Intesa Sanpaolo : All European confidence surveys beat expectations by far in February.
Weekly Economic Monitor – 28 February 2020
Intesa Sanpaolo – Research Department
The indices are consistent with a sharp quarterly reacceleration of GDP growth. Therefore, the first three weeks of reports on the COVID-19 epidemic have not damaged sentiment, nor the expectations components of the surveys. However, the arrival of COVID-19 in Italy was widely reported only a week ago, and clusters of cases may soon be detected in other countries.
A decline in confidence indices may therefore only be postponed until March. In any case, even if significant, the impact will be short-lived and therefore irrelevant from the point of view of monetary policy.
The Fed has been cautious so far in its assessment of the potential effects of the early 2020 negative shocks, i.e. the Covid-19 epidemic and the production freeze at Boeing. February data will start to provide more information, which in our view will prompt the FOMC to take a more dovish approach. It is possible that the Fed may have, once again, to follow the ongoing market correction, should the yield curve inversion and the equity market correction persist for a longer period. However, it is too soon for an explicit reversal, that needs further signals of a widespread weakening of economic activity, unlikely to emerge before 2Q.
The week’s market movers
In the euro area , the most important release will be the February inflation rate, expected to slow to 1.2%. Also in the Eurozone, in January, unemployment is forecast stable, whereas retail sales will not recover the loss suffered in December. The second estimate of the February PMI is expected to confirm a recovery of the indices. In Italy, the 2019 deficit should emerge to be under control; details on the decline of GDP at the end of 2019 should highlight the decisive role played by inventories; unemployment is expected to increase slightly in January.
The main data due out in the United States are referred to February and will be useful to assess the initial effects on 1Q growth of the COVID-19 epidemic and of the production freeze at Boeing. The manufacturing and non-manufacturing ISM indices should correct, offering further support to expectations for a slowdown of GDP growth in 1Q. The Employment Report, while still positive, should outline a slowdown in job gains, after the strong January rise, restoring the trend of non-farm payrolls to a more moderate path. Among January data, the trade balance deficit should widen modestly, outlining a negative contribution of net exports to growth, and construction sector spending is forecast higher, helped by unseasonably mild weather conditions. The Beige Book could provide new information on the effects of the COVID-19 and on the production freeze at Boeing on economic activity in February, as well as on business expectations.
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient’s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (“Research Policy”). The Research Policy is clearly explained in the relevant section of Banca IMI’s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and/or representatives and/or employees and/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).
Trading Ideas are based on the market’s expectations, investors’ positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.
Coverage Policy And Frequency Of Research Reports
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer’s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A’s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI’s web site (www.bancaimi.com) or by contacting your sales representative.