David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Goldman Says Trump Presidency Will Benefit Stocks in Almost Every Sector

    Here is the opening of this topical article from Bloomberg:

    After years of slowing earnings growth and little in the way of excitement for many Wall Street analysts, many are now hopeful that President-elect Donald Trump will finally make things interesting.

    When collating data for the Goldman Sachs Group Inc. Analyst Index — a proprietary measure of growth across different sectors of the S&P 500 — the firm included a question this month on what the election of Donald Trump will mean for the industries covered by those surveyed. Turns out, they are rather optimistic. 

    "This month, we asked analysts to comment on how the results of the U.S. election will affect companies in their respective sectors," the team led by Avisha Thakkar writes in the new note. "While their responses suggest that there is still uncertainty about the sector-level impact, the majority of sectors are anticipating favorable effects," they say, adding that expectations of lower tax rates and economic stimulus are among key reasons for the favorable outlook.

    Goldman certainly isn't the first to hail the potential benefits of a Trump presidency. Dubravko Lakos-Bujas and Marko Kolanovic, quantitative analysts at JPMorgan Chase and Co., also wrote that many of Trump's policies would be "pro-growth," even while uncertainty about specifics remains high.

    They wrote this week that if the campaign promises that have the potential to stimulate growth get implemented, the S&P 500 could see as much as $20 in additional earnings-per-share growth over the next few years. 

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    After Brexit and Trump, It's Italy's Turn to Keep Traders Awake

    This article by Chiara Albanese , Stefania Spezzati , and Charlotte Ryan for Bloomberg may be of interest to subscribers. Here is a section:

    Renzi, 41, has staked his political future by suggesting he would resign if he were to lose, and the first projections of the result are due just before midnight Rome time.

    “You have to ask how much the market will react to something they are expecting,” said Andy Soper, head of Group of 10 foreign-exchange options at Nomura in London. "The difference this time is that it might be less about the result and more about how the vote is won or lost. There are a lot of unknowns.”

     

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    Top Ten Market Themes For 2017: Higher growth, higher risk, slightly higher returns

    Thanks to a subscriber for this report from Goldman Sachs which may be of interest. Here is a section:

    8. Inflation: Moving higher across DM
    ‘Reflation’ is the theme du jour following Donald Trump’s unexpected emphasis on infrastructure spending in his acceptance speech on election night. Since then, market participants have been hard at work trying to figure out the policy agenda that Trump the president might pursue (distinct from the rhetoric of Trump the candidate). What seems clear to us, as argued above, is that economic issues, notably tax cuts, infrastructure spending and defense spending, are high on the agenda — a recipe for reflation.

    There was a strong case for rising inflation in the US even before Trump’s victory. Our call for higher rates in long bonds this past year was premised more on a repricing of inflation risk and inflation risk premia than on a rise in real rates. And, globally, we expect rising energy prices to push up headline CPI across the major advanced economies in early 2017. After years of deleveraging and highly accommodative monetary policy, we expect inflation to gain momentum in 2017 just as many countries are shifting their policy focus to fiscal instruments. For example, we are forecasting large boosts to public spending in Japan, China, the US and Europe, which should fuel inflationary pressures in those economies. Moreover, having had to work so hard for so long to get inflation even to the current low levels, the major central banks in developed markets sound increasingly willing to let inflation run above 2% targets

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    A China recovery is coming

    Thanks to a subscriber for this article by Simon Hunt in copperworldwide.com. here is a section:

    China’s economy is recovering. Accommodating monetary policy is being augmented by expanding the fiscal deficit which might include tax cuts. Construction is beginning to recover since total surplus inventory has fallen to the key seven-month level. The NDRC has released 25 infrastructure projects most of which were frozen earlier this year because cases of corruption were detected. Both wages and consumer spending continue to increase. In some key manufacturing sectors inventories have been reduced. Many private sector companies are now managing cash flow appropriately so are improving profitability. Investment will follow in 2017. Against this background real consumption of metals has begun recovering and will gather pace in 2017.

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    Italy needs reform and a euro exit is inevitable

    As in just about every other notable case, the way to get on top of the Italian debt problem is through economic growth. It would help if there were a return to positive rates of inflation, rather than the stuttering deflation that currently envelops the country. In many ways, though, these financial problems are less serious than the underlying economic weakness. Some readers may remember that in the 1950s, 1960s and 1970s Italy was a powerhouse of economic growth. At one point its GDP passed the UK’s, an event trumpeted by the Italians as “Il Sorpasso”.

