Defense as attack, via Bloomberg
At first the US-China renewed trade tensions was just a war of words. However, it has now escalated into action. It was the US Senate bill that could potentially de-list some Chinese companies that really changed the tone and now we can expect a range of 'tit for tat' responses. Sadly, antagonism and protectionism is going to be made worse, rather then better, by the COVID-19 induced slowdowns. Nations, like people, can fight the fiercest when they are hurt.
How will sectors perform?
Travel, leisure, banks and insurance should continue to underperform in the present environment. Banks will also be hit by any further moves to negative interest rates and the UK sector is one area to watch as Bank of England's Governor Bailey has warmed to the idea of negative interest rates.
Eurostoxx and other indexes
In the Eurostoxx the worst May performers in terms of metric points have been HSBC, Compass (catering) and L'Oreal (cosmetics). The best have been ASML, Nestle and Roche. Among the European indexes as a whole the more defensive benchmarks of the DAX and the FTSE are likely to stay ahead of France's CAC, Spain's IBEX and Italy's FTSE.
Events to watch
The Euro saw some relief this week on the German - Franco proposal of a €500 billion relief fund. However, the proposal still needs all 27 member states to agree, so it remains to be seen if the economic stimulus does eventually come on line. As a result it is a watch this space event. Analysts project 2Q earnings to be worse than Q1 earnings and 2021 estimates may not reflect the reality as the lockdown continues. Current consensus is for EPS to be 6% below 2019 profits, so it is reasonable to expect defensive sectors like tech and healthcare to perform well.
