The market is looking up this morning, with investors poised to scoop up stocks that were pummeled in last week’s downdraft. Britain's FTSE 100 index was 1.7 percent higher at 4,905.16 and Germany's DAX was up 1.6 percent at 5,909.57. France's CAC-40 gained 2.2 percent to 3,405.98. Asian markets closed higher, too as buyers stepped in to take advantage of the lower valuations.
But while the prospects for a short term bounce look good, fundamentals are another matter altogether. True, the Institute for Supply Management (ISM) reported on manufacturing activity for the month of June Thursday. The Purchasing Managers Index, at 56.2%, marked the 11th month of expansion, and the reading implies economic expansion of 14 straight months. But that just about marks the end of the good news. While anything in excess of 50% signifies an expansion in the economy, the print was nonetheless considerably weaker than May’s 59.7%. And the pre-holiday data showed unequivocal signs of a sharp slowdown in housing: U.S. Census Bureau report of a 30% decline in new house sales in May was a shocker for many, (although others had anticipated the worst and who sold off home builders' stocks over the past two months by 20% to 50% the CME lumber contract (LB) by nearly 43% in the same time period). As for employment, while the unemployment rate was reported decreased, to 9.5% in June, from 9.7% in May, nonfarm payrolls noted a net loss of 125K jobs, as temporary census workers completed their work and were let go. True, employment is a lagging indicator, but the simple fact is that it is hard to kick start an economy that kind of unemployment level. Reflecting that, consumer sentiment fell through the floor in June, with the Conference Board's Index falling nearly 10 points to 52.9. Also weighing the market down were reports of a slowdown in motor vehicle sales, from 8.9 million in May to 8.4 million in June, a 1.4% decline in Factory Orders and a surge in Weekly Jobless Claims to over 470,000.
Meanwhile the Fed continues to print money as if it was confetti – a prescription for recovery that even arch-Keynesians in the Socialist Republic of Great Britain have been obliged to recant. And while the Federal Reserve may be temporarily losing the race to the bottom with the European Central Bank, it can’t be too much longer before the majority of investors wise up to the idea that the only fair price for any fiat currency is parity. There is no “safe haven” in a currency whose central bank is on a “quantitative easing” binge that should be familiar territory to any self-respecting Banana Republic.
The bottom line: by all means play the bounce, but only for the very short term, and be prepared to head for the hills at the first sign of trouble. Longer term, i.e. over the next couple of years, the balance of opportunities are to the short side in both US and European equities.
[Disclosure: Systematic Strategies LLC is a high frequency hedge fund is market neutral, and holds no positions overnight].
Tuesday, July 6, 2010
Sunday, July 4, 2010
Goldman: The Second Half Slowdown Has Begun
Goldman chief economist Jan Hatzius warns that "the second half slowdown has begun." Hatzius says: "This is consistent with our long-standing forecast of materially slower growth of just 1½% (annualized) in the second half of 2010.
According to Hatzius:
The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).
Manufacturing Starts to Slow…
One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new orders index from 65.7 to 58.5?is the first significant step on this path.
The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).
Manufacturing Starts to Slow…
One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new orders index from 65.7 to 58.5?is the first significant step on this path.
The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).
Manufacturing Starts to Slow…
One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new orders index from 65.7 to 58.5?is the first significant step on this path.
The June employment report also points to a meaningful factory slowdown. While manufacturing payrolls logged another (small) gain, the manufacturing workweek fell by ½ hour, as shown in Exhibit 2. This is a very big drop by historical standards?in the 4th percentile of month-to-month changes using data that go back to 1936. This may be a sign that the manufacturing sector may be losing steam even more quickly than suggested by the June ISM report.
…and the Labor Market Softened in June
Even beyond manufacturing, the June employment report was weak. This was most obvious in the household survey, where the drop in the unemployment rate from 9.7% to 9.5% was entirely due to a big decline in the labor force. A more accurate gauge is the decline in the employment/population ratio from 58.8% in April to 58.7% in May and then to 58.5% in June, shown in Exhibit 3. (We note the April number in order to illustrate that the weakness cannot just be explained by Census-related ups and downs?after all, the level of Census employment was higher in June than in April.)
According to Hatzius:
The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).
Manufacturing Starts to Slow…
One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new orders index from 65.7 to 58.5?is the first significant step on this path.
The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).
Manufacturing Starts to Slow…
One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new orders index from 65.7 to 58.5?is the first significant step on this path.
The economic data have weakened noticeably over the past few weeks. This is consistent with our longstanding forecast of materially slower growth of just 1½% (annualized) in the second half of 2010. This forecast is based on a very simple idea, namely that final demand growth has remained at just 1½% since the middle of 2009. There is little reason to expect a significant acceleration, and the inventory cycle is ending. All this is illustrated in Exhibit 1, which shows the growth rate of real GDP, the growth rate of real final demand, and the contribution of inventories to growth (the difference between the two).
Manufacturing Starts to Slow…
One implication of our story as illustrated in Exhibit 1 is that the slowdown should be concentrated in the goods-producing sector, which previously enjoyed a disproportionate boost from the inventory cycle. This implies a significant decline in measures of factory growth such as the ISM manufacturing index. Historical experience would point to a drop to around 50 by early 2011.1 The drop in the index from 59.7 in May to 56.2 in June-?much of which was due to a sharp decline in the new orders index from 65.7 to 58.5?is the first significant step on this path.
The June employment report also points to a meaningful factory slowdown. While manufacturing payrolls logged another (small) gain, the manufacturing workweek fell by ½ hour, as shown in Exhibit 2. This is a very big drop by historical standards?in the 4th percentile of month-to-month changes using data that go back to 1936. This may be a sign that the manufacturing sector may be losing steam even more quickly than suggested by the June ISM report.
…and the Labor Market Softened in June
Even beyond manufacturing, the June employment report was weak. This was most obvious in the household survey, where the drop in the unemployment rate from 9.7% to 9.5% was entirely due to a big decline in the labor force. A more accurate gauge is the decline in the employment/population ratio from 58.8% in April to 58.7% in May and then to 58.5% in June, shown in Exhibit 3. (We note the April number in order to illustrate that the weakness cannot just be explained by Census-related ups and downs?after all, the level of Census employment was higher in June than in April.)
Thursday, December 3, 2009
Electric Central Bank
GLOBAL EQUITIES RESEARCH
Not much to dream about for today’s session but the rise of the Nikkei boosted by Mitsubishi (up 13.5%) dealing a cross shareholding with Peugeot and a weaker yen vs dollar. We still do not understand the new high reached on the S&P yesterday given the worsening macro background environment, and should explain that we were dealing with some short positions cuts following some entry from fund managers on the first day of December to play and hope an end of year rally which is far from granted for now, or at least too early and too much of a bet at this stage. But one thing for sure in the end, it made the technicals on the S&P not so looking with a fake upside exit of a market dangerously staying on its high. Ugly looking, same as the fundamentals for now. The risk being that the unwinding from easy quantitative policies driven by political pressures are too early and would trigger further economical troubles which we hardly can measure at this stage. No drama but not good looking for now.
The ECB might be the focus today and will be feared. Indeed,the main interest in Europe this week will be whether President Trichet provides any hints about the speed at which the ECB will unwind its liquidity operations at today’s press conference. Indeed the ECB is about to pull back some stimulus aid in today’s press conference. Main focus will be the one year loans, of which Dec 16th one likely to be the last round. The ECB wants to limit demand for this Dec instalment and wean banks off their dependence. Together with possible hints about phasing out 6-month lending next year, this might add to fears that the Bank will withdraw its unconventional policy stimulus too quickly. The story behind this is the weak debt situation of most European countries. If according to economists Greece bankruptcy has some good chance to be avoided, it would be unwise to write off the possibility of default altogether. If growth was persistently weaker than in the past, or markets demanded a higher return to lend to the Government, far more austere fiscal measures might be required to get the public finances on a sounder footing. Either development could make defaulting.
Bernanke will be another threat regarding the unwinding of the easy quantitative policies. Politicians are increasingly taking part to the story, and fear that the banks are just blowing another bubble thanks to the cheap funding. Bernanke found the backing of 8 Democrats and 4 Republicans among the 23 lawmakers on the panel overseeing the central bank. The banking panel holds a hearing on Bernanke’s nomination today in Washington. Some said they will support Bernanke while others said they’re leaning in his favour. Bernanke’s 4 year term ends Jan.31st. Bernanke said that there is a "strong case" for a continued role for the Fed in bank supervision , writing that the central bank brings "unparalleled economic and financial expertise to its oversight of banks." He also said that the Fed's ability to take actions including cutting interest rates without engendering sharp increases in inflation "depends heavily on our credibility and independence from short-term political pressures." The Federal Reserve has been the subject of some criticism in Congress, reflecting public anger at the costly bailouts of financial institutions. Bernanke acknowledged that the Fed "did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis." He wrote that the Fed does support measures that would ensure that "ad-hoc interventions" like the kind used last fall never happen again. In particular, Bernanke said he supports a special bankruptcy regime for financial firms whose failure would threaten the financial system . Speaking Sunday Sen. Bernard Sanders, an independent from Vermont, said he wouldn't vote to confirm Bernanke. But Sen. Lindsey Graham said on the same television program that the chairman "has done a very good job, but the Fed needs to be looked at closely in terms of its balance sheet."
The jury will be out this afternoon.
The only way to be free safely from these stimuli would be a job creation level which remains a bet until it happens. The ISM non manufacturing job component today will be closely watched in order to fine tune the employment report forecast due out tomorrow. But we already guess there is not much dream to be expected on Friday’s report. Indeed the ISM manufacturing job component did drop from 53 to 50.8, while the private sector showed through the ADP yesterday it was still destroying 169k jobs in November. The only hope being that the US job census to hire 1.4 mn workers next year will be efficient. However the answer should only come by spring, and the way things are happening it might be a long way from today, with a lot of things possibly happening. The pressure from worldwide officials about the too easy quantitative policies which is mostly used to build another bubble becomes a real concern. Most economies would hardly run on their own at this stage without stimuli, and if they did the pace would be too slow to pay the money from the interest of their debts back to investors. This is precisely the reason why any bankruptcy risk from weak countries should be seen as a real threat so much every countries have to deal with their own debt problems already.
We suggest once more to be careful, not believing in a rise for now, but the market seems unbelievably resilient for now which we see as much as you do
ECONOMIC DATA WITH IMPACT
ECB (12h45 UK time) expected to announce the end of the special loan which is expiring on Dec 16th / risk behind that story being the further weakness of Greece, Ireland, Spain, UK etc … Press Conference (13h30 UK time)
Jobless Claims (13h30 UK time)expected 480k from previous 466k / interesting ahead of the employment report tomorrow
US Q3 GDP revision (13h30 UK time) expected 8.5% from 9.5% / down in line with the GDP revision / minor as belonging to the past
ISM non manufacturing (15h UK time) expected 51.5 from previous 50.6 / should remain above the 50 growth level, to as strong as the manufacturing sector since it doesn’t profit as much of the dollar weakness / keep an eye on the job component which will be important as to fine tune tomorrow employment report forecast / interesting
Bernanke hearing (15h UK time) with a vote in the Senate Banking Committee about his extension as the Fed President
ICSC Chain Store sales (16h UK time) / previous was +2.1% / interesting
POSITIVE IMPACTS
PEUGEOT & MITSUBISHI MOTORS are negotiating a capital tie-up = PSA would buy a 30-50% stake ($3.4bn) in Mitsubishi (Nikkei)
SIEMENS : Q4 sales €19.71bn (19.28bn exp) / Operating €1.92bn (1.6bn exp) / Industry op. margin 6.3% (5.7% exp) / Energy 13% (11.8% exp) / Healthcare 15.4% (12.9% exp) / Order intake €18.75bn (17.11bn exp) / Dividend €1.60, unchanged & in line / Sees 2010 operating profit of €6-6.5bn (5.70bn exp)
KINGFISHER : Q3 sales £2.7bn, in line / Retail profit £227m (220m exp) /Q3 UK LFL sales +3.9% / French LFL sales -2.4%
UNILEVER is thinking of selling its Italian frozen food business in a deal worth up to €800 m (FT)
AIR FRANCE-KLM's management wants to revise the collective agreement for pilots and cabin crew, with the aim of adding €120 m to Ebit, in addition to its restructuring plan already calling for €500 m in Ebit savings (Les Echos)
AXA has successfully completed its €2.07bn capital increase / The issue was 272% subscribed, with total demand at about €5.6bn
PPR : CFAO starts trading Today (Reuter Ticker = CFAO.PA / Bloomberg Ticker = CFAO FP)
DELHAIZE expects to make an additional €300 m in annual operating cost savings by 2012
ASML and Brion Technologies extended partnership with STM for integrated lithography solutions
THOMAS COOK plans to buy Germany-based Turkey-specialist travel agency Oeger Tours (turnover of around €770 m) (FTD)
CAIRN ENERGY said that it plans a "10 for 1" subdivision of its share capital to improve the liquidity of ordinary shares
BANCO POPOLARE : The 10-for-1 rights issue at the bank's 88% unit Banca Italease will run from Dec. 7-23, with rights
tradable on the bourse from Dec. 7-16
FORTIS : UBS has cut its stake in Fortis to under 3% and held no Fortis shares as of Nov. 25
DNB NOR said that it definitely favours organic growth over M&A for time being…
TO BE NOTED : FERROVIAL & CINTRA will be suspended on Friday due to their merger and will resume trade on Monday as one Co
UK BANKS have an aggregate exposure to Dubai World of about $5bn (FT) / RBS was the most exposed of U.K. lenders, with up to $2bn owed / HSBC, STAN and LLOYDS have exposure of about $1bn each
BANK OF AMERICA said it will repay the $45bn loan provided under the TARP / BAC plans to use $26.2bn in excess liquidity and $18.8bn in proceeds from the sale of common equivalent securities / Tier1 common Capital ratio would be 8.5% & Tier1 Capital ratio 11%
SEMI CONDUCTORS : TSMC's operations will likely return to 2008 levels in the H1 2010, one or two quarters ahead of previous expectations (The Economic Daily News)
NEGATIVE IMPACTS
ALSTOM : S&P placed Alstom 'BBB+/A-2' ratings on creditWatch negative following the acquisition of T&D
UNIPOL : Moody's assigned Unipol a Baa1 long-term rating with a negative outlook.