    But recently it has been a very different story. It is common to compare the performance of the world’s major economies since the onset of the financial crisis in the first quarter of 2008. All industrial countries suffered a loss of output in the first few years, but most then managed to recover. Since the beginning of 2008, the US and the UK are currently registering output up by about 12pc and 8pc respectively. Over the same period, Italy’s GDP is down by 8pc.

    If this comparison seems pretty stark, then you should reflect on Italy’s performance since the euro was established in 1999. You may recall that this bold monetary construct was supposedly going to unleash a wave of prosperity across Europe, including Italy. Britain, which stood aside from the single currency, risked being left behind, mired in comparative poverty. Staying out of the euro was the Brexit of its time. The warnings of looming under-performance, accompanied by forebodings of the imminent departure of key Japanese and American firms, were its version of Project Fear.

    To put it mildly, the outturn has been somewhat different. Since the beginning of 1999, the UK economy has grown by almost 40pc, against about 25pc in Germany and France. But Italy’s performance is in a different league. Over the last 17 years it has managed to grow by less than 6pc. In other words, since the formation of the euro, Italy’s economy has essentially stagnated. Along with this stagnation has come an employment disaster. Unemployment now stands at about 12pc of the workforce.

    Nor is the long-term outlook very promising. The Italian birth rate is running at about 1.4 per woman. The United Nations projects that by 2035, Italy’s population will have fallen by about 2pc. Quite apart from what that would do directly to reduce the size of the Italian economy, this is not exactly an environment in which Italian businesses will be galvanised into investment.

    It is pretty clear what would bring a revival of the Italian economy and ease many of its financial problems, if not solve its population crisis. Italy needs a much lower exchange rate. While it is in the euro, of course, it does not have a currency of its own to depreciate, and the exchange value of the euro is determined more by the performance of its Teutonic neighbours.

    Not that a weaker currency would solve all problems. Italy needs fundamental reform, and not only to the powers and practices of parliament. But if it could enjoy a boost to competitiveness of 20 to 30pc through a lower exchange rate, this would lead to a surge in net exports and higher economic growth, with corresponding gains to employment. In such an environment, it might be easier to get through some of the many reforms that Italy needs.

    You may think that a referendum on the powers of the Italian Senate does not promise to be anything like as exciting as the Brexit vote or the US Presidential election. But it is well worth keeping an eye out for the result of Sunday’s vote. Among other things, it may set Italy on the path to leaving the euro. Whatever the outcome on Sunday, though, I have come to believe that this is not a matter of if but when.

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    Email of the day

    On Trump’s protectionism having negative consequences for Autonomies:

    Solar-Panel Roads to Be Built on Four Continents Next Year

    My thanks to a subscriber for this fascinating article from Bloomberg.  Here is the opening:

    Electric avenues that can transmit the sun’s energy onto power grids may be coming to a city near you.

    A subsidiary of Bouygues SA has designed rugged solar panels, capable of withstand the weight of an 18-wheeler truck, that they’re now building into road surfaces. After nearly five years of research and laboratory tests, they’re constructing 100 outdoor test sites and plan to commercialize the technology in early 2018.

    “We wanted to find a second life for a road,” said Philippe Harelle, the chief technology officer at Colas SA’s Wattway unit, owned by the French engineering group Bouygues. “Solar farms use land that could otherwise be for agriculture, while the roads are free.”

    As solar costs plummet, panels are being increasingly integrated into everyday materials. Last month Tesla Motors Inc. surprised investors by unveiling roof shingles that double as solar panels. Other companies are integrating photovoltaics into building facades. Wattway joins groups including Sweden’s Scania and Solar Roadways in the U.S. seeking to integrate panels onto pavement.

    To resist the weight of traffic, Wattway layers several types of plastics to create a clear and durable casing. The solar panel underneath is an ordinary model, similar to panels on rooftops. The electrical wiring is embedded in the road and the contraption is topped by an anti-slip surface made from crushed glass.

    A kilometer-sized testing site began construction last month in the French village of Tourouvre in Normandy. The 2,800 square meters of solar panels are expected to generate 280 kilowatts at peak, with the installation generating enough to power all the public lighting in a town of 5,000 for a year, according to the company.

    For now, the cost of the materials makes only demonstration projects sensible. A square meter of the solar road currently costs 2,000 ($2,126) and 2,500 euros. That includes monitoring, data collection and installation costs. Wattway says it can make the price competitive with traditional solar farms by 2020.

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