Outlook for Europe WisdomTree September 2019
Time to move beyond ‘crisis’ monetary policy accommodation?
G4 Central Bank Balance Sheets
G4 Unemployment Rate
G4: Refers to the “Group of 4” and represents some of the largest economies in the developed world. Fed: Refers to the US Federal Reserve. BOE: Refers to the Bank of England. ECB: Refers to the European Central Bank. BOJ: Refers to the Bank of Japan. GDP: Refers to Gross Domestic Product.
Source: Bloomberg, as of 9/23/2019. The Unemployment Rates are defined by the following Bloomberg Ticker symbols: United States: EHUPUS Index; Eurozone: EHUPEU Index; UK: EHUPGB Index and Japan: EHUPJP Index. For each, the data represents what was most currently reported as of 9/23/2019. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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Will U.S. Markets Continue Recent Out-Performance?
Source: MSCI, as of 8/30/2019. MSCI Europe Index and MSCI USA Index are both launched on 5/31/1986. Past performance is not indicative of future results. You cannot invest directly in an index. FOR FINANCIAL PROFESSIONAL USE ONLY
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Last 10-Year Returns: Worst Decade for Europe vs the U.S. in 40 Year Rolling Periods
Source: MSCI, as of 8/30/2019. MSCI Europe Index is launched on 5/31/1986. S&P 500 Index is launched in 1957. Past performance is not indicative of future results. You cannot invest directly in an index. FOR FINANCIAL PROFESSIONAL USE ONLY
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European Earnings vs US Earnings
Source: WisdomTree, FactSet. For the time period 12/31/2008-8/30/2019, monthly frequency. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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Technology Dominance in U.S. Compounded by Poor Financials Performance in Europe Led to Divergence
Source: WisdomTree, MSCI, as of 8/31/19. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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Banks importance to Europe seen in correlation of interest rates to relative performance of Europe versus the United States
Source: Bloomberg, as of 8/30/2019. U.S. equity performance is proxied by the MSCI USA Index. Europe equity performance is proxied by the MSCI Europe Index. Bund Yield refers to the yield of the German 10-Year Bund. Past performance is not indicative of future results.
FOR FINANCIAL PROFESSIONAL USE ONLY
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European Financials Have Continued to Decline Along with Bund Yields. Recent Tiered Policy Rates May Alleviate Stress Falling Bund Yields have Coincided with Decline of European Banks
Source: WisdomTree, Bloomberg. For the time period 9/25/2009 – 9/20/2019, weekly frequency. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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European bank equities struggled but Additional Tier 1 (AT1) Contingent convertible capital instruments (CoCos) performed strongly
Source: J.P. Morgan, Bloomberg, as of 9/20/2019. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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German equity markets under performed with manufacturing sector
Ifo Pan Germany Business Climate: Represents a statistic sourced from the IFO institute—Institut fuer Wirtschaftsforschung out of Germany. The targeted audience is 3 sectors: manufacturing, trade and construction. The sample size is 7,000 companies. France Business Confidence Employment Climate: This comes from the INSEE National Statistics Office of France, and is meant to track the general state of the French economy. Italy Business Confidence in the Manufacturing Sector: This comes from ISTAT, with a target audience of manufacturing, construction, retail trade, and services companies. The sample size is 4,000 companies. Source: J.P. Morgan, Bloomberg, as of 8/30/2019. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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Eurozone Value vs. Growth Correlated to Changes in Eurozone Purchasing Managers Index (PMI)
PMI: Purchasing Managers Index.
Source: J.P. Morgan, Markit, MSCI, as of 8/31/19. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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Min-vol is an increasingly popular strategy, but valuations look elevated vs. the broader market
Analysis of Price-to-Earnings (P/E) Ratios
Analysis of Return-on-Equity (ROE)
Source: WisdomTree, Bloomberg, FactSet. Low-Vol Quintile refers to the quintile of MSCI USA Index with the lowest volatility. Past performance is not indicative of future results. You cannot invest directly in an index. 1 Data for the period 7/31/2012-8/31/2019, selected based on data availability.
FOR FINANCIAL PROFESSIONAL USE ONLY
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Similarly elevated valuations for min-vol in EAFE
Analysis of Price-to-Earnings (P/E) Ratios
Analysis of Return-on-Equity (ROE)
Source: WisdomTree, Bloomberg, FactSet. Low-Vol Quintile refers to the quintile of MSCI EAFE Index with the lowest volatility. Past performance is not indicative of future results. You cannot invest directly in an index. 1 Data for the period 7/31/2012-8/31/2019, selected based on data availability.
FOR FINANCIAL PROFESSIONAL USE ONLY
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Will negative yields continue to increase demand for gold?
+In 2018, we saw the largest central bank purchases of gold since President Nixon closed the gold window
Global Bonds with Negative Yields
Central Bank Gold Demand
Source: 1. WisdomTree, Bloomberg, as of 9/23/2019; 2. World Gold Council, Metal Focus, GFMS, data available as of close 9/10/2019. Past performance is not indicative of future results. FOR FINANCIAL PROFESSIONAL USE ONLY
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Is Draghi’s greatest innovation a dual rate policy system? Megan Greene in the Financial Times
+Tradeoffs between raising rates benefiting savers, while cutting them benefits borrowers.
+Targeted longer-term refinancing operations (TLTROs) potentially introduce a different borrowing rate as well.
+Deposit rate can be raised to benefit savers, while the borrowing rate can be cut to benefit debtors, creating an unambiguous stimulus across the economy “always, and under any economic model”, as Mr Lonergan notes.
+A central bank could offer TLTROs to its banks at, say, minus 2 per cent, a rate contingent on those banks lending the money on to the real economy.
+The banks could then theoretically price loans to households and businesses at minus 50 basis points, benefiting from a 1.5 per cent carry trade.
Source: Megan Greene, in Financial Times, “Mario Draghi’s policy bazooka may be his most precious legacy”, 5/29/2019. FOR FINANCIAL PROFESSIONAL USE ONLY
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