DEUTSCHE TELEKOM is being probed by the German cartel office on suspicion it abused its market position
REPSOL expects LNG sales volumes in 2009 to be "a little less, but in line with" the 4.7bn cubic metres it shipped in 2008
TRADING IDEAS
BUY the dollar,the ECB tougher stance will bring another threat to risky assets such as emerging countries
SELL ST GOBAIN as Wendel investors day was supposely played aggressively last few days, but Wendel not in a good situation regarding St Gobain, they now sold put options last few weeks cashing 163 mn euros / Wendel owns 17.51% of St Gobain bought on higher level they have to deal with it
SELL ARCELORMITTAL / SCHNEIDER / NESTLE / L OREAL possible double top to be confirmed soon
SELL BAYER / BASF to play head & shoulder possibility
BUY MUNICH RE / GSZ vs SHORTEUROSTOXX to play double bottom possibility on these names
BUY EON / SELL EDF // BUY AXA / SELL ALLIANZ // BUY AIR FRANCE / SELL LUFTHANSA
BUY TELECOM ITALIA / SELL TELEFONICA // BUY DANONE / SELL NESTLE // BUY ENEL / SELL IBERDROLA
BUY ALTRIA / SELL REYNOLDS AMERICAN // BUY ANADARKO PETROLEUM / SELL EXXON
BROKER METEOROLOGY
HEIDELBERGCEMENT RATED NEW BUY BY BANK OF AMERICA - ML
YARA RAISED TO BUY FROM HOLD BY DEUTSCHE BANK
ORASCOM TELECOM RAISED TO BUY FROMHOLD BY DEUTSCHE BANK
DSM CUT TO HOLD FROM BUY BY DEUTSCHE BANK
TRINITY MIRROR CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
DATA
WTI : 80,1 (0,37 %)
Eur/$ : 1,4877 (0,04 %)
$ /Yen : 90,64 (0,06 )
10 Yr US : 3,53 ( 0,75 bp)
10 Yr Euro : 3,35 ( 2,9 bp)
Indices : US close ; Europe close
SOX : 2,59 %;2,23%
S&P :1,92 %; 1,54 %
DOW: 2,08%; 1,78 %
NAS :2,42%; 2,12%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 2,86 %; 2,15 %
ENERGY : 1,63 %; 1,74 %
FINANCIAL : 2,37 %; 0,94 %
HEALTHCARE : 1,68 %; 1,36 %
TECHNO : 2,18 %; 2,09 %
TELECOM : 1,24 %; 1,22 %
INDUSTRIAL : 2,71 %; 2,13 %
UTILITIES : 1,72 %; 1,49 %
TO BE COMING
Today
Results : EU \\ Kingfisher trading statement / Siemens (BMO) [Americas] \\ Bomardier
Dividend : Nike($0.27)
Events: Siemens annual analyst meeting / Delhaize investor day / Merck & Co guidance call / NH Hoteles EGM / Starbucks analyst conf / TNT analyst day / Volkswagen EGM
Friday
Results :
Dividend :
Events: Randstad Analyst day / Rexel Investor day / Volkswagen EGM
Tuesday
Results : EU \\ Tesco interim
US \\ Kroger Co / Texas Instruments Mid-quarter update
Dividend : Baxter International ($0.29)
Events : 3M Company 2010 Outlook Meeting / Global Industries conf at Bank of America-ML
Wednesday
Results :
Dividend :Land Securities (GBp 7) / Wal-Mart Stores (€0.2725)
Events: Swiss Re investor day
Thursday
Results : US \\ National Semiconductor
Dividend : FedEx ($0.11) / Tme Warner ($1.00)
Events:Prudential investor day
ECONOMIC DATA PREVIEW
Watch in the United-States the ISM non-manufacturing composite for November (15h00 GMT), After reaching 50.9 in September, above 50 for the first time since August 2008, the ISM services index reached 50.6 in October. After over cutting capital spending, US companies are investing again, not only in the manufacturing sector but also in services. Therefore we anticipate a new rise in the ISM services index to 52 in November, the highest for two years.
Watch in the Euro area the ECB monetary policy meeting and decision on the refi rate for December (12h45 GMT). Despite the fact that GDP in the euro zone remained very low (precisely -4.1%YoY), and despite the high level of the euro, the ECB will keep its refi rate unchanged in December at 1%. This decision will be most likely be justified by the fragile recovery as revealed in particular by the last IFO, INSEE or PMI surveys. Moreover as the inflation should reach + 1.5% during the first quarter 2010, the ECB will most likely increase its refi rate. One more time the ECB will shoot itself in the foot and the economic recovery will remained soft./JB
ECONOMY
United-States : Fed Beige book
“Reports from the twelve Federal Reserve Districts indicate that economic conditions have generally improved modestly since the last report. Consumer spending was reported to have picked up moderately since the last report, for both general merchandise and vehicles. Manufacturing conditions were said to be, on balance, steady to moderately improving across most of the country, while conditions in the nonfinancial service sector generally strengthened somewhat, though with some variation across Districts and across industries. Residential real estate conditions were somewhat improved from very low levels, on balance, led by the lower end of the market. Most Districts reported some pickup in home sales, though prices were generally said to be flat or declining modestly; residential construction was characterized as weak, but some Districts did note some pickup in activity. Commercial real estate markets and construction activity were depicted as very weak and, in many cases, deteriorating. Financial institutions generally reported steady to weaker loan demand, continued tight credit standards, and steady or deteriorating loan quality.”
United-States : job destruction dropped to a lowest since July 2008 according to the ADP employment report.
After reaching -736 000 in march 2009 job destruction as per the ADP employment private report improved for an eight consecutive month to reach -169 000 (forecast -150 000) in November the “best result” since July 2008. After over laying off companies are now back to economic fundamentals confirming the soft recovery in the United-Sates. This data is a positive indicator of the upcoming employment report due Friday 4th of December. Job destructions which had reached 190,000 in October (US employment report) “the best result” since August 2008, should dropped sharply to 100,000 in November. Nevertheless, as the US recovery is not strong enough and still at its early phase, the unemployment rate should increase in the coming months, and this until the beginning 2010 to at least 10.5%. Significant improvement in the labour market should occur at spring 2010 and will be followed by an increase of the Fed fund rate.
Euro area : Producer price index remained deeply negative in October
After dropping by 0.4% in September producer price index rose by 0.2% (forecast +0.0%) in October led by the rise in energy prices. From a year ago producer prices remained deeply in negative territory at -6.7% YoY (forecast -6.8% YoY) and showed a very slight improvement since September data at -7.6%YoY a negative base effects are progressively fading due to the rise in energy and commodity prices. The core producer price index revealed very low passing from
-4.2% in September to -3.9% in October
Not much to dream about for today’s session but the rise of the Nikkei boosted by Mitsubishi (up 13.5%) dealing a cross shareholding with Peugeot and a weaker yen vs dollar. We still do not understand the new high reached on the S&P yesterday given the worsening macro background environment, and should explain that we were dealing with some short positions cuts following some entry from fund managers on the first day of December to play and hope an end of year rally which is far from granted for now, or at least too early and too much of a bet at this stage. But one thing for sure in the end, it made the technicals on the S&P not so looking with a fake upside exit of a market dangerously staying on its high. Ugly looking, same as the fundamentals for now. The risk being that the unwinding from easy quantitative policies driven by political pressures are too early and would trigger further economical troubles which we hardly can measure at this stage. No drama but not good looking for now.
The ECB might be the focus today and will be feared. Indeed,the main interest in Europe this week will be whether President Trichet provides any hints about the speed at which the ECB will unwind its liquidity operations at today’s press conference. Indeed the ECB is about to pull back some stimulus aid in today’s press conference. Main focus will be the one year loans, of which Dec 16th one likely to be the last round. The ECB wants to limit demand for this Dec instalment and wean banks off their dependence. Together with possible hints about phasing out 6-month lending next year, this might add to fears that the Bank will withdraw its unconventional policy stimulus too quickly. The story behind this is the weak debt situation of most European countries. If according to economists Greece bankruptcy has some good chance to be avoided, it would be unwise to write off the possibility of default altogether. If growth was persistently weaker than in the past, or markets demanded a higher return to lend to the Government, far more austere fiscal measures might be required to get the public finances on a sounder footing. Either development could make defaulting.
Bernanke will be another threat regarding the unwinding of the easy quantitative policies. Politicians are increasingly taking part to the story, and fear that the banks are just blowing another bubble thanks to the cheap funding. Bernanke found the backing of 8 Democrats and 4 Republicans among the 23 lawmakers on the panel overseeing the central bank. The banking panel holds a hearing on Bernanke’s nomination today in Washington. Some said they will support Bernanke while others said they’re leaning in his favour. Bernanke’s 4 year term ends Jan.31st. Bernanke said that there is a "strong case" for a continued role for the Fed in bank supervision , writing that the central bank brings "unparalleled economic and financial expertise to its oversight of banks." He also said that the Fed's ability to take actions including cutting interest rates without engendering sharp increases in inflation "depends heavily on our credibility and independence from short-term political pressures." The Federal Reserve has been the subject of some criticism in Congress, reflecting public anger at the costly bailouts of financial institutions. Bernanke acknowledged that the Fed "did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis." He wrote that the Fed does support measures that would ensure that "ad-hoc interventions" like the kind used last fall never happen again. In particular, Bernanke said he supports a special bankruptcy regime for financial firms whose failure would threaten the financial system . Speaking Sunday Sen. Bernard Sanders, an independent from Vermont, said he wouldn't vote to confirm Bernanke. But Sen. Lindsey Graham said on the same television program that the chairman "has done a very good job, but the Fed needs to be looked at closely in terms of its balance sheet."
The jury will be out this afternoon.
The only way to be free safely from these stimuli would be a job creation level which remains a bet until it happens. The ISM non manufacturing job component today will be closely watched in order to fine tune the employment report forecast due out tomorrow. But we already guess there is not much dream to be expected on Friday’s report. Indeed the ISM manufacturing job component did drop from 53 to 50.8, while the private sector showed through the ADP yesterday it was still destroying 169k jobs in November. The only hope being that the US job census to hire 1.4 mn workers next year will be efficient. However the answer should only come by spring, and the way things are happening it might be a long way from today, with a lot of things possibly happening. The pressure from worldwide officials about the too easy quantitative policies which is mostly used to build another bubble becomes a real concern. Most economies would hardly run on their own at this stage without stimuli, and if they did the pace would be too slow to pay the money from the interest of their debts back to investors. This is precisely the reason why any bankruptcy risk from weak countries should be seen as a real threat so much every countries have to deal with their own debt problems already.
We suggest once more to be careful, not believing in a rise for now, but the market seems unbelievably resilient for now which we see as much as you do
ECONOMIC DATA WITH IMPACT
ECB (12h45 UK time) expected to announce the end of the special loan which is expiring on Dec 16th / risk behind that story being the further weakness of Greece, Ireland, Spain, UK etc … Press Conference (13h30 UK time)
Jobless Claims (13h30 UK time)expected 480k from previous 466k / interesting ahead of the employment report tomorrow
US Q3 GDP revision (13h30 UK time) expected 8.5% from 9.5% / down in line with the GDP revision / minor as belonging to the past
ISM non manufacturing (15h UK time) expected 51.5 from previous 50.6 / should remain above the 50 growth level, to as strong as the manufacturing sector since it doesn’t profit as much of the dollar weakness / keep an eye on the job component which will be important as to fine tune tomorrow employment report forecast / interesting
Bernanke hearing (15h UK time) with a vote in the Senate Banking Committee about his extension as the Fed President
ICSC Chain Store sales (16h UK time) / previous was +2.1% / interesting
POSITIVE IMPACTS
PEUGEOT & MITSUBISHI MOTORS are negotiating a capital tie-up = PSA would buy a 30-50% stake ($3.4bn) in Mitsubishi (Nikkei)
SIEMENS : Q4 sales €19.71bn (19.28bn exp) / Operating €1.92bn (1.6bn exp) / Industry op. margin 6.3% (5.7% exp) / Energy 13% (11.8% exp) / Healthcare 15.4% (12.9% exp) / Order intake €18.75bn (17.11bn exp) / Dividend €1.60, unchanged & in line / Sees 2010 operating profit of €6-6.5bn (5.70bn exp)
KINGFISHER : Q3 sales £2.7bn, in line / Retail profit £227m (220m exp) /Q3 UK LFL sales +3.9% / French LFL sales -2.4%
UNILEVER is thinking of selling its Italian frozen food business in a deal worth up to €800 m (FT)
AIR FRANCE-KLM's management wants to revise the collective agreement for pilots and cabin crew, with the aim of adding €120 m to Ebit, in addition to its restructuring plan already calling for €500 m in Ebit savings (Les Echos)
AXA has successfully completed its €2.07bn capital increase / The issue was 272% subscribed, with total demand at about €5.6bn
PPR : CFAO starts trading Today (Reuter Ticker = CFAO.PA / Bloomberg Ticker = CFAO FP)
DELHAIZE expects to make an additional €300 m in annual operating cost savings by 2012
ASML and Brion Technologies extended partnership with STM for integrated lithography solutions
THOMAS COOK plans to buy Germany-based Turkey-specialist travel agency Oeger Tours (turnover of around €770 m) (FTD)
CAIRN ENERGY said that it plans a "10 for 1" subdivision of its share capital to improve the liquidity of ordinary shares
BANCO POPOLARE : The 10-for-1 rights issue at the bank's 88% unit Banca Italease will run from Dec. 7-23, with rights
tradable on the bourse from Dec. 7-16
FORTIS : UBS has cut its stake in Fortis to under 3% and held no Fortis shares as of Nov. 25
DNB NOR said that it definitely favours organic growth over M&A for time being…
TO BE NOTED : FERROVIAL & CINTRA will be suspended on Friday due to their merger and will resume trade on Monday as one Co
UK BANKS have an aggregate exposure to Dubai World of about $5bn (FT) / RBS was the most exposed of U.K. lenders, with up to $2bn owed / HSBC, STAN and LLOYDS have exposure of about $1bn each
BANK OF AMERICA said it will repay the $45bn loan provided under the TARP / BAC plans to use $26.2bn in excess liquidity and $18.8bn in proceeds from the sale of common equivalent securities / Tier1 common Capital ratio would be 8.5% & Tier1 Capital ratio 11%
SEMI CONDUCTORS : TSMC's operations will likely return to 2008 levels in the H1 2010, one or two quarters ahead of previous expectations (The Economic Daily News)
NEGATIVE IMPACTS
ALSTOM : S&P placed Alstom 'BBB+/A-2' ratings on creditWatch negative following the acquisition of T&D
UNIPOL : Moody's assigned Unipol a Baa1 long-term rating with a negative outlook.
DEUTSCHE TELEKOM is being probed by the German cartel office on suspicion it abused its market position
REPSOL expects LNG sales volumes in 2009 to be "a little less, but in line with" the 4.7bn cubic metres it shipped in 2008
TRADING IDEAS
BUY the dollar,the ECB tougher stance will bring another threat to risky assets such as emerging countries
SELL ST GOBAIN as Wendel investors day was supposely played aggressively last few days, but Wendel not in a good situation regarding St Gobain, they now sold put options last few weeks cashing 163 mn euros / Wendel owns 17.51% of St Gobain bought on higher level they have to deal with it
SELL ARCELORMITTAL / SCHNEIDER / NESTLE / L OREAL possible double top to be confirmed soon
SELL BAYER / BASF to play head & shoulder possibility
BUY MUNICH RE / GSZ vs SHORTEUROSTOXX to play double bottom possibility on these names
BUY EON / SELL EDF // BUY AXA / SELL ALLIANZ // BUY AIR FRANCE / SELL LUFTHANSA
BUY TELECOM ITALIA / SELL TELEFONICA // BUY DANONE / SELL NESTLE // BUY ENEL / SELL IBERDROLA
BUY ALTRIA / SELL REYNOLDS AMERICAN // BUY ANADARKO PETROLEUM / SELL EXXON
BROKER METEOROLOGY
HEIDELBERGCEMENT RATED NEW BUY BY BANK OF AMERICA - ML
YARA RAISED TO BUY FROM HOLD BY DEUTSCHE BANK
ORASCOM TELECOM RAISED TO BUY FROMHOLD BY DEUTSCHE BANK
DSM CUT TO HOLD FROM BUY BY DEUTSCHE BANK
TRINITY MIRROR CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
DATA
WTI : 80,1 (0,37 %)
Eur/$ : 1,4877 (0,04 %)
$ /Yen : 90,64 (0,06 )
10 Yr US : 3,53 ( 0,75 bp)
10 Yr Euro : 3,35 ( 2,9 bp)
Indices : US close ; Europe close
SOX : 2,59 %;2,23%
S&P :1,92 %; 1,54 %
DOW: 2,08%; 1,78 %
NAS :2,42%; 2,12%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 2,86 %; 2,15 %
ENERGY : 1,63 %; 1,74 %
FINANCIAL : 2,37 %; 0,94 %
HEALTHCARE : 1,68 %; 1,36 %
TECHNO : 2,18 %; 2,09 %
TELECOM : 1,24 %; 1,22 %
INDUSTRIAL : 2,71 %; 2,13 %
UTILITIES : 1,72 %; 1,49 %
TO BE COMING
Today
Results : EU \\ Kingfisher trading statement / Siemens (BMO) [Americas] \\ Bomardier
Dividend : Nike($0.27)
Events: Siemens annual analyst meeting / Delhaize investor day / Merck & Co guidance call / NH Hoteles EGM / Starbucks analyst conf / TNT analyst day / Volkswagen EGM
Friday
Results :
Dividend :
Events: Randstad Analyst day / Rexel Investor day / Volkswagen EGM
Tuesday
Results : EU \\ Tesco interim
US \\ Kroger Co / Texas Instruments Mid-quarter update
Dividend : Baxter International ($0.29)
Events : 3M Company 2010 Outlook Meeting / Global Industries conf at Bank of America-ML
Wednesday
Results :
Dividend :Land Securities (GBp 7) / Wal-Mart Stores (€0.2725)
Events: Swiss Re investor day
Thursday
Results : US \\ National Semiconductor
Dividend : FedEx ($0.11) / Tme Warner ($1.00)
Events:Prudential investor day
ECONOMIC DATA PREVIEW
Watch in the United-States the ISM non-manufacturing composite for November (15h00 GMT), After reaching 50.9 in September, above 50 for the first time since August 2008, the ISM services index reached 50.6 in October. After over cutting capital spending, US companies are investing again, not only in the manufacturing sector but also in services. Therefore we anticipate a new rise in the ISM services index to 52 in November, the highest for two years.
