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From the Floor: Equity investors chasing an illusion? — #SaxoStrats

   • Q4 EBITDA expectations above all realised growth figures since 1991
   • JPY strengthens overnight on potential 2018 restriction of BoJ purchases
   • Oil higher on inventories projections, Iranian nuclear compliance focus
   • Samsung Q4 operating profit misses, loss mainly down to KRW hit
   • 'We are in need of some consolidation' in gold: Ole Hansen

By Michael McKenna

Asian shares rose on the back of further Wall Street gains Monday with the Hang Seng index rising 0.6%, Shenzhen up 0.9%, and Singapore gaining 0.6%. In Saxo Bank head of equity strategy Peter Garnry's view, however, investors may be "chasing an illusion".

"The Q4 earnings season is fast approaching and when we look at EBITDA expectations in the S&P 500 we find investor hopes ahead of all realised growth figures since 1991," says Garnry.

In single shares, Samsung dropped 3% in Seoul on the back a miss in Q4 operating profit, which came in at KRW 15.1 trillion versus 16.2 trillion expected. "The shortfall," says Garnry, "is mainly due to late-year KRW headwinds, and our Equity Radar model is positive on Samsung.

Another company showing a strong positive on Saxo's Equity Radar is Chinese carmaker Geely (disclaimer: Geely maintains a controlling share in Saxo Bank) with Garnry noting that Geely sales rose by 42% in December at 1.25 million vehicles versus 1.1 million expected, with the firm likely in his view to become China's number one domestic automaker.

EBITDA growth, S&P 500:
Crude oil prices are on the rise again ahead of today's short-term energy outlook from the US Energy Information Administration, reports Saxo Bank head of commodity strategy Ole Hansen, who notes that both inventories projections (data due Wednesday) and a focus on Iran's compliance with its nuclear deal are key factors behind the move.

"President Trump's deadline for evaluating Tehran's compliance falls on January 12," says Hansen, who adds that Trump refused to certify Iran as compliant back in October.

"We are also seeing rising and/or recovering production in Libya, Nigeria, and the US," cautions Hansen.

While gold prices have maintained support despite surging risk assets, Hansen says that investors should be wary of chasing gains as "we are in need of consolidation"; one factor supporting gold prices is the resurgent JPY which as Garnry also noted is buoyant on the prospect of a 2018 reduction in Bank of Japan asset purchases.

Finally, Hansen reports that key crops are trading lower ahead of Friday's monthly and quarterly USDA reports, adding that "the whole sector is in need of weather problems for support".

Key crops lower
Will the winter step in to support crop prices? Photo: Shutterstock 

Michael McKenna is senior editor at Saxo Bank


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