Stefano Sciacca

Fri, Jul 5

KYLIN TALK | Stock Watch 05.07.19

Stocks continue to rally amid trade negotiation talks

In light of recent geopolitical developments, there is an interesting trend forming in the SP 500’s the Gold spot price. As you can see in the example below, although stocks are not experiencing any sign of a slowdown in their almost-10 year long rally, equity markets remain far below the peak seen last fall. In general, an organic bullish trend in the stock market should be followed by a consistent depreciation of gold, which is the world’s politically neutral monetary asset. This is not proving to be the case at this time.

The 2018 peak represented a seven-year equity bull market of historic proportions, but since then high stocks have been offset by even faster gold appreciation, a symptom of investors’ fear. We are now 14% below last fall’s peak and 3% below the new record high experienced last May. What the chart is telling us is not of easy deduction, what we can assume is that the stock market is not growing organically and probably the economic cycle has already ended last September. It will be interesting to see how this significant rational will evolve during the upcoming earnings season when volatility returns to the market.



On a similar note, Germany factory orders plunged across most industries. As Bloomberg reported on Friday, orders fell 2.2% vs consensus at -0.2%, whilst Commerzbank and other economists see a deeper ECB interest rate cut this July. Global trade uncertainty continues to weigh on the manufacturing industry and seems to be turning Europe’s temporary slowdown into a more serious downturn. Germany’s issues, some of which are linked to the car industry, are of course weighing on the Eurozone. Olli Rehn, a governing council member, said growth “slowed significantly” and it is not possible to consider this slowdown as “temporary”. As a classic consequence, the 10y Bunds yield fell below 0.4% (for the first time), the current ECB deposit rate.

Where we may see some light at the end of the tunnel might be Italy. The European Commission has finally decided to withhold disciplinary action against the G7 nation. In fact, Rome offered new commitments that re-assured some of Brussels’ concerns. Italy’s cabinet agreed the deficit would fall by 7.6bn euros this year thanks to lower spending and higher revenue. If this will be the case, the budget deficit would be at 2.04% of the national GDP.

Markets have reacted in two ways: 10y Italian bonds yield vs 10y German Bunds yield spread fell below the historical low of 200bps. Given their high exposure to Italian government bonds, Italian banks rallied following the news, below are few examples (5 days performance):

- Banca Monte Paschi di Siena +44%
- Unicredit +9%
- Banca Popolare di Milano +8%
- Intesa San Paolo +8%


Next week our macro spotlight will be on?



  • Japan Machinery Orders June (consensus/previous -4.7%/5.2%)
  • USA Consumer Credit June (consensus/previous $16bn/$17.5bn)


  • UK Retail Sales June (previous -3%)
  • Italy Retail Sales June (previous 0%)


  • China CPI June YoY growth (Consensus/previous 2.7%/2.7%)
  • France Industrial Output June (previous 0.4%)
  • UK PMI June (previous -3.9%)
  • Italy Industrial Output June (previous -0.7%)


  • US Initial Jobless Claim (previous 221K person)
  • US CPI June MoM growth (Consensus/previous 0.2%/0.1%)
  • US CPI June YoY growth (previous 2%)


  • Eurozone Industrial Production June MoM (Consensus/previous 0.1%/-0.5%)
  • Eurozone Industrial Production June YoY (Consensus/previous -1.7%/-0.4%)


Chart of the week



Quote of the week

“You need to be conscious of the fact that the populist government wants to keep on spending and at the same time they want to stay in government”

Davide Serra, CEO of Algebris Investments – Bloomberg



Fact of the week

Monthly rents in Milan reached 585 euros a square meter in the first quarter, up 1.7% from a year earlier, while vacancy rates declined by about half a percentage point, according to data compiled by broker Jones Lang LaSalle Inc. That followed a record year for leasing in the city in 2018 when about 381,000 square meters (4.1 million square feet) was rented, according to CBRE Group Inc.