Watch in the Euro area the ECB monetary policy meeting and decision on the refi rate for December (12h45 GMT). Despite the fact that GDP in the euro zone remained very low (precisely -4.1%YoY), and despite the high level of the euro, the ECB will keep its refi rate unchanged in December at 1%. This decision will be most likely be justified by the fragile recovery as revealed in particular by the last IFO, INSEE or PMI surveys. Moreover as the inflation should reach + 1.5% during the first quarter 2010, the ECB will most likely increase its refi rate. One more time the ECB will shoot itself in the foot and the economic recovery will remained soft./JB
ECONOMY
United-States : Fed Beige book
“Reports from the twelve Federal Reserve Districts indicate that economic conditions have generally improved modestly since the last report. Consumer spending was reported to have picked up moderately since the last report, for both general merchandise and vehicles. Manufacturing conditions were said to be, on balance, steady to moderately improving across most of the country, while conditions in the nonfinancial service sector generally strengthened somewhat, though with some variation across Districts and across industries. Residential real estate conditions were somewhat improved from very low levels, on balance, led by the lower end of the market. Most Districts reported some pickup in home sales, though prices were generally said to be flat or declining modestly; residential construction was characterized as weak, but some Districts did note some pickup in activity. Commercial real estate markets and construction activity were depicted as very weak and, in many cases, deteriorating. Financial institutions generally reported steady to weaker loan demand, continued tight credit standards, and steady or deteriorating loan quality.”
United-States : job destruction dropped to a lowest since July 2008 according to the ADP employment report.
After reaching -736 000 in march 2009 job destruction as per the ADP employment private report improved for an eight consecutive month to reach -169 000 (forecast -150 000) in November the “best result” since July 2008. After over laying off companies are now back to economic fundamentals confirming the soft recovery in the United-Sates. This data is a positive indicator of the upcoming employment report due Friday 4th of December. Job destructions which had reached 190,000 in October (US employment report) “the best result” since August 2008, should dropped sharply to 100,000 in November. Nevertheless, as the US recovery is not strong enough and still at its early phase, the unemployment rate should increase in the coming months, and this until the beginning 2010 to at least 10.5%. Significant improvement in the labour market should occur at spring 2010 and will be followed by an increase of the Fed fund rate.
Euro area : Producer price index remained deeply negative in October
After dropping by 0.4% in September producer price index rose by 0.2% (forecast +0.0%) in October led by the rise in energy prices. From a year ago producer prices remained deeply in negative territory at -6.7% YoY (forecast -6.8% YoY) and showed a very slight improvement since September data at -7.6%YoY a negative base effects are progressively fading due to the rise in energy and commodity prices. The core producer price index revealed very low passing from
-4.2% in September to -3.9% in October
Monday, November 16, 2009
Bernanke's Bet
GLOBAL EQUITIES RESEARCH
Interesting week ahead which should hopefully contrast with last week empty of fresh market moving news. Unfortunately though the activity might remain poor as whatever the data we will face they will hardly make fund managers change their mind on this year-end mood. Neither housing data such as the Housing Starts (Wednesday) nor the NAHB (tomorrow) will push the markets to break their highs. We know things are improving, and still are in Q4, which by the way should prevent any drastic sell-offs as there is no need of deleveraging anymore, but would hardly boost indices for now. The Retail Sales today are important. Retail sales values will probably bounce back from September's 1.5% m/m fall to increase by around 0.9% in October . This will be driven by a probable rebound in auto sales, after the 10.4% plunge in September that followed the end of the "Cash for Clunkers" scheme in August. But same story as the housing one, the survey will be market supportive showing consumers are not that much off the recovery, but for how long ? Even the industrial production tomorrow, will probably show the cash injection from the US authorities are efficient more than for a couple months time. We need something big to happen, something major such as an increase on the job front so that fund managers would take the precious decision to jump back in before Christmas. Or else, we will break on the upside as time is passing by, and confidence gradually coming back, with equity indices becoming attractive in term of yields with a risk-reward ratio lowered by more solid fundamentals.
Today's Bernanke speech will be interesting. Indeed, the Fed can mitigate some of the problems associated with economic uncertainty by announcing where it thinks the economy is headed. This can be done through quarterly economic outlooks, FOMC press releases, or even speeches from Fed governors. In fact, research has shown that the Fed's inflation projections are far more accurate than the economic consensus. By presenting the information -- even if it turns out to be wrong -- the market has a clear understanding of what the Fed is looking at in the future. Market participants can then adjust their investments based upon new data that would alter the Fed's thinking. These update are helpful as any weekly data is important for both US officials and market players, so much the current situation has never been experienced in the past, making all sort of statistics based on the past unfounded and mostly useless. The market will listen to Bernanke, who should remind economic conditions are improving, and employment sector should be lagging for some few more months.
The biggest reason Fed Chairman Bernanke has pushed for the Fed to be more transparent is the anchoring of inflation expectations. If the market doesn't have a strong feel for where the Fed is headed, it tends to believe that the Fed will not be able to handle shocks to the economy. These potential shocks tend to cause the market to experience extreme volatility in inflation expectations. Inflation is a self-fulfilling prophecy. If people believe inflation is going to come, then they change their savings and spending habits, which brings about higher inflation. The Fed monitors inflation expectations extremely closely. If expectations begin to rise, the Fed goes on heightened alert to dampen expectations by raising rates. If the economy is weak, an increase in rates could have a detrimental effect and push the economy into a recession. The increase in transparency gives the market a better understanding of how the economy is expected to perform and what the Fed's policy actions will be given shocks to the system. As the Fed has become more transparent, the market has reacted by keeping inflation expectations down. This has allowed monetary policy to work better.
The second reason for increasing transparency is that the Fed can implement policies without actually "doing" anything. If the Fed is completely transparent, then the stronger reaction from the market won't come from the actual implementation of the policy itself but to the guiding messages in speeches and directives ahead of the implementation. But rates aren't the only policy manoeuvres. In 1998 Long-Term Capital Management, a large and highly leveraged hedge fund, was on the brink of failure. The Fed rushed in to save the fund because it was deemed "too big to fail." The rush didn't come from policy changes, but due to statements the Fed made about what it was thinking about doing to save the firm. The statements caused the market to react and the financial system stabilized days before the Fed actually implemented the policy. By suggesting policy actions beforehand, the Fed was able to determine how the market was going to react and see if the policies would fix the problems before it implemented them.
The last reason for increasing transparency has to deal with interest rates at the zero bound. Bernanke co-authored a paper in 2004 regarding what the Fed could do if interest rates had fallen to zero. What he determined was that quantitative easing was unpredictable, but a highly transparent central bank could push real rates below zero by announcing that low interest rate policies would be kept for a long time period. Bernanke has kept his promise from his 2004 paper. Recent FOMC directives have noted that economic conditions are likely to warrant an exceptionally low federal funds target rate for an extended period. This has kept overnight rates at around zero even though market anticipation of inflation has begun to creep up. Of course all of the changes in transparency hinge on the confidence the market has in the Fed actually implementing the announced proposals. The Fed cannot cry wolf over and over again and expect the market to continue to believe what it says. The Fed needs to make sure that all of its announcements are credible.
That brings us back to the latest FOMC press release. The media was looking to see if the Fed was going to announce that it believed the economy was starting to get better. A change in the wording of the release would signal that the interest rate levels may begin to rise well before analysts currently expect. Interest rates would begin to rise almost immediately, even though monetary policy has not shifted. The Fed knows that better transparency helps both the market and monetary policy. All of the Fed's official releases are proofread multiple times to make sure that they are not saying something the Fed will regret. Take heed that the transparency by the Fed will make it easier to predict where rates are headed.
So the dollar should be supported in these levels. Not only thanks to higher rates anticipations as the US economy is improving, but also the US continues to enjoy a positive terms of trade shock stemming from the dollar cheapness. Therefore, to the extent that demand for capital goods recovers globally, the US is in a better position to benefit from that demand. The import and export components of the mfg ISM are a good leading indicator of the general direction of trade flows and this should continue to narrow the trade gap. Since the majority of the US trade deficit is with emerging Asia (65% with China ), closing the trade gap will ultimately require upward adjustments in the values of Asian currencies. This would take some pressure off of other major currencies which have taken the brunt of the downward pressure on the dollar. The desire by investors and central banks to diversify away from the dollar would only transfer US deficits to those countries with overvalued currencies (EUR, JPY). This is why some economists see limited downside for the dollar vs. EUR or JPY from current levels, which we fully agree with. Currently, the weakness is being driven by carry trade activity rather than fundamentals. However, this is set to reverse when the Fed signals a policy reversal and investors re-price their expectations on funding costs . .
Rollercoaster day ahead with some friendly newsflow.
ECONOMIC DATA WITH IMPACT
US Retail Sales (13h30 UK time) expected 0.9% from -1.5% / ex autos 0.4% from +0.5% / interesting / Retail sales account for about a third of final sales economywide. Auto sales plunged in September after the cash-for-clunkers subsidy expired in August, but the auto makers reported that sales bounced back with a 13% volume gain in October, a sign that the clunkers program didn't capture all the demand for new cars this year. Even more encouraging, sales excluding autos have strengthened over the past few months, and they probably rose 0.4% seasonally adjusted in October after a 0.5% rise in September and a 1% gain in August. "Consumer demand continued to inch back toward a more normal level in October,"
Empire manufacturing index (13h30 UK time) expected 29.3 from 34.5 / minor as just a confidence survey ad same as on Friday with the Michigan index will only get better when employment sector is improving
Business Inventories (15h UK time) expected -0.7% from -1.5% / minor as story behind the data hard to read short term
Fed’s Bernanke (17h15 UK time) speaks on Economic Outlook / obviously interesting at a time when market players started to worry about a possible Fed easy policy unwinding which both the FOMC and the G20 denied when reminding they will focus on growth
POSITIVE IMPACTS
ACCOR could decide at a board meeting Today to sell its Wagons-Lits unit (Le Figaro)
VIVENDI trumped an offer by Telefonica for a majority stake in Brazilian telecoms operator GVT / Vivendi's bid of 56 Brazilian reals per share improves an offer laid down by Telefonica of 50.50 reals and values GVT at about €2.8 bn / Vivendi bought 37.9% of GVT and has irrevocable options to buy another 19.6% / A bit expensive but strategic… / Vivendi will likely sell NBCU now…
NOVARTIS plans to launch as early as 2010 a diabetes treatment with a lower risk of side effects (The Nikkei)
CENTRICA is planning a £1 bn acquisition spree in North America (The Mail On Sunday)
VODAFONE’s shares have performed poorly in 2009, but investors shouldn't hang up on the company as some observers believe a cyclical recovery in European revenue is less than 6 months away… That would give the stock momentum. (Barron’s)
BSKY B : Viacom has handed responsibilities for an estimated £375 m in ad revenue over 5 years to Sky as smaller sales units face increasing competition from larger units, led by ITV (FT)
SAP plans to raise licensing fees for thousands of clients who use older versions of its software (Wirtschaftswoche)
DEUTSCHE POST : The German govt won't cancel D. Post's VAT exemption for certain mail products early 2010 (Die Welt)
SANTANDER has appealed a €1.5 bn fine Brazil's tax agency levied against the company last year (Expansion)
BMPS : ISP is offering €200m for 50 Monte dei Paschi branches in Tuscany / BARCLAYS has offered €540m for 135 branches but the price is subject to conditions. / ACA ‘s Cariparma is interested in 35 branches (Il Messaggero)
BRITISH LAND may say this week property values began to rise in the Q3 (FT)
ATLANTIA: 9M sales €2.69bn, in line / Ebitda €1.71bn, in line / Said Italian traffic +0.64% in Oct. / Sees positive growth in FY Ebitda (vs “nearly stable” previously)
EUROPE OCT NEW CAR REGISTRATIONS +11.2% ON YR : NISSAN +57% / RENAULT +34% / TOYOTA +18% / PSA +16% / FIAT +16% / FORD +15% / GM +11.5%
TO BE NOTED : Cazenove is set to be acquired by JP Morgan in a deal that will value the firm at close to £2 bn (The Sunday Telegraph)
NEGATIVE IMPACTS
EADS : Q3 revenue €9.53bn (9.61bn exp) / Ebit €201m (250m exp) / Net loss €87m (+67m exp) /Cost overruns on its A380 program "still a matter of concern" = industrial and financial reviews are under way / Weak dollar could challenge performance over time …
SANOFI : Heart attack patients in need of emergency procedures were less likely to suffer further serious cardiovascular events, when given AstraZeneca's experimental Brilinta blood clot preventer than those who used Plavix from Sanofi… (Study)
AXA isconsidering sweetening its joint offer for AXA Asia Pacific as early as this week (Sydney Morning Herald)./ Separately, AXA received a $1.2bn offer for its 15.6% stake in Taikang Life Insurance from Temasek (Wansquare)
H&M : LFL sales fell 3% in October (+5% exp)/ France, Spain and the US had weak sales development while sales in Scandinavia, central Europe and Asia were very satisfactory
LLOYDS’ restructuring plan for Admiral Taverns may be announced as soon as today (FT) = The Sunday Times reported that Loyds has been forced to swallow a £600m debt-for-equity swap at Admiral Taverns
UNICREDIT will hold Today a shareholders meeting to vote on a €4bn capital increase
REPSOL may tap the market with its Brazilian unit to help finance its $10bn in oil exploration in Brazil in the next decade / Separately, Sacyr is questioning Repsol's top management and is considering asking Repsol's chairman to step down (El Mundo)
LONMIN Finals : FY revenue $1.06bn (1.02bn exp) / Underlying FY loss $142m (-120m exp) / No final dividend for 2009
UK Waters : A least one U.K. water company has threatened to appeal against regulator Ofwat's decision to cut the tariffs / Analysts believe others may do the same (The Mail On Sunday)
EUROPE OCT NEW CAR REGISTRATIONS +11.2% ON YR : BMW -9% / DAIMLER -3.3% / VW +6.3%
MITSUBISHI UFJ Financial is considering raising capital of $11.2 bn by issuing common
HITACHI announced that it would raise up to $4.5 bn by issuing new shares and convertible bonds.
