瑞信-全球-投资策略-全球股票策略：债券抛售风险上升-2019.2.27-22页.pdf

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.27 February 2019 Global Equity Research Investment Strategy Global Equity Strategy Research Analysts Andrew Garthwaite 44 20 7883 6477 andrew.garthwaitecredit- Robert Griffiths 44 20 7883 8885 robert.griffithscredit- Nicolas Wylenzek 44 20 7883 6480 nicolas.wylenzekcredit- Mengyuan Yuan 44 20 7888 0368 mengyuan.yuancredit- Kartikeya Upadhyay 44 20 7888 2339 kartikeya.upadhyaycredit- Asim Ali 44 20 7883 2480 asim.alicredit- STRATEGY Rising risk of a bond sell-off;reduce utilities We see a high risk that bond yields will rise from here(our house view is a 12-month target of 3.1%and 0.8%for US and German 10-year bonds,respectively).Our key concerns are:i)implied bond volatility(MOVE index)is at a 28-year low;ii)the US TIPS yield is now below the Feds neutral real fed funds rate of 85bps,which we view as too low;iii)US bonds and fed funds move closely together,and the market is pricing in a higher likelihood of a rate cut than a rate hike,yet we see US GDP growth being above trend(2.6%in 2019 and 2.1%in 2020,in line with our house view)and Chicago Fed financial conditions have returned to near-record levels of looseness raising the risk that the Fed could turn more hawkish again;iv)US inflation expectations look a little low,especially if the Fed were to raise its target;v)US funds flow is worrying,in our view(foreign investors are buying less and we expect$1trn of net supply in 2019);and vi)the performance of US cyclicals suggests higher yields.Bund yields typically rise as PMIs turn and PMI new orders versus inventories were only lower in 2008/09.Moreover,there has been a record decoupling between accelerating euro area wage growth of c.2.3%and falling inflation breakeven(of just 0.9%).European utilities:increase underweight.European utilities are discounting no rise in Bund yields or PMIs(and utilities tend to be one of the worst-performing sectors when PMIs and yields rise).They are 1 s.d.expensive on P/E and dividend yield,while relative earnings revisions(a key driver of performance)are rolling over from peak levels.In Europe,there is the additional problem of CO2 prices falling below their 200-day MA(historically,utilities have underperformed by 5%on a one-year view when this happened).We think utilities are structurally disrupted(by energy provider switching technology and customers being able to take themselves off-grid with improved battery storage,renewables and smart metering).They are also unusually leveraged(we worry about credit spreads),and the sector is vulnerable to political risk and regulation.UK utilities no longer look cheap,with the added risk of possible Labour regulation in the longer term.The following European utilities are rated Underperform by our analysts:EDF,Terna and Pennon.US utilities:stay cautious.Our US strategy team remains underweight US utilities,and we would agree.They are one of the most negatively correlated sectors to ISM and bond yields,yet they seem to be discounting 50 on ISM and no rise in bond yields.The sector is 1 s.d.expensive(levels at which they typically de-rate relative to the market),and earnings revisions are at a peak.The fall in the tax deductibility of interest payments to 30%of EBIT by 2022 also threatens the sector.We note Edison and Spire are rated Underperform.27 February 2019 Global Equity Strategy 2 Utilities:increase underweight We increase our underweight of utilities due to the following concerns:1.Bond yields likely to rise Utilities are one of the most inversely correlated sectors with bond yields and tend to underperform as yields rise(see Appendix)Our house view is that the US 10-year Treasury yield and the 10-year Bund yield will reach 3.1%and 0.8%,respectively,in 12 months.We see several reasons US bond yields should rise from here:Complacency around yields:The MOVE index(which tracks 1m bond volatility)has hit a 28-year low,pointing to some complacency around treasury yields.This seems strange to us given the fiscal and policy backdrop.On five out of the six past occasions when the MOVE index has hit new lows,treasury yields have picked up over the next month,as we show in the Appendix.Real bond yields are getting too low:We do not believe that the 10-year TIPS yield(which has been responsible for most of the gyrations in US bonds in the past year)should fall below the Feds r*(the neutral real fed funds rate)yet it has just done this.After all,the Fed r*is the Feds estimate of the long-term equilibrium real rate and there should be a positive term structure(i.e.the longer the period over which investors lend,the higher their reward should be,especially in an environment where demographics mean that the fiscal position will likely worsen).Figure 1:The MOVE