The stellar performance of the European region led almost all of our trade ideas in Q1, which were mainly calls, to close profitable; however, the magnitude and speed of the advance of European indices and rich valuations changed our preference towards positioning for downside in the region ahead of 2 April tariff fears. As of this week, we have closed the majority of our put ideas proposed over the last month, which now sways our preference once again to position for upside in the region, as both prices and valuations are now even lower than our entries leading to the Q1 run-up. In addition, with the current 90-day tariff pause from both the US and Europe, we once again see attractive risk/reward to the upside. We propose Long Dec25 Calls on the following single stock names as a way to play the increasing likelihood of a market rebound on subsiding recession fears. However, due to the ongoing uncertainty, we hedge the positions with double our normal size allocation in Long SX5E Dec25 Puts as we still see a binary outcome for broader market levels to resolve significantly by the end of the year.
BMW: Its largest manufacturing facility in the world is located in the US, where the most in-demand BMW X series is produced. North America accounts for roughly a quarter of group sales, of which more than 60% is produced locally, with further capacity to increase local output to counter prohibitive tariffs on imports.
Novartis: Even though pharma earnings will likely be affected by tariffs on non-pharma imports, the hit will likely be minor (low- to mid-single-digit) due to the sector’s low COGS. For Novartis, the impact will likely be on the lower end as it has among the lowest COGS of major EU pharmaceutical companies and the lowest percentage of sales derived from the US, with a long-established local base. Novartis reports 1Q25 on 29 April, during which it historically tends to upgrade full-year guidance.
Rio Tinto: Iron ore continues to be one of the worst-performing metals so far on the back of weaker Chinese demand, and more so in recent times due to intensifying recession fears. The iron ore segment generates c.78% of Rio Tinto’s EBITDA and c.95% of its cashflow, and given the stock’s highly cyclical nature, it is one of the names due to benefit from Chinese stimulus.
Louis Vuitton: When there are expectations of an economic downturn, consumers gravitate towards premium brands, with category leaders typically outperforming others. Louis Vuitton remains the leader in the luxury goods sector, and the current price and valuation have over-priced a potential recession.
BP: Depressed Brent prices broadly reflect expectations of a recession from a tariff-induced slowdown but price out any potential escalation or intensifying news headlines regarding a conflict with Iran. The company’s latest strategic shift away from renewables and back into its core hydrocarbon business, in combination with its highly levered balance sheet, makes the stock more susceptible to large oil price swings and one of the highest-Beta stocks to the SXEP.