TRADING IDEAS
SELL OIL names as ENI / REPSOL (Head & Shoulder) / TOTAL (island possibility) / BP (double top) / ROYAL DUTCH to play gap closure on WTI below soon
SELL BANKS as CREDIT AGRICOLE (island possibility) / BNP / BBVA / SANTANDER seems toppish for now
BUY STM to play Dollar recovery
BUYMUNICH RE / RWE / EON / LAFARGE on reversal Head & Shoulder possibility
BUY SEVERN TRENT / SELL UNITED UTILITIES // BUY VEOLIA / SELL RWE // BUY LAFARGE / SELL HOLCIM // BUY EON / SELL IBERDROLA // BUY AHOLD / SELL METRO // BUY LOCKHEED MARTIN / SELL NORTHROP GRUMMAN // BUY JNJ / SELL ELI LILLY // BUY UPS / SELL FEDEX
BROKER METEOROLOGY
NOVARTIS RATED NEW BUY BY DEUTSCHE BANK
SANOFI – AVENTIS RATED NEW BUY BY DEUTSCHE BANK
BAYER RATED NEW BUY BY DEUTSCHE BANK
THYSSENKRUPP RAISED TO OUTPERFORM BY JP MORGAN
ITV RAISED TO BUY FROM SELL BY DEUTSCHE BANK
AVIVA RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
YARA RAISED TO BUY FROM HOLD BY CITIGROUP
FRAPORT RAISED TO BUY FROM HOLD BY CITIGROUP
CREDIT AGRICOLE CUT TO REDUCE FROM NEUTRAL BY NOMURA
NATIXIS CUT TO REDUCE FROM NEUTRAL BY NOMURA
JULIUS BAER CUT TO SELL FROM NEUTRAL BY UBS
TECHNIP CUT TO HOLD FROM BUY BY S&P RESEARCH
DATA
WTI : 77,2 (0,44 %)
Eur/$ : 1,4969 (0,44 %)
$ /Yen : 89,56 (-0,31 )
10 Yr US : 3,42 ( 0 bp)
10 Yr Euro : 3,38 ( 1,9 bp)
Indices : US close ; Europe close
SOX : 1,12 %;1,11%
S&P :0,57 %; 0,61 %
DOW: 0,72%; 0,79 %
NAS :0,88%; 0,61%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 0,87 %; 0,87 %
ENERGY : 0,64 %; 0,54 %
FINANCIAL : -0,05 %; -0,04 %
HEALTHCARE : 0,17 %; 0,61 %
TECHNO : 0,98 %; 0,79 %
TELECOM : 0,00 %; 0,28 %
INDUSTRIAL : 0,77 %; 0,64 %
UTILITIES : 0,83 %; 0,83 %
TO BE COMING
Today
Results : EU \\ EADS / Lonmin / Sacyr Valehermoso / Unicredit
US \\ Home Depot (BMO)
Dividend : Rolls-Royce (GBp 6)
Events: Accor board meeting
Tuesday
Results : EU \\ Allied Irish Banks / British Land / Fortis / Portugal Telecom
Dividend : Microsoft ($0.13)
Events: Arcelor Mittal EGM / Cardinal Health at Lazard Healthcare Conference / Annual healthcare conf at Credit Suisse / UBS investor day
Wednesday
Results : EU \\ Ahold (BMO) / Air France-KLM / Corio / Land Securities
US \\ Dell / Gap / Novellus / Sears
Dividend : Honeywell ($0,3025) / HSBC ($ 0,088889) / Pernod-Ricard (€1.02) / United Tech ($0,385)
Events :
Thursday
Results : EU \\ Aegis / Fugro / Infineon / Premier Oil / Sab Miller / Voestalpine
Dividend :
Events: Banca Monte dei Paschi di Siena OGM / Microsoft AGM / Philip Morris at Morgan Stanley Consumer & Retail Conf / VeriSign anakyst day / Campbell Soup AGM
Friday
Results : EU \\
US \\ Campbell Soup / HP
Dividend : ArcelorMittal ($0,1875) / DnB NOR Rights Issue / J&J ($0.49)
Events:
ECONOMIC DATA PREVIEW
Watch in the United-States the retail sales. for October(13.30 GMT). After dropping by 1.5% in September due to the end of the cash for clunkers program, advanced retail sales should rise by 0.9% in October led by the rise of hourly wages(0.3% in October) and by the slowdown in job destructions.
Watch in the Euro area the consumer price index for October 2009(10.00 GMT). For the month of October consumer prices should increase by 0.3% led by the rise of energy and commodities prices. From a year ago consumer prices should remain in negative territory for a fifth consecutive month and reach -0.1%./JB
ECONOMY
United-States: the trade deficit increased more than forecast in September
After rising in June and in July, and dropping to 30.71 billion dollars in August, the US trade deficit increased more than expected in September to reach $36.5bn (forecast $31 bn). This rise was mainly led by a 5.8% increase in imports essentially due to a surge in oil imports driven by the increase in the oil price as well as a rebound in volumes. Excluding petroleum the deficit widened more modestly from $14.3bn to $15.9 bn. Nevertheless this rise of imports is showing as well a rebound of household consumption and capital spending in the United-States. Meanwhile exports rose for a fifth time by 2.9% led by a weak dollar. Looking at the breakdown auto imports rose by 11.5%. Both imports and exports remained at low level confirming that the annualised GDP growth might be revised down from the first estimate to get closer from 3.0%.
Euro area: Growth is back but remained fragile
After five consecutive weeks of decline the euro area get out of the recession. Indeed the GDP rose by 0.4% at the third quarter 2009 (forecast 0.6%). Nevertheless the rebound of the Euro area remained particularly weak in comparison to the United-States. As seen at the second quarter the sharpest contribution has been made by Germany. Indeed after reaching 0.4% at the second quarter the German GDP rose by 0.7% at the third quarter. This is more a technical rebound as Germany was one of the most hit country during the recession. Meanwhile France GDP remained disappointing at +0.3% QoQ,-2.4% YoY mainly boosted by exportations. The euro area recovery remained very fragile and will not handle to many bad news in the future like a rise of the refi rate of the ECB or a rise of the euro. Not to mention many countries like Italy or Spain. Consequently the Euro area GDP should remained weak in 2010 to reach at the best 1.3%
Interesting week ahead which should hopefully contrast with last week empty of fresh market moving news. Unfortunately though the activity might remain poor as whatever the data we will face they will hardly make fund managers change their mind on this year-end mood. Neither housing data such as the Housing Starts (Wednesday) nor the NAHB (tomorrow) will push the markets to break their highs. We know things are improving, and still are in Q4, which by the way should prevent any drastic sell-offs as there is no need of deleveraging anymore, but would hardly boost indices for now. The Retail Sales today are important. Retail sales values will probably bounce back from September's 1.5% m/m fall to increase by around 0.9% in October . This will be driven by a probable rebound in auto sales, after the 10.4% plunge in September that followed the end of the "Cash for Clunkers" scheme in August. But same story as the housing one, the survey will be market supportive showing consumers are not that much off the recovery, but for how long ? Even the industrial production tomorrow, will probably show the cash injection from the US authorities are efficient more than for a couple months time. We need something big to happen, something major such as an increase on the job front so that fund managers would take the precious decision to jump back in before Christmas. Or else, we will break on the upside as time is passing by, and confidence gradually coming back, with equity indices becoming attractive in term of yields with a risk-reward ratio lowered by more solid fundamentals.
Today's Bernanke speech will be interesting. Indeed, the Fed can mitigate some of the problems associated with economic uncertainty by announcing where it thinks the economy is headed. This can be done through quarterly economic outlooks, FOMC press releases, or even speeches from Fed governors. In fact, research has shown that the Fed's inflation projections are far more accurate than the economic consensus. By presenting the information -- even if it turns out to be wrong -- the market has a clear understanding of what the Fed is looking at in the future. Market participants can then adjust their investments based upon new data that would alter the Fed's thinking. These update are helpful as any weekly data is important for both US officials and market players, so much the current situation has never been experienced in the past, making all sort of statistics based on the past unfounded and mostly useless. The market will listen to Bernanke, who should remind economic conditions are improving, and employment sector should be lagging for some few more months.
The biggest reason Fed Chairman Bernanke has pushed for the Fed to be more transparent is the anchoring of inflation expectations. If the market doesn't have a strong feel for where the Fed is headed, it tends to believe that the Fed will not be able to handle shocks to the economy. These potential shocks tend to cause the market to experience extreme volatility in inflation expectations. Inflation is a self-fulfilling prophecy. If people believe inflation is going to come, then they change their savings and spending habits, which brings about higher inflation. The Fed monitors inflation expectations extremely closely. If expectations begin to rise, the Fed goes on heightened alert to dampen expectations by raising rates. If the economy is weak, an increase in rates could have a detrimental effect and push the economy into a recession. The increase in transparency gives the market a better understanding of how the economy is expected to perform and what the Fed's policy actions will be given shocks to the system. As the Fed has become more transparent, the market has reacted by keeping inflation expectations down. This has allowed monetary policy to work better.
The second reason for increasing transparency is that the Fed can implement policies without actually "doing" anything. If the Fed is completely transparent, then the stronger reaction from the market won't come from the actual implementation of the policy itself but to the guiding messages in speeches and directives ahead of the implementation. But rates aren't the only policy manoeuvres. In 1998 Long-Term Capital Management, a large and highly leveraged hedge fund, was on the brink of failure. The Fed rushed in to save the fund because it was deemed "too big to fail." The rush didn't come from policy changes, but due to statements the Fed made about what it was thinking about doing to save the firm. The statements caused the market to react and the financial system stabilized days before the Fed actually implemented the policy. By suggesting policy actions beforehand, the Fed was able to determine how the market was going to react and see if the policies would fix the problems before it implemented them.
The last reason for increasing transparency has to deal with interest rates at the zero bound. Bernanke co-authored a paper in 2004 regarding what the Fed could do if interest rates had fallen to zero. What he determined was that quantitative easing was unpredictable, but a highly transparent central bank could push real rates below zero by announcing that low interest rate policies would be kept for a long time period. Bernanke has kept his promise from his 2004 paper. Recent FOMC directives have noted that economic conditions are likely to warrant an exceptionally low federal funds target rate for an extended period. This has kept overnight rates at around zero even though market anticipation of inflation has begun to creep up. Of course all of the changes in transparency hinge on the confidence the market has in the Fed actually implementing the announced proposals. The Fed cannot cry wolf over and over again and expect the market to continue to believe what it says. The Fed needs to make sure that all of its announcements are credible.
That brings us back to the latest FOMC press release. The media was looking to see if the Fed was going to announce that it believed the economy was starting to get better. A change in the wording of the release would signal that the interest rate levels may begin to rise well before analysts currently expect. Interest rates would begin to rise almost immediately, even though monetary policy has not shifted. The Fed knows that better transparency helps both the market and monetary policy. All of the Fed's official releases are proofread multiple times to make sure that they are not saying something the Fed will regret. Take heed that the transparency by the Fed will make it easier to predict where rates are headed.
So the dollar should be supported in these levels. Not only thanks to higher rates anticipations as the US economy is improving, but also the US continues to enjoy a positive terms of trade shock stemming from the dollar cheapness. Therefore, to the extent that demand for capital goods recovers globally, the US is in a better position to benefit from that demand. The import and export components of the mfg ISM are a good leading indicator of the general direction of trade flows and this should continue to narrow the trade gap. Since the majority of the US trade deficit is with emerging Asia (65% with China ), closing the trade gap will ultimately require upward adjustments in the values of Asian currencies. This would take some pressure off of other major currencies which have taken the brunt of the downward pressure on the dollar. The desire by investors and central banks to diversify away from the dollar would only transfer US deficits to those countries with overvalued currencies (EUR, JPY). This is why some economists see limited downside for the dollar vs. EUR or JPY from current levels, which we fully agree with. Currently, the weakness is being driven by carry trade activity rather than fundamentals. However, this is set to reverse when the Fed signals a policy reversal and investors re-price their expectations on funding costs . .
Rollercoaster day ahead with some friendly newsflow.
ECONOMIC DATA WITH IMPACT
US Retail Sales (13h30 UK time) expected 0.9% from -1.5% / ex autos 0.4% from +0.5% / interesting / Retail sales account for about a third of final sales economywide. Auto sales plunged in September after the cash-for-clunkers subsidy expired in August, but the auto makers reported that sales bounced back with a 13% volume gain in October, a sign that the clunkers program didn't capture all the demand for new cars this year. Even more encouraging, sales excluding autos have strengthened over the past few months, and they probably rose 0.4% seasonally adjusted in October after a 0.5% rise in September and a 1% gain in August. "Consumer demand continued to inch back toward a more normal level in October,"
Empire manufacturing index (13h30 UK time) expected 29.3 from 34.5 / minor as just a confidence survey ad same as on Friday with the Michigan index will only get better when employment sector is improving
Business Inventories (15h UK time) expected -0.7% from -1.5% / minor as story behind the data hard to read short term
Fed’s Bernanke (17h15 UK time) speaks on Economic Outlook / obviously interesting at a time when market players started to worry about a possible Fed easy policy unwinding which both the FOMC and the G20 denied when reminding they will focus on growth
POSITIVE IMPACTS
ACCOR could decide at a board meeting Today to sell its Wagons-Lits unit (Le Figaro)
VIVENDI trumped an offer by Telefonica for a majority stake in Brazilian telecoms operator GVT / Vivendi's bid of 56 Brazilian reals per share improves an offer laid down by Telefonica of 50.50 reals and values GVT at about €2.8 bn / Vivendi bought 37.9% of GVT and has irrevocable options to buy another 19.6% / A bit expensive but strategic… / Vivendi will likely sell NBCU now…
NOVARTIS plans to launch as early as 2010 a diabetes treatment with a lower risk of side effects (The Nikkei)
CENTRICA is planning a £1 bn acquisition spree in North America (The Mail On Sunday)
VODAFONE’s shares have performed poorly in 2009, but investors shouldn't hang up on the company as some observers believe a cyclical recovery in European revenue is less than 6 months away… That would give the stock momentum. (Barron’s)
BSKY B : Viacom has handed responsibilities for an estimated £375 m in ad revenue over 5 years to Sky as smaller sales units face increasing competition from larger units, led by ITV (FT)
SAP plans to raise licensing fees for thousands of clients who use older versions of its software (Wirtschaftswoche)
DEUTSCHE POST : The German govt won't cancel D. Post's VAT exemption for certain mail products early 2010 (Die Welt)
SANTANDER has appealed a €1.5 bn fine Brazil's tax agency levied against the company last year (Expansion)
BMPS : ISP is offering €200m for 50 Monte dei Paschi branches in Tuscany / BARCLAYS has offered €540m for 135 branches but the price is subject to conditions. / ACA ‘s Cariparma is interested in 35 branches (Il Messaggero)
BRITISH LAND may say this week property values began to rise in the Q3 (FT)
ATLANTIA: 9M sales €2.69bn, in line / Ebitda €1.71bn, in line / Said Italian traffic +0.64% in Oct. / Sees positive growth in FY Ebitda (vs “nearly stable” previously)
EUROPE OCT NEW CAR REGISTRATIONS +11.2% ON YR : NISSAN +57% / RENAULT +34% / TOYOTA +18% / PSA +16% / FIAT +16% / FORD +15% / GM +11.5%
TO BE NOTED : Cazenove is set to be acquired by JP Morgan in a deal that will value the firm at close to £2 bn (The Sunday Telegraph)
NEGATIVE IMPACTS
EADS : Q3 revenue €9.53bn (9.61bn exp) / Ebit €201m (250m exp) / Net loss €87m (+67m exp) /Cost overruns on its A380 program "still a matter of concern" = industrial and financial reviews are under way / Weak dollar could challenge performance over time …
SANOFI : Heart attack patients in need of emergency procedures were less likely to suffer further serious cardiovascular events, when given AstraZeneca's experimental Brilinta blood clot preventer than those who used Plavix from Sanofi… (Study)
AXA isconsidering sweetening its joint offer for AXA Asia Pacific as early as this week (Sydney Morning Herald)./ Separately, AXA received a $1.2bn offer for its 15.6% stake in Taikang Life Insurance from Temasek (Wansquare)
H&M : LFL sales fell 3% in October (+5% exp)/ France, Spain and the US had weak sales development while sales in Scandinavia, central Europe and Asia were very satisfactory
LLOYDS’ restructuring plan for Admiral Taverns may be announced as soon as today (FT) = The Sunday Times reported that Loyds has been forced to swallow a £600m debt-for-equity swap at Admiral Taverns
UNICREDIT will hold Today a shareholders meeting to vote on a €4bn capital increase
REPSOL may tap the market with its Brazilian unit to help finance its $10bn in oil exploration in Brazil in the next decade / Separately, Sacyr is questioning Repsol's top management and is considering asking Repsol's chairman to step down (El Mundo)
LONMIN Finals : FY revenue $1.06bn (1.02bn exp) / Underlying FY loss $142m (-120m exp) / No final dividend for 2009
UK Waters : A least one U.K. water company has threatened to appeal against regulator Ofwat's decision to cut the tariffs / Analysts believe others may do the same (The Mail On Sunday)
EUROPE OCT NEW CAR REGISTRATIONS +11.2% ON YR : BMW -9% / DAIMLER -3.3% / VW +6.3%
MITSUBISHI UFJ Financial is considering raising capital of $11.2 bn by issuing common
HITACHI announced that it would raise up to $4.5 bn by issuing new shares and convertible bonds.
