Halister News

(Bloomberg) -- EUR rates volatility remains relaxed into ECB meeting with risks of a large dovish surprise or significant divergence from July meeting limited, and with the September/October meeting likely reserved to outline further details on QE.

• EUR 3m10y trades at 169bps (1m10y at 91.5bps, 2m10y at 141bps) near record-low levels
• August 2017 bund straddle, which expires tomorrow, has breakeven of 5bps (equivalent to strike levels at about 161 and 162.50, spot ref. 161.75)
• While the net takeaway from the meeting may be bearish for rates as ECB’s concessions on wording evolves given the 33% issue limit, with consensus seeing echo of Draghi’s Sintra comments that saw a four-sigma move in bunds, it means they have to end QE earlier than inflation dynamics warrant
  • EUR TWI has already hit pre-QE levels, which may lead to some soothing words at the press conference but ECB can take comfort from the fact that peripheral spreads have stayed contained since Sintra
• While the fair value for bunds was only modestly rich prior to Sintra (vs extreme valuations prior to 2015 bund VaR shock), a further selloff toward 70bps area may see bunds cheapness stretched given diminishing inflation risk
• ECB-dated Eonia prices 16bps depo-rate increase by December 2018 and bund ASW at 40bp looks set for further structural compression as purchases wind down while focus remains on the short-end of the curve
• NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice

To contact the reporter on this story: Tanvir Sandhu in London at tsandhu17@bloomberg.net To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net Anil Varma

(Bloomberg) -- There is more upside in Johnson & Johnson shares, due to key pharma growth drivers, Credit Suisse analysts led by Vamil Divan write in client note.

• Reinstates coverage, PT $148 vs $135.21 Wednesday close
• CS sees opportunities for growth from assets such as Xarelto, Darzalex and Imbruvica
  • Full Compass data on Aug 27 is next main pharma catalyst; additional 4m patients (or more) could become candidates
  • Both Darzalex and Imbruvica have had strong uptake to date and are moving into earlier lines of therapy and additional cancer indications that can drive further growth
• Strong growth from Stelara and initial uptake of Tremfya and sirukumab should offset expected decline from Remicade biosimilars
• While Actelion has a steep price, it brings area of growth and possible upside through the equity stake in R&D spin-out Idorsia
• Primary downside risks are disappointing clinical data, challenging commercial launches, increased concerns around drug pricing and integration chaallenge
• Shares have risen 17% YtD and are trading at highest on record

--With assistance from James Cone. To contact the reporter on this story: Roxana Zega in Zurich at rzega@bloomberg.net To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net Brian Lysaght

--AMY THOMSON

(Bloomberg) -- Emerging market equities will offer some of the best returns among stocks and bonds over the next five years, according to Geoff Lewis, senior Asia strategist at Manulife Asset Management.

• Global stock markets likely to post low- to mid-single digit gains from 2017 to 2021, Lewis says in a note
• There’s risk of correction in U.S. equities in 3-12 months
• Conditions for stocks to further outperform bonds remain in place over 12-18 months
• Advocates mid-year switch to more defensive strategy, retains preference for euro zone, Asia ex-Japan in global equity portfolios
• Read: Manulife Asset Likes Indonesia, India Bonds and Chinese Equities
• With few exceptions, government bonds in developed markets will be increasingly vulnerable to loss of fundamental support
  • Economic and policy conditions in 2H more likely to elicit higher developed market bond yields
• China’s bond market -- world’s third largest -- may see more rapid progress
  • “Foreign investor ownership is only 2.7 percent of a market equivalent in size to $243 billion, and there is room to grow”

To contact the reporter on this story: Colin Simpson in Hong Kong at csimpson42@bloomberg.net To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net Will Davies