index has hit a 28-year low Figure 2:TIPS yields have fallen below the Feds estimate of the neutral real fed funds rate Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research 4090140190240199019952001200620122018MOVE IndexCurrent level-1.0-0.50.00.51.01.52.02.53.0201120122013201420152016201720182019Longer run FOMC projections for the real FFR10-year TIPS yield 27 February 2019 Global Equity Strategy 3 Moreover,real bond yields are low in a historical context and on past occasions have continued to pick up when they have been rising from this level.Figure 3:Real yields in the US are still below their 150-year average of 2.2%and typically continue to rise when they are at this level Source:Refinitiv,Credit Suisse research Negative term premium:The New York Feds model still points to a negative term premium.In our opinion,this seems wrong as investors should be rewarded for lending money for longer.Cyclicals imply higher yields:The ratio of cyclicals to defensives is implying slightly higher yields(this is a big change from the 2%yield it implied at the end of 2018).Figure 4:The NY Fed term premium is negative Figure 5:The ratio of cyclical to defensives implies lower yields Source:Refinitiv,Credit Suisse research Source:Company data,Credit Suisse estimates -10-5051001/06/187201/06/189201/06/191201/06/193201/06/195201/06/197201/06/199201/06/2012long term real bond yields,5 year MA-101234561961 1966 1971 1977 1982 1987 1992 1998 2003 2008 2013 201910-year Treasury term premium0.951.001.051.101.151.201.251.301.01.52.02.53.03.5201120122014201520172019US 10yr yieldUS cyclicals ex tech/defensive rel.,rhs 27 February 2019 Global Equity Strategy 4 Bonds are mispricing the Fed.The change in bond yields and the change in the fed funds rate are,not surprisingly,closely correlated.Our economists believe that US rates will rise later this year yet the market is pricing in a higher probability of a rate cut than a rate hike in 2019(a 14%chance of a cut versus a 2%chance of a hike).We agree and think the market is too optimistic with the lead indicators of employment growth still strong(consistent with c1.7%employment growth,modestly rising real wage growth of c1%ends up supporting real disposable income growth of around 2.7%against a backdrop where the savings ratio is still high).Our US economists forecast US GDP growth to be 2.6%in 2019 and 2.1%in 2020.We would also highlight that,according to the Fed,the positive wealth effect from the rally in equities is three times that of Greenspans historical estimate(5%to 15%as opposed to 3%to 5%according to Greenspan),suggesting that a permanent 10%rise in equities adds 0.5%to 1.5%to GDP.In addition,the rally in the corporate bond market has resulted in a significant easing of financial conditions with the Chicago Fed financial conditions indicator back to record levels of looseness.Thus we think the Fed will act an equilibrator.Figure 6:The 10yr Treasury yield is following forward short-term rates Figure 7:Financial conditions have eased recently with the Chicago Fed FC index falling close to a six-year low Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research Inflation expectations might be a little low.The 10-year breakeven in the US is at 1.9%(just above the average of the last 10 years at 1.8%).This is at a time when the oil price points to higher inflation expectations and wage growth is accelerating(3.2%on average hourly earnings and 3.1%on the private sector component of the ECI index and even with c1%productivity growth,core ULC should thus be rising above 2%).With employment growth set to be around 50bp above the rate of growth of the labour force,wage pressure should intensify.Inflation expectations tend to rise as headline inflation accelerates and we think inflation troughs in Q2.Moreover,any move by the Fed to revise up its inflation target should lead to a rise in inflationary expectations(this is likely to be discussed at the Chicago Fed meeting).We as a strategy team also believe that in the very long term,we are likely to see more inflationary policies(such as increases to minimum wages and rising protectionism).