TRADING IDEAS
SELL OIL names as ENI / REPSOL (Head & Shoulder) / TOTAL (island possibility) / BP (double top) / ROYAL DUTCH to play gap closure on WTI below soon
SELL BANKS as CREDIT AGRICOLE (island possibility) / BNP / BBVA / SANTANDER seems toppish for now
BUY STM to play Dollar recovery
BUYMUNICH RE / RWE / EON / LAFARGE on reversal Head & Shoulder possibility
BUY SEVERN TRENT / SELL UNITED UTILITIES // BUY VEOLIA / SELL RWE // BUY LAFARGE / SELL HOLCIM // BUY EON / SELL IBERDROLA // BUY AHOLD / SELL METRO // BUY LOCKHEED MARTIN / SELL NORTHROP GRUMMAN // BUY JNJ / SELL ELI LILLY // BUY UPS / SELL FEDEX
BROKER METEOROLOGY
NOVARTIS RATED NEW BUY BY DEUTSCHE BANK
SANOFI – AVENTIS RATED NEW BUY BY DEUTSCHE BANK
BAYER RATED NEW BUY BY DEUTSCHE BANK
THYSSENKRUPP RAISED TO OUTPERFORM BY JP MORGAN
ITV RAISED TO BUY FROM SELL BY DEUTSCHE BANK
AVIVA RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
YARA RAISED TO BUY FROM HOLD BY CITIGROUP
FRAPORT RAISED TO BUY FROM HOLD BY CITIGROUP
CREDIT AGRICOLE CUT TO REDUCE FROM NEUTRAL BY NOMURA
NATIXIS CUT TO REDUCE FROM NEUTRAL BY NOMURA
JULIUS BAER CUT TO SELL FROM NEUTRAL BY UBS
TECHNIP CUT TO HOLD FROM BUY BY S&P RESEARCH
DATA
WTI : 77,2 (0,44 %)
Eur/$ : 1,4969 (0,44 %)
$ /Yen : 89,56 (-0,31 )
10 Yr US : 3,42 ( 0 bp)
10 Yr Euro : 3,38 ( 1,9 bp)
Indices : US close ; Europe close
SOX : 1,12 %;1,11%
S&P :0,57 %; 0,61 %
DOW: 0,72%; 0,79 %
NAS :0,88%; 0,61%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 0,87 %; 0,87 %
ENERGY : 0,64 %; 0,54 %
FINANCIAL : -0,05 %; -0,04 %
HEALTHCARE : 0,17 %; 0,61 %
TECHNO : 0,98 %; 0,79 %
TELECOM : 0,00 %; 0,28 %
INDUSTRIAL : 0,77 %; 0,64 %
UTILITIES : 0,83 %; 0,83 %
TO BE COMING
Today
Results : EU \\ EADS / Lonmin / Sacyr Valehermoso / Unicredit
US \\ Home Depot (BMO)
Dividend : Rolls-Royce (GBp 6)
Events: Accor board meeting
Tuesday
Results : EU \\ Allied Irish Banks / British Land / Fortis / Portugal Telecom
Dividend : Microsoft ($0.13)
Events: Arcelor Mittal EGM / Cardinal Health at Lazard Healthcare Conference / Annual healthcare conf at Credit Suisse / UBS investor day
Wednesday
Results : EU \\ Ahold (BMO) / Air France-KLM / Corio / Land Securities
US \\ Dell / Gap / Novellus / Sears
Dividend : Honeywell ($0,3025) / HSBC ($ 0,088889) / Pernod-Ricard (€1.02) / United Tech ($0,385)
Events :
Thursday
Results : EU \\ Aegis / Fugro / Infineon / Premier Oil / Sab Miller / Voestalpine
Dividend :
Events: Banca Monte dei Paschi di Siena OGM / Microsoft AGM / Philip Morris at Morgan Stanley Consumer & Retail Conf / VeriSign anakyst day / Campbell Soup AGM
Friday
Results : EU \\
US \\ Campbell Soup / HP
Dividend : ArcelorMittal ($0,1875) / DnB NOR Rights Issue / J&J ($0.49)
Events:
ECONOMIC DATA PREVIEW
Watch in the United-States the retail sales. for October(13.30 GMT). After dropping by 1.5% in September due to the end of the cash for clunkers program, advanced retail sales should rise by 0.9% in October led by the rise of hourly wages(0.3% in October) and by the slowdown in job destructions.
Watch in the Euro area the consumer price index for October 2009(10.00 GMT). For the month of October consumer prices should increase by 0.3% led by the rise of energy and commodities prices. From a year ago consumer prices should remain in negative territory for a fifth consecutive month and reach -0.1%./JB
ECONOMY
United-States: the trade deficit increased more than forecast in September
After rising in June and in July, and dropping to 30.71 billion dollars in August, the US trade deficit increased more than expected in September to reach $36.5bn (forecast $31 bn). This rise was mainly led by a 5.8% increase in imports essentially due to a surge in oil imports driven by the increase in the oil price as well as a rebound in volumes. Excluding petroleum the deficit widened more modestly from $14.3bn to $15.9 bn. Nevertheless this rise of imports is showing as well a rebound of household consumption and capital spending in the United-States. Meanwhile exports rose for a fifth time by 2.9% led by a weak dollar. Looking at the breakdown auto imports rose by 11.5%. Both imports and exports remained at low level confirming that the annualised GDP growth might be revised down from the first estimate to get closer from 3.0%.
Euro area: Growth is back but remained fragile
After five consecutive weeks of decline the euro area get out of the recession. Indeed the GDP rose by 0.4% at the third quarter 2009 (forecast 0.6%). Nevertheless the rebound of the Euro area remained particularly weak in comparison to the United-States. As seen at the second quarter the sharpest contribution has been made by Germany. Indeed after reaching 0.4% at the second quarter the German GDP rose by 0.7% at the third quarter. This is more a technical rebound as Germany was one of the most hit country during the recession. Meanwhile France GDP remained disappointing at +0.3% QoQ,-2.4% YoY mainly boosted by exportations. The euro area recovery remained very fragile and will not handle to many bad news in the future like a rise of the refi rate of the ECB or a rise of the euro. Not to mention many countries like Italy or Spain. Consequently the Euro area GDP should remained weak in 2010 to reach at the best 1.3%
Friday, November 13, 2009
Nervous System
GLOBAL EQUITIES RESEARCH
Equity markets are more nervous (as we get close to the end of the year) than really volatile, with the VIX index far below 30 % (24.24 % yesterday), which is quite safe for equities for the short term. But intraday swings are very impressive: yesterday, the S&P 500 erased an earlier advance (up to 1101.97) spurred by HP’s takeover of 3-com. as well as a decrease in initial weekly jobless claims (just above 500k) and closed 1 % down after bigger-than-estimated growth in oil inventories (which were already at very high levels by historical standards) made the energy sector slump. There was also a wild gyration among homebuilders that dropped sharply after surging the day before. Wal Mart results were in line but forecasts for Christmas sales were a little bit disappointing, sending retailers broadly down. Anyway, yesterday’s session reminds us that 1) despite a huge U.S. budget deficit (17 % of GDP currently) Treasury auctions are met with plenty of demand, mainly from indirect bidders, such as the $16bn auction of 30-year T-Bond yesterday. This means that the expected rise in long term rates is subdued. Over the past month, U.S. bond and equity prices have moved in opposite directions, ending the co-movement seen between these two asset classes since the middle of the year 2) this implies a sustained demand of dollars that may avoid the worst case scenario of a sharp plunge of the greenback. This reminds us that the dollar case is one of the key issues for the months to come. Remember what we wrote yesterday: “a sharp and efficient dollar intervention could trigger a carry trade unwinding process which would harm any riskier assets including equity indices”.
The only thing scarier than the slide of the dollar, which has dropped by 16 % since March, would be an attempt by the Fed to stop it. Such an attempt would show that the Fed has learned nothing from the Bank of Japan's disastrous premature exit from a zero-interest policy in August 2000. The dollar is falling because U.S. growth and inflation are well below levels consistent with sustained recovery. Under current conditions-including falling inflation and a massive output gap-the Taylor Rule for guiding interest-rate policy implied that the Fed Funds rate ought to be -1.85 %, or 210 bp below the current setting of 0.25 % (The Fed Fund target rate is currently at 0.00 %/0.25 %). A deflationary tightening by the Fed at this time would push even more funds into Treasury securities, thereby pushing interest rates for savers even lower. The weaker dollar is about the only thing that is operating now to help improve the outlook for the U.S. and global economies. Multinational corporations will need all the help they can get from a weaker dollar that enhances sales abroad and increases the dollar value of foreign-generated earnings. The key to understanding the current odd combination of a weaker dollar, rising gold prices, rising stock prices, and falling bond yields lies outside the United States, mainly in China. By July, its money and credit growth were growing at a 31 % annual rate. With the currency peg, China has tacitly made the highly accommodative Fed its central bank and thereby has added substantial monetary stimulus to the huge fiscal stimulus already in place. As a result, the Chinese economy is growing rapidly, and Chinese funds are flooding into the country's rapidly expanding real estate market and into equity and commodity markets worldwide. The weakness of the dollar since March is very much a part of the widely discussed need for global rebalancing. The United States needs to mitigate excess supply in the economy as signalled by below-trend growth and falling prices, and a weaker dollar can help bring about such adjustments. If the weaker dollar, which represents the United States exporting deflation, causes other members of the G7 to effect more stimulative policies, the much-praised global rebalancing would be more likely to occur. The jump in the U.S. monetary base has not boosted the static money supply because passive banks are not lending. Households hold the sharp surge in liquidity as measured by the collapse in velocity, the ratio of nominal GDP to the money supply. Until the money supply rises and nominal GDP starts to rise (it is currently falling at 2 % YoY), the temptation to withdraw liquidity should be resisted.
This morning, Japanese stocks were slightly lower (Nikkei -0.35 %) in the wake of Wall Street negative stance, but the decrease was limited by a slight improvement of consumer confidence in Japan (40.8 in October vs. 40.7 a month earlier). At 05.30 GMT, U.S. index futures were flat: DJIA +0.05 %, S&P 500 +0.04 %, Nasdaq 100 +0.04 %. European Markets may be sustained by better-than-expected GDP Q3 data in the euro zone (see below).
ECONOMIC DATA WITH IMPACT
US September trade balance figures (12.30 GMT), with a deficit expected at $32.0bn vs. $30.7bn in August as the latest rise in oil prices is likely to boost the value of oil imports by $3.0bn. This rise will be partly offset by a rise in exports, as the ISM surveys suggest.
November’s University of Michigan consumer confidence (14.00 GMT), expected at 71.5 vs. 70.6, should confirm that October’s dip (as well as the Conference Board’s one) was just a blip. Anyway, tough labor market conditions will limit the extent of the increase.
Euro zone flash estimate Q3 GDP (09.00 GMT) expected at +0.6 % QoQ (-3.8 % YoY), the first rise since Q1 2008, with +0.4 % QoQ (-2.1 % YoY) expected in France (06.50 GMT), +0.8 % QoQ (-4.8 % YoY) in Germany (06.00 GMT), +0.8 % QoQ (-4.5 % YoY) in Italy (08.00 GMT). Yesterday, Spain reported -0.3 % QoQ, ‑4.0 % YoY.
POSITIVE IMPACTS
VIVENDI : Q3 revenue €6.35bn (6.25bn exp) / Ebit €1.35bn (1.3bn exp) helped by strong SFR / Music still weak / Kept 2009 goals / Did not make any comment on NBCU or GVT situation / Confirms dividend payout ratio of at least 50% of net adjusted for 2009
VINCI : 9M rev. €23.6bn (23.7bn exp) / Order book : €24.2 bn, +4% since 31/12/2008̀ / Good FCF / Debt down / Outlook confirmed
TECHNIP : Q3 sales 1.71 bn (1.63bn e) / Operating margin 10.1% (9.8% e) / Confirmed 2009 forecasts / Sees FY rev. €6.4bn (in line)
LAFARGE and Shui On Construction are set to spinoff their cement JV, aiming to raise $500 m-$600 m from a Hong Kong IPO in 2010
RICHEMONT : H1 sales €2.38bn, in line / Operating €390m (333m exp) / But Oct. sales decline in all regions was 10% at actual rates
BULGARI : Q3 revenue €233m (231m exp) / Ebitda €35.9m (23.6m exp) / Saw slight market improvement at the end of Q3 …
TELEFONICA : Brazilian telco watchdog ruled on that Telefonica can proceed with plans to take over GVT under a series of restrictions
KBC : Q3 underlying profit €631m (€418m exp) / Net €528m (€432m exp) / Says charges for problem loans are lower by €200m (37%) from previous Q / In final stages of restructure discussions with EU / To repay state largely via retained earns & asset sales
BRITISH AIRWAYS & IBERIA (as expected) agreed terms to create Europe 3rd largest airline Co by revenue = Current BA shareholders will own 56% of the new company, while Iberia stockholders will own the rest / IBERIA reported 9m Ebit loss €331m (-320m exp)
REXAM : Interim Management Statement = Group results in line with management’s exp. / Net debt/ EBITDA ratio improved to 2.3 times end of Sept. / Will meet market expectations for the FY / Graham Chipchase will succeed Leslie Van de Walle as CEO
DISNEY : Q4 revenue $9.87bn (9.30bn exp) / EPS $0.46 (0.41 exp) / Strong cable business helped overcome disappointing film studio
NEGATIVE IMPACTS
BOUYGUES : Q3 sales €8.38bn (8.45bn e) / Telecom & real estate fine but Colas unit weaker / Confirmed FY sales outlook of €31.5bn
DEXIA : Q3 income €1.37bn (€1.54bn exp) / Net Profit €274m (€269m exp) / Tier1 11.8% / Cost €916m (€878m exp) / Says Negative AFS reser / Says liquidity improving without using govt guarantees / Plans end to state guarantees in oct 2010
PORSCHE : FY 2008/09 pretax loss of €4.4 bn (-1.8bn exp exp)due to a write-down related to its stake in Volkswagen / Proposes dividend of €0.05 for preferred shares + €0.044 for ordinary shares
NATIXIS : Q3 revenue €1.35bn (1.08bn exp) / Back to net profit of €268m (488m exp) / Tier 1 ratio 9.7%
UNIPOL : 9M life premiums €4.03bn, in line / Non-life CR 104.7% (102.5% exp) / Net profit €31m (45m exp)
KLOECKNER : Q3 sales €934m (988m exp) / Ebitda €11m (16m exp) / Said recovery in demand not yet sustainable
GAMESA : 9M revenue €2.27bn, in line / Ebitda €289m (€310 exp)
TRADING IDEAS
BUY EADS / STM to play Dollar recovery
BUY MUNICH RE / RWE / EON / LAFARGE / ALSTOM / AMGEN on reversal Head & Shoulder possibility
BUY SUN MICRO / SANOFI / SIEMENS / AXA on double bottom possibility
BUY LAFARGE / SELL HOLCIM // BUY EON / SELL IBERDROLA // BUY AHOLD / SELL METRO // BUY ROYAL DUTCH / SELL TOTAL // BUY STM / SELL ASML // BUY EADS / SELL BOEING // BUY JNJ / SELL ELI LILLY // BUY UPS / SELL FEDEX
BROKER METEOROLOGY
JOHNSON MATHEY RAISED TO BUY BY BANK OF AMERICA – ML
ACCIONA RAISED TO NEUTRAL BY BANK OF AMERICA - ML
TELIASONERA CUT TO NEUTRAL FROM BUY BY MORGAN STANLEY
NATIXIS CUT TO UNDERPERFORM FROM MARKETPERFORM BY KBW
GAZPROM NEFT CUT TO NEUTRAL FROM BUY BY BANK OF AMERICA - ML
DATA
WTI : 76,9 (-3,02 %)
Eur/$ : 1,4870 (0,13 %)
$ /Yen : 90,23 (0,03 )
10 Yr US : 3,43 ( -1,49 bp)
10 Yr Euro : 3,36 ( 1,9 bp)
Indices : US close ; Europe close
SOX : -0,56 %;-0,17%
S&P :-1,03 %; -0,70 %
DOW: -0,91%; -0,58 %
NAS :-0,83%; -0,47%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -1,09 %; -1,25 %
ENERGY : -2,17 %; -2,00 %
FINANCIAL : -1,73 %; -1,11 %
HEALTHCARE : -0,60 %; -0,27 %
TECHNO : -0,50 %; -0,29 %
TELECOM : -0,80 %; -0,33 %
INDUSTRIAL : -1,05 %; -0,59 %
UTILITIES : -1,44 %; -0,55 %
TO BE COMING
Today
Results : EU \\ Acciona / Banco Popolare / Dexia (BMO) / Havas / KBC / Richemont (BMO) / Sacyr Vallehermoso / Technip / Theolia /
Dividend : Rolls-Royce (GBp 6)
Events:
Monday
Results : EU \\ EADS / Lonmin
US \\ Home Depot (BMO)
Dividend : Chevron ($0.68)
Events: Accor board meeting
Tuesday
Results : EU \\ Allied Irish Banks / British Land / Fortis / Portugal Telecom
Dividend : Microsoft ($0.13)
Events : Arcelor Mittal EGM / Cardinal Health at Lazard Healthcare Conference / Annual healthcare conf at Credit Suisse / UBS investor day
Wednesday
Results : EU \\ Ahold (BMO) / Air France-KLM / Corio / Land Securities
US \\ Dell / Gap / Sears
Dividend :Honeywell ($0,3025) / HSBC ($ 0,088889) / Pernod-Ricard (€1.02) / United Tech ($0,385)
Events:
Thursday
Results : EU \\ Infineon / Premier Oil / Sab Miller / Voestalpine
Dividend :
Events:Banca Monte dei Paschi di Siena OGM / Microsoft AGM / Philip Morris at Morgan Stanley Consumer & Retail Conf / VeriSign anakyst day
ECONOMIC DATA PREVIEW
Watch in the United-States the trade balance. for September(13.30 GMT). Exports which had increased in August by 0.2% should stabilized, led by the weakness in the dollar, while imports which had fallen by 0.6%, should increase, led by the rebound in household consumption in the United States. Consequently the US trade deficit should slightly rise to 31 billion dollars in September.
