Geopolitical risk will likley predominate this week, over market data in the shortened week. However, today we thought we’d highlight some of the research we read last week on US auto sales, US banks, and the ever accelerating wage inflation in Japan. One might be so bold to suggest that markets haven’t fully priced the potential upside in Japan, and the downside in the US auto industry, and these both merit some attention.
Substantive's Top Themes - Best of the Broker Notes
1. Japan Wage Inflation at an Inflection Point
Sean Maher from Entext writes that one of the biggest dampeners of wage growth in Japan has been the increase in non-regular workers who comprise almost 38% of the workforce. That’s about to change he says, and so wage inflation is set to pick up considerably, he writes in this report. This's piece can be purchased on RSRCHXchange, alternatively contact the provider directly.
2. Why US banks are Better Bet than European
Dave Hendler, the veteran financials credit analyst, provides a candid, often brutal, but considered analysis of global banks. He’s been particularly critical of the European banking system. Late last year he published a piece where he argued that the great banking race between US and European banks was over, and US banks were the winners. He’s just launched a new weekly note entitled ‘’Systemic Sirens Song Weekly,’ which is a weekly report on forward thinking views on systemic financials globally. Last week's edition looked at Credit Suisse, which continues to run into trouble with regulators, while at the same time destroying shareholder value. Viola considers the bank ”high risk.” He also looks at US regional player, Citizens Financial Group, discussing the challenges regional players face, and his outlook for the bank itself. There’s also a section called ‘’Systemic Siren Movers’’ which looks at the biggest movers, either up and down, in terms of capital shortfalls or surplus. If you'd like to access this note, or any other pieces, Viola is happy to be provide complimentary access on a case-by-case basis.
3. M&A, Credit, Positioning, and Multi Asset Portfolios
The SG equity team last week published their 2017 update of their M&A outlook, where they took a closer look at recent trends in the global M&A cycle and provide a very positive outlook for the M&A pipeline through 2017. They cite toppish corporate margins and sluggish organic growth which are putting pressure on management to use cash and re -leverage balance sheets, as the predominant driver, but they also cover multiple other drivers. How will this activity be financed? SG prefer equity to credit here, because the credit market won’t have much appeal at a time when leverage is already high – and in a rising yield environment, the equity space outperforms credit 78.2% of the time, according to their data going back as far as 1990. SG clients can view the full note via the research portal.
4. Time to Rotate into Japan Equities
In common-currency terms, the Japanese equity market is on the cusp of an important breakout, with prices testing their 2015 and post-recession highs, writes MRB Partners. Investor interest is also ratcheting up, with many looking to the market as a potential rotation alternative to the comparatively expensive U.S. MRB dedicate a section of their Weekly Macro Strategy report to assessing the Japan equity market, by sector. As they say, it’s a market that has repeatedly disappointed, but it’s worth looking again beneath the headlines to assess whether key sectors are confirming the bullish trend.
5. US Autos; No Systemic Risk
How exposed are US banks to auto loans? Well, a lot less than some of the wholesale funded, often PE owned, finance companies that have pushed the envelope in subprime loans at a time when collateral values are dropping, writes the CreditSights financials team. In this meaty report they give a complete breakdown of auto loan exposures of all US banks on their coverage list. At either end of the exposure scale, Capital One, Huntington, Fifth Third have the highest, while BAML, M&T and KeyCorp have the lowest. IF you'd like access to this report, contact the provider directly.