-0.65-0.45-0.25-0.050.150.350.55-100-80-60-40-20020406080Apr-17Sep-17Mar-18Aug-18Feb-193m change(bps)US 3m rate implied in 12months forwardUS 10-yr yield-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.1-1.6-1.4-1.2-1-0.8-0.6-0.4-0.220122013201520172019Financial conditions indicesSt Louis FedChicago Fed,rhs 27 February 2019 Global Equity Strategy 5 Figure 8:Oil has moved inflation expectations Figure 9:Hard-to-fill jobs vs.average hourly earnings suggests a further acceleration in wage growth Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research Funds flow:In 2019,we expect net supply for US treasuries will increase to$1trn at a time when foreign official buyers are increasingly buying fewer US treasuries.According to Zoltan Pozsar,a Credit Suisse economist,the new main marginal buyer of US treasuries is the foreign private sector but,in contrast to official foreign buyers,private buyers are very FX-sensitive and are unlikely to step up their buying due to FX hedging costs owing to the shape of the yield curve(see Global Money Notes#20:Lost in Transmission,15 February).Hence,we are likely to see either higher treasury yields or lower hedging costs.Figure 10:Inflation expectations tend to rise as headline inflation accelerates and headline inflation is at its trough Figure 11:Foreign holdings of Treasuries are falling as the yield curve flattens Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research 1.51.61.71.81.92.02.12.22.32.42.5405060708090100Jan-17Apr-17Aug-17Nov-17Mar-18Jun-18Oct-18Feb-19Brent oil10 year breakeven inflation,rhs5%10%15%20%25%30%35%40%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%1985199019962001200720122018ECI wages&salaries,%change Y/YNFIB survey:%of firms with 1 or more hard to fill jobs(3mma,rhs)-1.00.01.02.03.04.05.06.0199719992001200420062009201120142016201910-year breakeven inflationUS CPI,y/y%0%5%10%15%20%25%30%35%40%2000200220042006200820102012201420162018%of treasury securities held by foreignersNon-ChinaChinaTotal 27 February 2019 Global Equity Strategy 6 Long-term trend:Over the past 30 years,whenever 10-year bond yields have moved up to the upper end of their downtrend range,we have experienced financial or economic shocks.This time around,the 10-year bond yield seems to have broken its long-term trend but there appears to be no such economic or financial shock.Figure 12:US treasury yields vs major financial events in the past when yields have hit this level,major shocks have occurred.Barring a major shock still to come,the downtrend line seems to be broken Source:Refinitiv,Credit Suisse research With regards to Bund yields,we would make the following two points.First,Bund yield typically correlate with the change in PMIs and we think PMIs are now very close to their trough.Composite PMI new orders have stabilised,while German PMI new orders minus inventories are now at levels where they have historically troughed(indicating that in effect the German industrial economy is in recession).Figure 13:Bund yields rise when PMIs pick up Figure 14:German PMI new orders minus inventories are now at levels where they have troughed historically Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research 02468101219881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019US 10 year Treasury yieldOrange county bankruptcy&Tequila crisisDot-com bubbleGFCOil price shock/recession-1.5-1.0-0.50.00.51.0-10-8-6-4-2024682010201120132014201620172019EU manufacturing PMI new orders 3m chg10y bund yield(%),3m chg pp,rhs-15-10-50510152019961999200220052008201120142017German manufacturing PMI new orders-inventory 27 February 2019 Global Equity Strategy 7 Second,inflation expectations in Europe(at 0.9%)look far too low relative to the US as we show below,this gap is at a five-year high.Moreover,around two-thirds of inflation comes from the labour market and there is record decoupling between the inflation breakeven and euro area wage growth.After all,Spanish wages rose nearly 3%in January alone(owing to a 22%increase in the minimum wage in Spain).Figure 15:European inflation expectations seem too low relative to the US Figure 16:and wage growth is in line with a pick-up in inflation expectations Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research 2.European utilities look unattractive We think European utilities look vulnerable due to the following:Macro factors look problematic in Europe for utilities:European utilities seem to be pricing in much lower PMIs and Bund yields at a time when we think both are going to trough.We show in the Appendix that over the last two years utilities have been amongst the most sensitive sectors to the Bund yield.0.20.30.40.50.60.70.80.911.11.2201420152016201720182019US minus German 10ybreakevenAverage(+/-sd)1.01.52.02.53.00.51.01.52.02.53.020102011201220132014201520162017201810-year breakeven inflationEuro Area wage growth(%chg,yoy),rhs 27 February 2019 Global Equity Strategy 8 Figure 17:European utilities appear to be pricing in much lower PMIs.Figure 18:and a lower bund yield Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research Valuations are very high:The sector is expensive relative to the market,particularly on P/E relatives and our composite measures.Figure 19:On our composite valuation score,the sector is at its most stretched valuation since 2009 Figure 20:The PE relative of the sector is extended Source:Refinitiv,Credit Suisse research Source:Refinitiv,Credit Suisse research More