PE(%)5Y%-ile rankDivi
35、dend yield(NTM)BanksSX7P1.9-4%6%9.383%8.63.02%6.0Oil&GasSXEP7.4-2%16%10.875%11.40.43%5.0TelcosSXKP-3.9-6%11%5.980%13.3-2.01%5.6Basic Res.SXPP15.1-1%1%11.257%10.1-0.210%5.6AutosSXAP9.2-2%11%11.90%6.94.310%4.7Indust.SXNP19.2-2%11%17.838%16.60.229%2.7Health.SXDP14.81%10%23.951%16.80.727%2.8UtilitesSX6P
36、12.7-1%10%10.995%14.5-0.748%5.0Food&Bev.SX3P26.32%8%21.199%21.4-0.456%2.3InsuranceSXIP17.7-1%7%13.9100%10.71.932%5.2Tech.SX8P23.9-1%19%12.959%20.52.132%1.6 23/05/2019 5 EQUITY&DERIVATIVES Chemicals sector in focus:With three chemicals companies reporting Q2 results on 24 July,this sector will be in
37、focus as there has been a wide dispersion of results in the sector thus far,including both profit warnings but also positive surprises.Semiconductors a“canary in the coalmine”for Technology:Tuesdays semiconductor results follow on from recent surprisingly upbeat quarterly revenue projections from Ta
38、iwanese contract semiconductor and European semi equipment bellwethers,which have temporarily allayed fears of a persistent slump in the chip industry off the back of stalling mobile handset demand.Edmund Shing,Global Head of Equity&Derivative Strategy|BNP Paribas London Branch Q2 results 22-26 July
39、:Look to Chemicals,Semis Blom.TickerName1st month Implied Vol2nd month Implied VolFwd IVImplied Earnings 1-Day VolImplied Abs.1-Day Straddle BEHist.Avg Abs.Price MoveImplied/Hist.Move Mon 22nd JulyPHIA NAKoninklijke Philips NV20.4%18.3%16.4%4.3%3.4%3.8%0.91Tue 23rd JulyUBSG SWUBS Group AG21.6%20.1%1
40、8.8%3.9%3.1%3.8%0.81RAND NARandstad NV29.4%25.7%22.1%6.8%5.4%3.9%1.41SAN SMBanco Santander SA26.3%25.1%24.0%4.1%3.2%2.5%1.28AMS SWams AG71.4%60.6%49.9%17.7%14.1%8.6%1.65ASM NAASM International NV34.6%30.0%25.7%8.1%6.4%3.7%1.75Wed 24th JulyMC FPLVMH Moet Hennessy Louis Vuitt27.7%24.2%20.7%6.4%5.1%3.1
41、%1.68DAI GRDaimler AG23.8%23.3%22.8%2.9%2.3%2.5%0.96IBE SMIberdrola SA15.3%15.3%15.2%1.3%1.0%1.5%0.71DBK GRDeutsche Bank AG36.4%35.4%34.6%4.6%3.6%3.5%1.04REP SMRepsol SA19.8%19.7%19.6%1.7%1.3%2.1%0.63DB1 GRDeutsche Boerse AG18.8%17.8%17.0%3.0%2.4%2.0%1.22AKZA NAAkzo Nobel NV19.4%17.8%16.3%3.8%3.0%4.
42、2%0.72LONN SWLonza Group AG27.1%24.0%21.1%6.0%4.8%4.2%1.131COV GRCovestro AG32.0%29.8%27.9%5.7%4.5%2.7%1.67Thu 25th JulyROG SWRoche Holding AG17.2%16.2%15.3%2.9%2.3%2.1%1.11FP FPTOTAL SA18.5%17.3%16.3%3.2%2.6%1.4%1.84GLPG NAGalapagos NV27.1%27.2%27.2%2.0%1.6%1.8%0.87BN FPDanone SA16.5%15.2%14.1%3.1%
43、2.5%2.6%0.96ABBN SWABB Ltd22.1%20.0%18.0%4.5%3.6%3.8%0.96KER FPKering SA30.9%27.4%24.2%6.8%5.4%4.2%1.30VIV FPVivendi SA23.3%21.3%19.6%4.5%3.6%2.8%1.30ORA FPOrange SA17.4%16.0%14.7%3.3%2.6%2.5%1.08UNA NAUnilever NV16.4%15.1%14.0%3.1%2.4%2.7%0.90AAL LNAnglo American PLC25.4%25.0%24.6%2.8%2.2%2.6%0.87M
44、L FPCie Generale des Etablissement31.2%28.5%26.1%6.1%4.9%3.6%1.35SU FPSchneider Electric SE22.8%21.2%19.9%4.0%3.2%3.7%0.87CA FPCarrefour SA27.4%24.4%21.7%5.9%4.7%4.5%1.04AZN LNAstraZeneca PLC23.6%21.2%18.9%5.0%4.0%2.8%1.42SGO FPCie de Saint-Gobain24.7%23.0%21.6%4.3%3.5%3.7%0.94SIKA SWSika AG23.2%20.
45、6%18.1%5.1%4.1%2.7%1.50LI FPKlepierre SA21.5%20.7%20.0%3.1%2.4%2.0%1.20TEF SMTelefonica SA16.7%16.2%15.7%2.2%1.8%1.9%0.95BAS GRBASF SE20.6%20.3%20.1%2.2%1.8%2.0%0.88Fri 26th JulyNESN SWNestle SA13.3%13.0%12.7%1.6%1.3%2.1%0.60ENI IMEni SpA16.7%16.5%16.4%1.7%1.3%1.8%0.74RNO FPRenault SA29.3%27.2%25.4%
46、5.3%4.2%3.9%1.08Sources:Bloomberg,BNP Paribas Legal Notice This document has been written by our Strategist and Economist teams within the BNP Paribas group of companies(collectively BNPP);it does not purport to be an exhaustive analysis,and may be subject to conflicts of interest resulting from the
47、ir interaction with sales and trading which could affect the objectivity of this report.This document is non-independent research for the purpose of the UK Financial Conduct Authority rules.For the purposes of the recast Markets in Financial Instruments Directive(2014/65/EU)(MiFID II),non-independen
48、t research constitutes a marketing communication.This document is not investment research for the purposes of MiFID II.It has not been prepared in accordance with legal requirements designed to provide the independence of investment research,and is not subject to any prohibition on dealing ahead of
49、the dissemination of investment research.The content in this document/communication may also contain Research as defined under the MiFID II unbundling rules.If the document/communication contains Research,it is intended for those firms who are either in scope of the MiFID II unbundling rules and hav
50、e signed up to one of the BNPP Global Markets Research packages,or firms that are out of scope of the MiFID II unbundling rules and therefore not required to pay for Research under MiFID II.Please note that it is your firms responsibility to ensure that you do not view or use the Research content in