Watch in the Euro area the advanced release of the Gross Domestic Product for the third quarter 2009(10.00 GMT). Because of the technical correction linked to the previous sharp fall, to the reduction in interest rates, to the earlier weakness of the euro as well as energy prices at the beginning of year, and to the effects of the various budgetary stimulus plans, we anticipate the euro area GDP should rise by 0.4% in the third quarter 2009.A similar trend should be observed in France and in Germany, showing that the unexpected rebound of the second quarters was not a flash in the pan./
ECONOMY
United-States: Initial jobless claims and continuing claims decreased again
Initial jobless claims declined from 514 000 to 502 000 last week, confirming the improvement trend of the labour market. Indeed adjustments had already been done on the labour market has companies were overlaying off in comparison to the reality of economic fundamentals. Consequently the bottom has been reached on the labour market as showed by the job destruction in October reaching 190 000 the “best” result since August 2008. Meanwhile continuing claims declined for an eight consecutive month confirming that the hiring market is slowly but surely getting unfrozen and that it easier to find a job once you have lost it. Nevertheless as the employment is a lagging indicator of the activity the unemployment rate should rise till the beginning of 2010 to reach 10.5% at the minimum.
Euro are: Industrial production rose in September
Industrial production rose for a fifth consecutive month from 1.2% in August to 0.3% in September(expected +0.5%). Looking at the breakdown capital goods rose by 1.7% confirming the rebound of investment, non durable consumer goods rose by 1.1% and intermediate goods increased by 0.6%. On the other hand durable consumer goods dropped sharply from +5.2% in August to -6.0% in September. Meanwhile the Euro area industrial production remain at a weak level at -12.9%. This encouraging monthly improvement confirmed the rising trend of the Euro area industrial production as output expanded by 2.2% at the third quarter. This rise will boosted the GDP which should reached +0.7% at the third quarter 2009. Nevertheless the euro area remained fragile as interest rates are not dropping any more, with the effects of the stimulus plans fading, and a dangerously rising the euro as well as firming energy prices, the euro zone should have some hard time to transform this technical rebound into a durable recovery
Equity markets are more nervous (as we get close to the end of the year) than really volatile, with the VIX index far below 30 % (24.24 % yesterday), which is quite safe for equities for the short term. But intraday swings are very impressive: yesterday, the S&P 500 erased an earlier advance (up to 1101.97) spurred by HP’s takeover of 3-com. as well as a decrease in initial weekly jobless claims (just above 500k) and closed 1 % down after bigger-than-estimated growth in oil inventories (which were already at very high levels by historical standards) made the energy sector slump. There was also a wild gyration among homebuilders that dropped sharply after surging the day before. Wal Mart results were in line but forecasts for Christmas sales were a little bit disappointing, sending retailers broadly down. Anyway, yesterday’s session reminds us that 1) despite a huge U.S. budget deficit (17 % of GDP currently) Treasury auctions are met with plenty of demand, mainly from indirect bidders, such as the $16bn auction of 30-year T-Bond yesterday. This means that the expected rise in long term rates is subdued. Over the past month, U.S. bond and equity prices have moved in opposite directions, ending the co-movement seen between these two asset classes since the middle of the year 2) this implies a sustained demand of dollars that may avoid the worst case scenario of a sharp plunge of the greenback. This reminds us that the dollar case is one of the key issues for the months to come. Remember what we wrote yesterday: “a sharp and efficient dollar intervention could trigger a carry trade unwinding process which would harm any riskier assets including equity indices”.
The only thing scarier than the slide of the dollar, which has dropped by 16 % since March, would be an attempt by the Fed to stop it. Such an attempt would show that the Fed has learned nothing from the Bank of Japan's disastrous premature exit from a zero-interest policy in August 2000. The dollar is falling because U.S. growth and inflation are well below levels consistent with sustained recovery. Under current conditions-including falling inflation and a massive output gap-the Taylor Rule for guiding interest-rate policy implied that the Fed Funds rate ought to be -1.85 %, or 210 bp below the current setting of 0.25 % (The Fed Fund target rate is currently at 0.00 %/0.25 %). A deflationary tightening by the Fed at this time would push even more funds into Treasury securities, thereby pushing interest rates for savers even lower. The weaker dollar is about the only thing that is operating now to help improve the outlook for the U.S. and global economies. Multinational corporations will need all the help they can get from a weaker dollar that enhances sales abroad and increases the dollar value of foreign-generated earnings. The key to understanding the current odd combination of a weaker dollar, rising gold prices, rising stock prices, and falling bond yields lies outside the United States, mainly in China. By July, its money and credit growth were growing at a 31 % annual rate. With the currency peg, China has tacitly made the highly accommodative Fed its central bank and thereby has added substantial monetary stimulus to the huge fiscal stimulus already in place. As a result, the Chinese economy is growing rapidly, and Chinese funds are flooding into the country's rapidly expanding real estate market and into equity and commodity markets worldwide. The weakness of the dollar since March is very much a part of the widely discussed need for global rebalancing. The United States needs to mitigate excess supply in the economy as signalled by below-trend growth and falling prices, and a weaker dollar can help bring about such adjustments. If the weaker dollar, which represents the United States exporting deflation, causes other members of the G7 to effect more stimulative policies, the much-praised global rebalancing would be more likely to occur. The jump in the U.S. monetary base has not boosted the static money supply because passive banks are not lending. Households hold the sharp surge in liquidity as measured by the collapse in velocity, the ratio of nominal GDP to the money supply. Until the money supply rises and nominal GDP starts to rise (it is currently falling at 2 % YoY), the temptation to withdraw liquidity should be resisted.
This morning, Japanese stocks were slightly lower (Nikkei -0.35 %) in the wake of Wall Street negative stance, but the decrease was limited by a slight improvement of consumer confidence in Japan (40.8 in October vs. 40.7 a month earlier). At 05.30 GMT, U.S. index futures were flat: DJIA +0.05 %, S&P 500 +0.04 %, Nasdaq 100 +0.04 %. European Markets may be sustained by better-than-expected GDP Q3 data in the euro zone (see below).
ECONOMIC DATA WITH IMPACT
US September trade balance figures (12.30 GMT), with a deficit expected at $32.0bn vs. $30.7bn in August as the latest rise in oil prices is likely to boost the value of oil imports by $3.0bn. This rise will be partly offset by a rise in exports, as the ISM surveys suggest.
November’s University of Michigan consumer confidence (14.00 GMT), expected at 71.5 vs. 70.6, should confirm that October’s dip (as well as the Conference Board’s one) was just a blip. Anyway, tough labor market conditions will limit the extent of the increase.
Euro zone flash estimate Q3 GDP (09.00 GMT) expected at +0.6 % QoQ (-3.8 % YoY), the first rise since Q1 2008, with +0.4 % QoQ (-2.1 % YoY) expected in France (06.50 GMT), +0.8 % QoQ (-4.8 % YoY) in Germany (06.00 GMT), +0.8 % QoQ (-4.5 % YoY) in Italy (08.00 GMT). Yesterday, Spain reported -0.3 % QoQ, ‑4.0 % YoY.
POSITIVE IMPACTS
VIVENDI : Q3 revenue €6.35bn (6.25bn exp) / Ebit €1.35bn (1.3bn exp) helped by strong SFR / Music still weak / Kept 2009 goals / Did not make any comment on NBCU or GVT situation / Confirms dividend payout ratio of at least 50% of net adjusted for 2009
VINCI : 9M rev. €23.6bn (23.7bn exp) / Order book : €24.2 bn, +4% since 31/12/2008̀ / Good FCF / Debt down / Outlook confirmed
TECHNIP : Q3 sales 1.71 bn (1.63bn e) / Operating margin 10.1% (9.8% e) / Confirmed 2009 forecasts / Sees FY rev. €6.4bn (in line)
LAFARGE and Shui On Construction are set to spinoff their cement JV, aiming to raise $500 m-$600 m from a Hong Kong IPO in 2010
RICHEMONT : H1 sales €2.38bn, in line / Operating €390m (333m exp) / But Oct. sales decline in all regions was 10% at actual rates
BULGARI : Q3 revenue €233m (231m exp) / Ebitda €35.9m (23.6m exp) / Saw slight market improvement at the end of Q3 …
TELEFONICA : Brazilian telco watchdog ruled on that Telefonica can proceed with plans to take over GVT under a series of restrictions
KBC : Q3 underlying profit €631m (€418m exp) / Net €528m (€432m exp) / Says charges for problem loans are lower by €200m (37%) from previous Q / In final stages of restructure discussions with EU / To repay state largely via retained earns & asset sales
BRITISH AIRWAYS & IBERIA (as expected) agreed terms to create Europe 3rd largest airline Co by revenue = Current BA shareholders will own 56% of the new company, while Iberia stockholders will own the rest / IBERIA reported 9m Ebit loss €331m (-320m exp)
REXAM : Interim Management Statement = Group results in line with management’s exp. / Net debt/ EBITDA ratio improved to 2.3 times end of Sept. / Will meet market expectations for the FY / Graham Chipchase will succeed Leslie Van de Walle as CEO
DISNEY : Q4 revenue $9.87bn (9.30bn exp) / EPS $0.46 (0.41 exp) / Strong cable business helped overcome disappointing film studio
NEGATIVE IMPACTS
BOUYGUES : Q3 sales €8.38bn (8.45bn e) / Telecom & real estate fine but Colas unit weaker / Confirmed FY sales outlook of €31.5bn
DEXIA : Q3 income €1.37bn (€1.54bn exp) / Net Profit €274m (€269m exp) / Tier1 11.8% / Cost €916m (€878m exp) / Says Negative AFS reser / Says liquidity improving without using govt guarantees / Plans end to state guarantees in oct 2010
PORSCHE : FY 2008/09 pretax loss of €4.4 bn (-1.8bn exp exp)due to a write-down related to its stake in Volkswagen / Proposes dividend of €0.05 for preferred shares + €0.044 for ordinary shares
NATIXIS : Q3 revenue €1.35bn (1.08bn exp) / Back to net profit of €268m (488m exp) / Tier 1 ratio 9.7%
UNIPOL : 9M life premiums €4.03bn, in line / Non-life CR 104.7% (102.5% exp) / Net profit €31m (45m exp)
KLOECKNER : Q3 sales €934m (988m exp) / Ebitda €11m (16m exp) / Said recovery in demand not yet sustainable
GAMESA : 9M revenue €2.27bn, in line / Ebitda €289m (€310 exp)
TRADING IDEAS
BUY EADS / STM to play Dollar recovery
BUY MUNICH RE / RWE / EON / LAFARGE / ALSTOM / AMGEN on reversal Head & Shoulder possibility
BUY SUN MICRO / SANOFI / SIEMENS / AXA on double bottom possibility
BUY LAFARGE / SELL HOLCIM // BUY EON / SELL IBERDROLA // BUY AHOLD / SELL METRO // BUY ROYAL DUTCH / SELL TOTAL // BUY STM / SELL ASML // BUY EADS / SELL BOEING // BUY JNJ / SELL ELI LILLY // BUY UPS / SELL FEDEX
BROKER METEOROLOGY
JOHNSON MATHEY RAISED TO BUY BY BANK OF AMERICA – ML
ACCIONA RAISED TO NEUTRAL BY BANK OF AMERICA - ML
TELIASONERA CUT TO NEUTRAL FROM BUY BY MORGAN STANLEY
NATIXIS CUT TO UNDERPERFORM FROM MARKETPERFORM BY KBW
GAZPROM NEFT CUT TO NEUTRAL FROM BUY BY BANK OF AMERICA - ML
DATA
WTI : 76,9 (-3,02 %)
Eur/$ : 1,4870 (0,13 %)
$ /Yen : 90,23 (0,03 )
10 Yr US : 3,43 ( -1,49 bp)
10 Yr Euro : 3,36 ( 1,9 bp)
Indices : US close ; Europe close
SOX : -0,56 %;-0,17%
S&P :-1,03 %; -0,70 %
DOW: -0,91%; -0,58 %
NAS :-0,83%; -0,47%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -1,09 %; -1,25 %
ENERGY : -2,17 %; -2,00 %
FINANCIAL : -1,73 %; -1,11 %
HEALTHCARE : -0,60 %; -0,27 %
TECHNO : -0,50 %; -0,29 %
TELECOM : -0,80 %; -0,33 %
INDUSTRIAL : -1,05 %; -0,59 %
UTILITIES : -1,44 %; -0,55 %
TO BE COMING
Today
Results : EU \\ Acciona / Banco Popolare / Dexia (BMO) / Havas / KBC / Richemont (BMO) / Sacyr Vallehermoso / Technip / Theolia /
Dividend : Rolls-Royce (GBp 6)
Events:
Monday
Results : EU \\ EADS / Lonmin
US \\ Home Depot (BMO)
Dividend : Chevron ($0.68)
Events: Accor board meeting
Tuesday
Results : EU \\ Allied Irish Banks / British Land / Fortis / Portugal Telecom
Dividend : Microsoft ($0.13)
Events : Arcelor Mittal EGM / Cardinal Health at Lazard Healthcare Conference / Annual healthcare conf at Credit Suisse / UBS investor day
Wednesday
Results : EU \\ Ahold (BMO) / Air France-KLM / Corio / Land Securities
US \\ Dell / Gap / Sears
Dividend :Honeywell ($0,3025) / HSBC ($ 0,088889) / Pernod-Ricard (€1.02) / United Tech ($0,385)
Events:
Thursday
Results : EU \\ Infineon / Premier Oil / Sab Miller / Voestalpine
Dividend :
Events:Banca Monte dei Paschi di Siena OGM / Microsoft AGM / Philip Morris at Morgan Stanley Consumer & Retail Conf / VeriSign anakyst day
ECONOMIC DATA PREVIEW
Watch in the United-States the trade balance. for September(13.30 GMT). Exports which had increased in August by 0.2% should stabilized, led by the weakness in the dollar, while imports which had fallen by 0.6%, should increase, led by the rebound in household consumption in the United States. Consequently the US trade deficit should slightly rise to 31 billion dollars in September.
