G-20 outcome infuses optimism short term only. Still rather cautious 2019

Highlights:

• The agreement on a temporary ceasefire in the China-US trade dispute offers some optimism in the short term.
• Global equities should prolong the optimism started after the Powell speech which revealed a more dovish Fed tone. This adds to the recent reduced tensions between the EU commission and the Italian government and the continuing dovish stance by the ECB.
• Furthermore, valuations in some risky areas continue to be near extremely low levels versus history: Italian equities, EU Autos, EM and EU Banks.
• The euro area (EA) PE reflects already the growth deterioration achieved so far and the German economy could experience some rebound in Q4, thus contributing to sustaining sentiment.
• Thus we think the market could have the rebound we expected since some time (too early).
• That said, decreasing monetary stimulus, a deterioration of growth/inflation mix, credit tensions along with political and trade risks keep us from exploiting full OW.
• 2019 will be a difficult year due to peaking US GDP and NIPA profits’ momentum, higher US yields, credit spreads and inflation, which will continue to put pressure on PEs.
• Uncertainties related to EU elections and trade frictions and a stronger TW euro will add to negatives. Thus, we keep a cautious view for the next year, waiting for markets to fully digest changing monetary and credit environment: we would light positions again after the rebound.

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