Watch in the Euro area the advanced release of the Gross Domestic Product for the third quarter 2009(10.00 GMT). Because of the technical correction linked to the previous sharp fall, to the reduction in interest rates, to the earlier weakness of the euro as well as energy prices at the beginning of year, and to the effects of the various budgetary stimulus plans, we anticipate the euro area GDP should rise by 0.4% in the third quarter 2009.A similar trend should be observed in France and in Germany, showing that the unexpected rebound of the second quarters was not a flash in the pan./
ECONOMY
United-States: Initial jobless claims and continuing claims decreased again
Initial jobless claims declined from 514 000 to 502 000 last week, confirming the improvement trend of the labour market. Indeed adjustments had already been done on the labour market has companies were overlaying off in comparison to the reality of economic fundamentals. Consequently the bottom has been reached on the labour market as showed by the job destruction in October reaching 190 000 the “best” result since August 2008. Meanwhile continuing claims declined for an eight consecutive month confirming that the hiring market is slowly but surely getting unfrozen and that it easier to find a job once you have lost it. Nevertheless as the employment is a lagging indicator of the activity the unemployment rate should rise till the beginning of 2010 to reach 10.5% at the minimum.
Euro are: Industrial production rose in September
Industrial production rose for a fifth consecutive month from 1.2% in August to 0.3% in September(expected +0.5%). Looking at the breakdown capital goods rose by 1.7% confirming the rebound of investment, non durable consumer goods rose by 1.1% and intermediate goods increased by 0.6%. On the other hand durable consumer goods dropped sharply from +5.2% in August to -6.0% in September. Meanwhile the Euro area industrial production remain at a weak level at -12.9%. This encouraging monthly improvement confirmed the rising trend of the Euro area industrial production as output expanded by 2.2% at the third quarter. This rise will boosted the GDP which should reached +0.7% at the third quarter 2009. Nevertheless the euro area remained fragile as interest rates are not dropping any more, with the effects of the stimulus plans fading, and a dangerously rising the euro as well as firming energy prices, the euro zone should have some hard time to transform this technical rebound into a durable recovery
Thursday, November 5, 2009
Goldjob
GLOBAL EQUITIES RESEARCH
Disappointing finish from the US with a sell-off from financials (from +1.6% to –1.5%) as well as materials and energy sectors (from +1% to –0.1%) probably on some profit taking post FOMC ahead of the so feared Employment report out tomorrow. Indeed what became a relief after the lower than expected ISM non manufacturing survey which would prevent the Fed from acting in a hawkish way became a fear right after the meeting with a worry that the employment report would be bad.
Better than expected ISM manufacturing job component should lead to some better employment report on Friday. The current 175k job destruction consensus seems to us, and to most of strategists too pessimistic. We should head closer to the 150k job destruction level. Not saying this is a dream, and even more it might take 3 to 4 months before we get some hiring on the labour sector. Only then, bear and sceptical players will have to admit things might be running on their own, and should also welcome the possibility for the Fed to gradually end its easing quantitative policy. While bull players will be delighted and sit comfortably on long positions for a run which might send the Eurostoxx on much higher level, driven by healthy fundamentals this time, which justify some unvisited territory up there. The intervention of the very reactive lately Goldman strategist (if any) could well support the indices for today, as they are more pessimistic than the street consensus and used to adjust when approaching big events (last month’s Employment report and Q3 GDP) according to very fresh data out a few days before providing leading indications.
Anyway, the favourable monetary policy backdrop and the improvement in the economic data that have fuelled the rally should persist over the next few quarters. It is not surprising after the tremendous run up in asset prices since the spring that investors were now looking to take money off the table. They have an excuse. The cyclically-adjusted price/earnings ratio for the S&P 500 touched 20 in October, well above the long-run average of less than 15. It was below 12 in March. The spread of US 7-10 year, BBB-rated corporate bonds over Treasuries also dropped to 2.75% – just three quarters of a percentage point above the average of the past decade. The spread was nearly 8% last December. Further more, the trailing price/earnings ratio for the MSCI Emerging Market Equity Index reached its highest level last month (19) since 2000. And the spread of the JP Morgan Global Emerging Market Bond Index over Treasuries touched 3%. Although that was 1.5% above the all-time low reached at the height of the credit boom, it was nearly 6% less than the peak seen a year earlier. But the US should continue to record some decent rates of growth for a while as the full effects of the fiscal stimulus come through, the inventory cycle turns positive and investment picks up.
What comes out from the FOMC meeting last night is the renewed commitment to keep interest rates at “exceptionally low levels” for an “extended period” and to continue buying mortgage-backed securities until the end of Q1 2010, which should be market supportive and a boost to growth. The only change is that the Fed now intends to buy $175bn in agency debt, slightly less than the $200bn it previously had pledged to purchase. This is not the first step towards implementing an exit strategy for quantitative easing. The Fed was careful to explain that the reduction is because there simply isn’t enough of this debt out there that the Fed can snap up without distorting the market. Putting the reduction in perspective, the Fed originally pledged to buy $1,750bn of various securities, so that $25bn reduction in the target for agency debt equates to slightly less than 1.5%. What’s more telling is that this latest statement makes no reference to the recent surge in many commodity prices, particularly crude oil. Overall, any change in the Fed’s policy stance is still a long way off. Quantitative easing won’t be put into reverse until the Fed has finished buying mortgage-backed securities at the end of Q1 2010. Assuming that the Fed first starts to shrink the amount of excess reserves held by commercial banks through large scale reverse repo operations, then interest rates hikes will be even further off.
We would take opportunity of an opening weakness to refuel long positions. Some signs of employment improvement should be seen through the temporary workers hiring (Adecco earnings better today + message sent by the head of budget from the White House last Tuesday), as well as longer hours worked, notwithstanding the possibility to see a much better survey which remains very volatile. As such, productivity today is interesting. A too high productivity is usually leading to job hiring process
ECONOMIC DATA WITH IMPACT
Bank of England (12h UK time) / expect more monetary fireworks from the Monetary Policy Committee. With the previous extension to its quantitative easing (QE) programme now complete and the economy still weak, we expect it to announce another £50bn of asset purchases over the next three months.
ECB (12h45 Uk time) should leave rates on hold at 1%, and should not announce any significant change in its policy of providing loans to the banking sector. The Bank might scale back its liquidity provision in the next few months. But the impact of this would be limited given that banks are now demanding fewer loans from the ECB anyway.
Jobless Claims (13h30 UK time) expected 522k from previous 530k / the lower the better / interesting at a time when employment is a focus with the Job component improving and the non farm payrolls tomorrow
US Productivity (13h30 UK time) expected +6.5% from previous 6.6% / the higher the better / a high productivity is usually leading toward a pick up in hiring which would be good as to make the economic recovery sustainable / interesting
ICSC Chain Store sales (16h UK time) / previous was up 0.1% / the higher the better / interesting as to measure whether US consumers are back on the scene / minor for today focus employment report tomorrow
POSITIVE IMPACTS
SOFTWARE AG : Q3 sales 213.6 m (176m exp) / EBIT 56.4m (43m exp) / Raised its FY EBIT margin forecast to 25-25.5% (24.8% exp) + the revenue forecast to between €835m and 845m (750m exp)
DEUTSCHE TELEKOM : Q3 revenue €16.26bn (16.28bn exp) / Ebitda €5.53bn (5.35bn exp) / FCF €3.3bn (2.5bn exp) / Germany better &n T-Mobile in line / Confirmed outlook
MUN RE: Q3 Gross Premiums €10.35bn (€10.24bn exp) / Operating €1.21bn (€1.15bn e) / Investment income €2.24bn (€1.95bn exp) CR 93.4% (94.3% exp) / Sees FY Gross prem. €40bn-€42bn (€40.7bn e) / Plans to buy back shares worth €1bn by next AGM (Apr.10)
WACKER CHEMIE : Q3 sales €987m (983m exp) / Ebit €83m (50m exp) / “Cautiously optimistic” for 2010
DEUTSCHE POST : Q3 revenue €11.2bn (€11.85bn exp) / EBIT €231m (€140m exp) / Sees 2009 Adj EBIT at least €1.35bn (€1.2bn exp) / Sees €1bn cost saving by end-2009 from end-Q2 2010 previously
ADECCO : Q3 revenues 3.72 bn (3.69bn exp) / Operating €127 m (69m exp) / Said market conditions have improved during the Q3
HOCHTIEF is planning a stock market floatation of its subsidiary Hochtief Concessions (Dow Jones)
LEGRAND raised its operating margin guidance for the FY to 17% from 14% before (14% exp)
STM : CEO said the worst of the crisis is behind the company / For the Q4, it expects a turnover between of $2.4 bn and $2.7 bn, which represents growth of between 5% to 12% from the Q3 (2.42bn exp) (Les Echos)
FIAT : Chrysler said it will break even in 2011 and reduce net debt to $4 bn in 2014 from $8 bn end 2009 (Strategic plan yesterday)
DELHAIZE : Q3 Sales €4.89bn (€4.88bn exp) / Ebit €228m (€221m exp) / Sees FY ebit ex-fx rising 1%-4% vs 0%-3% previously ABERTIS : 9M Ebitda €1.89bn (1.83bn exp) / Sees trading above views
SAS : Q3 revenue SK 11.1bn (11.5bn exp) / PTP SK114m (-400m exp) / Will present results of talks with Unions later Today
CISCO : Q1 sales $9bn (8.74bn exp) / EPS $0.36 (0.31 exp) /Set a $10bn share buyback / Sees Q2 sales up 1 to 4% yoy (-1.3% exp)
NEGATIVE IMPACTS
NORSKE SKOG : Q3 rev. NK5.03bn (5.24bn exp) / Ebitda NK 642m (592m exp) / Net loss NK418m (-230m exp) / few signs of upturn
SWISSCOM has been fined SFR220m for its broadband pricing policy that resulted in disadvantages for its rivals (Swiss watchdog)
CAP GEMINI : Q3 sales €1.95bn (2.04bn exp) (LFL -9%) / Confirmed FY operating mgin of about 7% / Sees similar sales decline in Q4
LAGARDERE : 9M sales €5.82bn (5.87bn exp) / Kept 2009 outlook / Q4 revenue decline could be less marked than 9M
SUEZ ENVIRONNEMENT : 9M rev. €8.92bn (In Line) / EBITDA €1.5bn (€1.47bn e) / No Sign of recovery / Confirmed guidance
C&W : H1 revenue £1.86bn (1.92bn exp) / EBITDA £463 m (454m exp) / CWI Ebitda guidance revised down to $880-900m / FY dividend 9.50p with +12% in interim dividend to 3.16 pence
POSTBANK : Q3 NII €579m (€586m exp) / Pretax Loss €59m (€-33m exp) / Took charges of 158m on structured credit product / Loan Provisions €173m / Trading Loss €139m (€ -66m exp) hit by €-56m on CIT / Confident on sustained 13%-15% after-tax ROE mid term
BNP : Q3 revenue €8.63bn (€10.43bn exp) / Gross operating €4.63bn (€4.05bn exp) / Net €1.3bn ( €1.2bn exp) helped by €277m FORTIS Risk Charge €2.3bn (In Line) / Tier1 10% vs 9% End-June / Expects cost of risk to remain at high level / No Specific guidance
ZURICH FINANCIAL : Q3 Gross Written Premiums $13.04bn ($12.66bn exp) / Operating $1.5bn ($1.6b exp) / CR 96.9% (96.6% exp) ROE 11.6% / Solvency position 209% end-Q3 (200% exp) / Well positioned for the future
CBK : Q3 Trading Income €659m (€421m exp) / Operating profit €120m (€-100m exp) / Net loss €1.05bn (€-700m exp) / Core Tier1 just under 11% / Can’t rule out setbacks in H2 / Can’t repay Soffin participations from 2012
QUALCOMM : Q4 revenue $2.69bn (2.74bn exp) / EPS $0.48 (0.52 exp) / Operating margin fell to 22.2% from 40% / Sees Q1 sales $2.55-2.75bn (2.84bn exp) + EPS $0.54-0.58 (0.55 exp)
TRADING IDEAS
BUY LAFARGE ahead of results tomorrow and ALLIANZ on Monday
BUY SOC GEN to play spec & BUY SAP / ST GOBAIN to play a rounding bottom
BUY RENAULT / SCHNEIDER / AEGON / ENI / TOTAL / FTE on double bottom possibility
BUY DELHAIZE / SELL AHOLD // BUY GSZ / SELL GAS NAT // BUY RENAULT / SELL PEUGEOT // BUY ENI / SELL BP // BUY SALZGITTER / SELL THYSSEN // BUY LOCKHEED MARTIN / SELL HONEYWELL
BROKER METEOROLOGY
MAN SE ADDED TO ANALYST FOCUS LIST BY JP MORGAN
LOGICA RAISED TO NEUTRAL FROM SELL BY UBS
BANK OF IRLAND RAISED TO NEUTRAL BY UBS
TOTAL CUT TO BUY FROM STRONG BUY BY S&P RESEARCH
DSM CUT TO NEUTRAL FROM BUY BY NOMURA
SCOR CUT TO HOLD FROM BUY BY CITIGROUP
LUKOIL CUT TO UNDERPERFORM FROM OUTPERFORM BY CREDIT SUISSE
DATA
WTI : 79,8 (0,53 %)
Eur/$ : 1,4850 (-0,08 %)
$ /Yen : 90,46 (0,39 )
10 Yr US : 3,51 ( -1,33 bp)
10 Yr Euro : 3,32 ( 5,5 bp)
Indices : US close ; Europe close
SOX : 0,62 %;1,91%
S&P :0,10 %; 1,14 %
DOW: 0,31%; 1,26 %
NAS :-0,09%; 0,88%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,12 %; 1,49 %
ENERGY : -0,25 %; 0,96 %
FINANCIAL : -1,36 %; 0,57 %
HEALTHCARE : 1,02 %; 1,55 %
TECHNO : 0,62 %; 1,52 %
TELECOM : 0,38 %; 0,97 %
INDUSTRIAL : -0,11 %; 1,22 %
UTILITIES : 0,56 %; 1,31 %
TO BE COMING
Today
Results : EU \\ Abertis / Adecco / Altana / BNP Paribas (BMO) / Cable & Wireless / Capgemini sales / Delaize (7.00 BST) / Deutsche Boerse / Deutsche Post / Deutsche Postbank / Deutsche Telekom / Commerzbank / Fortis / Invensys / Lagardere / Legrand / L’Oreal / Man Group (BMO) / Maurel & Prom sales / Metropole TV (M6) / Muenchener Ruck / Old Mutual (BMO) / Skanska / Suez Environnement sales / Telecom Italia / Unilever (BMO) / Wendel / Zurich Financial (BMO)
US \\ Cardinal Health (BMO)
Asia \\ Activision Blizzard / Bridgestone / El Paso / Pioneer / Sara Lee
Dividend : Rolls-Royce (GBp 6)
Events: Coach AGM / Man Group analyst meeting
Friday
Results : EU \\ Assicurazioni Generali / British Airways interim / CNP / Eiffage sales / Hannover Re / Hermes International / Italcementi / Lafarge
US \\ AIG / Electronic Arts
Dividend : IBM ($0.55)
Events: Energias de Portugal investor day
Monday
Results : EU \\ Allianz / Ciments Francais / Euler Hermes / Puma / Veolia Environnement sales
US \\ InterContinental Hotels
Asia \\ HTC
Dividend : Applied Materials ($0.06) / Exxon Mobil ($0.42)
Events :
Tuesday
Results : EU \\ Arkema / Barclays / CGGVeritas (BMO) / Credit Agricole (AMC)HSBC / Intesa Sanpaolo / Imperial Tobacco / Mediaset / OMV / Terna / TF1 / Yell Group
US \\ Applied MaterialsAsia \\ Hutchison
Dividend :
Events:
Wednesday
Results : EU \\ Abengoa (BMO) / E.On / Henkel / Holcim (BMO) / ING (BMO) / Sainsbury (BMO) / Swisscom (BMO) / Swiss Life / UniCredit
Dividend : BP (GBp 9,457778) / Du Pont de Nemours ($0.41) / Home Retail (GBp 5,222222) / Telefonica (€0.50)
Events:Logitech investor day / Monsanto investor day / SAP at echEd Shanghai event / Annual Healthcare Conference at Credit Suisse
ECONOMIC DATA PREVIEW
Watch in the United-States the weekly release of initial jobless claims and continuing claims (13.30 GMT). Initial jobless claims and continuing claims are both expected to slow down as the virtuous circle : investment–employment–consumption is progressively taking place in the United-States.
Watch in the Euro area the European Central Bank announces rates for November(12.45 GMT). The European Central Bank should leave its refi rate unchanged in November, but as the inflation should get back in positive territory in November and should get close to 1.6% in January and 2% at spring 2010, the ECB will react before the “disaster” will happen. Consequently the Frankfurt institute will most likely increase its rate by 25 bp in December 2009 or at the latest in January 2010.
Watch in the United-Kingdom the Bank of England announces rates for November(12.00 GMT). The Bank of England which cut its leading rate in February by 50bp, followed by another 50bp cut in March reaching 0.50% an historical low. The Bank of England will keep its leading rate at 0.50% in November.
ECONOMY
United-States: The ISM non manufacturing unexpectedly declined in October but remained at a consistent level
The ISM non-manufacturing index unexpectedly declined from 50.9 in September to 50.6 in October (forecast 51.5). This slight decline was led by a fall in inventory at 43.0 (prior47.5) and employment at 41.1 (prior 44.3) the exact opposite of what happened in the manufacturing survey. Meanwhile Business activity rose from 55.1 to 55.2 and new orders rose from 54.2 to 55.6. Despite this slight decline the ISM non manufacturing remained at a consistent level and a similar drop has been seen in July which has been reversed the last month. After over cutting capital spending, US companies are investing again, not only in the manufacturing sector but also in services showing that private motors are now taking over public motors.
United-States: Status quo for the Fed Fund rates in November
Conscious of the gravity of the situation, the Fed has been very reactive in maintaining its leading rates at between 0 and 0.25% since December 2008. The maximum has been done in order to save the economy of Uncle Sam, consequently: cutting further the Fed funds rates will be useless and the Fed Fund rate will remained unchanged in November. Nevertheless, after being very accommodative, the Fed will have to lead the recovery to compose with the return of higher consumer prices. Consequently the Fed will be forced to increase its fund rates. At this time, Ben Bernanke confirmed that the Fed will not adopt such a policy as long as unemployment does not drop significantly, and will not commit itself into a phase of tough monetary tightening in order not to penalize the recovery. This is why we anticipate Fed fund rates to rise to 0.5% in spring 2010 and reach 1.75% in a year from now.
Euro area: Sharp drop of producer price index in September
Producer price index fell by 0.4% in September(prior +0.5%) pulling the annual rate down from -7.5% to -7.7% YoY. The level of producer prices remained very close to July release at -8.4% YoY the lowest rate since the beginning of the statistic. This drop was mainly led by the drop of energy prices from a year ago making a negative contribution to costs. Nevertheless even without energy PPI dropped by 4.3% YoY. Looking at the breakdown intermediate goods prices dropped by 7.3% and consumer good prices by 2.7% while energy prices dropped by 17.6%. As PPI inflation tends to lead core CPI inflation by around a year the trend decline should last in the coming months
Disappointing finish from the US with a sell-off from financials (from +1.6% to –1.5%) as well as materials and energy sectors (from +1% to –0.1%) probably on some profit taking post FOMC ahead of the so feared Employment report out tomorrow. Indeed what became a relief after the lower than expected ISM non manufacturing survey which would prevent the Fed from acting in a hawkish way became a fear right after the meeting with a worry that the employment report would be bad.
Better than expected ISM manufacturing job component should lead to some better employment report on Friday. The current 175k job destruction consensus seems to us, and to most of strategists too pessimistic. We should head closer to the 150k job destruction level. Not saying this is a dream, and even more it might take 3 to 4 months before we get some hiring on the labour sector. Only then, bear and sceptical players will have to admit things might be running on their own, and should also welcome the possibility for the Fed to gradually end its easing quantitative policy. While bull players will be delighted and sit comfortably on long positions for a run which might send the Eurostoxx on much higher level, driven by healthy fundamentals this time, which justify some unvisited territory up there. The intervention of the very reactive lately Goldman strategist (if any) could well support the indices for today, as they are more pessimistic than the street consensus and used to adjust when approaching big events (last month’s Employment report and Q3 GDP) according to very fresh data out a few days before providing leading indications.
Anyway, the favourable monetary policy backdrop and the improvement in the economic data that have fuelled the rally should persist over the next few quarters. It is not surprising after the tremendous run up in asset prices since the spring that investors were now looking to take money off the table. They have an excuse. The cyclically-adjusted price/earnings ratio for the S&P 500 touched 20 in October, well above the long-run average of less than 15. It was below 12 in March. The spread of US 7-10 year, BBB-rated corporate bonds over Treasuries also dropped to 2.75% – just three quarters of a percentage point above the average of the past decade. The spread was nearly 8% last December. Further more, the trailing price/earnings ratio for the MSCI Emerging Market Equity Index reached its highest level last month (19) since 2000. And the spread of the JP Morgan Global Emerging Market Bond Index over Treasuries touched 3%. Although that was 1.5% above the all-time low reached at the height of the credit boom, it was nearly 6% less than the peak seen a year earlier. But the US should continue to record some decent rates of growth for a while as the full effects of the fiscal stimulus come through, the inventory cycle turns positive and investment picks up.
What comes out from the FOMC meeting last night is the renewed commitment to keep interest rates at “exceptionally low levels” for an “extended period” and to continue buying mortgage-backed securities until the end of Q1 2010, which should be market supportive and a boost to growth. The only change is that the Fed now intends to buy $175bn in agency debt, slightly less than the $200bn it previously had pledged to purchase. This is not the first step towards implementing an exit strategy for quantitative easing. The Fed was careful to explain that the reduction is because there simply isn’t enough of this debt out there that the Fed can snap up without distorting the market. Putting the reduction in perspective, the Fed originally pledged to buy $1,750bn of various securities, so that $25bn reduction in the target for agency debt equates to slightly less than 1.5%. What’s more telling is that this latest statement makes no reference to the recent surge in many commodity prices, particularly crude oil. Overall, any change in the Fed’s policy stance is still a long way off. Quantitative easing won’t be put into reverse until the Fed has finished buying mortgage-backed securities at the end of Q1 2010. Assuming that the Fed first starts to shrink the amount of excess reserves held by commercial banks through large scale reverse repo operations, then interest rates hikes will be even further off.
We would take opportunity of an opening weakness to refuel long positions. Some signs of employment improvement should be seen through the temporary workers hiring (Adecco earnings better today + message sent by the head of budget from the White House last Tuesday), as well as longer hours worked, notwithstanding the possibility to see a much better survey which remains very volatile. As such, productivity today is interesting. A too high productivity is usually leading to job hiring process
ECONOMIC DATA WITH IMPACT
Bank of England (12h UK time) / expect more monetary fireworks from the Monetary Policy Committee. With the previous extension to its quantitative easing (QE) programme now complete and the economy still weak, we expect it to announce another £50bn of asset purchases over the next three months.
ECB (12h45 Uk time) should leave rates on hold at 1%, and should not announce any significant change in its policy of providing loans to the banking sector. The Bank might scale back its liquidity provision in the next few months. But the impact of this would be limited given that banks are now demanding fewer loans from the ECB anyway.
Jobless Claims (13h30 UK time) expected 522k from previous 530k / the lower the better / interesting at a time when employment is a focus with the Job component improving and the non farm payrolls tomorrow
US Productivity (13h30 UK time) expected +6.5% from previous 6.6% / the higher the better / a high productivity is usually leading toward a pick up in hiring which would be good as to make the economic recovery sustainable / interesting
ICSC Chain Store sales (16h UK time) / previous was up 0.1% / the higher the better / interesting as to measure whether US consumers are back on the scene / minor for today focus employment report tomorrow
POSITIVE IMPACTS
SOFTWARE AG : Q3 sales 213.6 m (176m exp) / EBIT 56.4m (43m exp) / Raised its FY EBIT margin forecast to 25-25.5% (24.8% exp) + the revenue forecast to between €835m and 845m (750m exp)
DEUTSCHE TELEKOM : Q3 revenue €16.26bn (16.28bn exp) / Ebitda €5.53bn (5.35bn exp) / FCF €3.3bn (2.5bn exp) / Germany better &n T-Mobile in line / Confirmed outlook
MUN RE: Q3 Gross Premiums €10.35bn (€10.24bn exp) / Operating €1.21bn (€1.15bn e) / Investment income €2.24bn (€1.95bn exp) CR 93.4% (94.3% exp) / Sees FY Gross prem. €40bn-€42bn (€40.7bn e) / Plans to buy back shares worth €1bn by next AGM (Apr.10)
WACKER CHEMIE : Q3 sales €987m (983m exp) / Ebit €83m (50m exp) / “Cautiously optimistic” for 2010
DEUTSCHE POST : Q3 revenue €11.2bn (€11.85bn exp) / EBIT €231m (€140m exp) / Sees 2009 Adj EBIT at least €1.35bn (€1.2bn exp) / Sees €1bn cost saving by end-2009 from end-Q2 2010 previously
ADECCO : Q3 revenues 3.72 bn (3.69bn exp) / Operating €127 m (69m exp) / Said market conditions have improved during the Q3
HOCHTIEF is planning a stock market floatation of its subsidiary Hochtief Concessions (Dow Jones)
LEGRAND raised its operating margin guidance for the FY to 17% from 14% before (14% exp)
STM : CEO said the worst of the crisis is behind the company / For the Q4, it expects a turnover between of $2.4 bn and $2.7 bn, which represents growth of between 5% to 12% from the Q3 (2.42bn exp) (Les Echos)
FIAT : Chrysler said it will break even in 2011 and reduce net debt to $4 bn in 2014 from $8 bn end 2009 (Strategic plan yesterday)
DELHAIZE : Q3 Sales €4.89bn (€4.88bn exp) / Ebit €228m (€221m exp) / Sees FY ebit ex-fx rising 1%-4% vs 0%-3% previously ABERTIS : 9M Ebitda €1.89bn (1.83bn exp) / Sees trading above views
SAS : Q3 revenue SK 11.1bn (11.5bn exp) / PTP SK114m (-400m exp) / Will present results of talks with Unions later Today
CISCO : Q1 sales $9bn (8.74bn exp) / EPS $0.36 (0.31 exp) /Set a $10bn share buyback / Sees Q2 sales up 1 to 4% yoy (-1.3% exp)
NEGATIVE IMPACTS
NORSKE SKOG : Q3 rev. NK5.03bn (5.24bn exp) / Ebitda NK 642m (592m exp) / Net loss NK418m (-230m exp) / few signs of upturn
SWISSCOM has been fined SFR220m for its broadband pricing policy that resulted in disadvantages for its rivals (Swiss watchdog)
CAP GEMINI : Q3 sales €1.95bn (2.04bn exp) (LFL -9%) / Confirmed FY operating mgin of about 7% / Sees similar sales decline in Q4
LAGARDERE : 9M sales €5.82bn (5.87bn exp) / Kept 2009 outlook / Q4 revenue decline could be less marked than 9M
SUEZ ENVIRONNEMENT : 9M rev. €8.92bn (In Line) / EBITDA €1.5bn (€1.47bn e) / No Sign of recovery / Confirmed guidance
C&W : H1 revenue £1.86bn (1.92bn exp) / EBITDA £463 m (454m exp) / CWI Ebitda guidance revised down to $880-900m / FY dividend 9.50p with +12% in interim dividend to 3.16 pence
POSTBANK : Q3 NII €579m (€586m exp) / Pretax Loss €59m (€-33m exp) / Took charges of 158m on structured credit product / Loan Provisions €173m / Trading Loss €139m (€ -66m exp) hit by €-56m on CIT / Confident on sustained 13%-15% after-tax ROE mid term
BNP : Q3 revenue €8.63bn (€10.43bn exp) / Gross operating €4.63bn (€4.05bn exp) / Net €1.3bn ( €1.2bn exp) helped by €277m FORTIS Risk Charge €2.3bn (In Line) / Tier1 10% vs 9% End-June / Expects cost of risk to remain at high level / No Specific guidance
ZURICH FINANCIAL : Q3 Gross Written Premiums $13.04bn ($12.66bn exp) / Operating $1.5bn ($1.6b exp) / CR 96.9% (96.6% exp) ROE 11.6% / Solvency position 209% end-Q3 (200% exp) / Well positioned for the future
CBK : Q3 Trading Income €659m (€421m exp) / Operating profit €120m (€-100m exp) / Net loss €1.05bn (€-700m exp) / Core Tier1 just under 11% / Can’t rule out setbacks in H2 / Can’t repay Soffin participations from 2012
QUALCOMM : Q4 revenue $2.69bn (2.74bn exp) / EPS $0.48 (0.52 exp) / Operating margin fell to 22.2% from 40% / Sees Q1 sales $2.55-2.75bn (2.84bn exp) + EPS $0.54-0.58 (0.55 exp)
TRADING IDEAS
BUY LAFARGE ahead of results tomorrow and ALLIANZ on Monday
BUY SOC GEN to play spec & BUY SAP / ST GOBAIN to play a rounding bottom
BUY RENAULT / SCHNEIDER / AEGON / ENI / TOTAL / FTE on double bottom possibility
BUY DELHAIZE / SELL AHOLD // BUY GSZ / SELL GAS NAT // BUY RENAULT / SELL PEUGEOT // BUY ENI / SELL BP // BUY SALZGITTER / SELL THYSSEN // BUY LOCKHEED MARTIN / SELL HONEYWELL
BROKER METEOROLOGY
MAN SE ADDED TO ANALYST FOCUS LIST BY JP MORGAN
LOGICA RAISED TO NEUTRAL FROM SELL BY UBS
BANK OF IRLAND RAISED TO NEUTRAL BY UBS
TOTAL CUT TO BUY FROM STRONG BUY BY S&P RESEARCH
DSM CUT TO NEUTRAL FROM BUY BY NOMURA
SCOR CUT TO HOLD FROM BUY BY CITIGROUP
LUKOIL CUT TO UNDERPERFORM FROM OUTPERFORM BY CREDIT SUISSE
DATA
WTI : 79,8 (0,53 %)
Eur/$ : 1,4850 (-0,08 %)
$ /Yen : 90,46 (0,39 )
10 Yr US : 3,51 ( -1,33 bp)
10 Yr Euro : 3,32 ( 5,5 bp)
Indices : US close ; Europe close
SOX : 0,62 %;1,91%
S&P :0,10 %; 1,14 %
DOW: 0,31%; 1,26 %
NAS :-0,09%; 0,88%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,12 %; 1,49 %
ENERGY : -0,25 %; 0,96 %
FINANCIAL : -1,36 %; 0,57 %
HEALTHCARE : 1,02 %; 1,55 %
TECHNO : 0,62 %; 1,52 %
TELECOM : 0,38 %; 0,97 %
INDUSTRIAL : -0,11 %; 1,22 %
UTILITIES : 0,56 %; 1,31 %
TO BE COMING
Today
Results : EU \\ Abertis / Adecco / Altana / BNP Paribas (BMO) / Cable & Wireless / Capgemini sales / Delaize (7.00 BST) / Deutsche Boerse / Deutsche Post / Deutsche Postbank / Deutsche Telekom / Commerzbank / Fortis / Invensys / Lagardere / Legrand / L’Oreal / Man Group (BMO) / Maurel & Prom sales / Metropole TV (M6) / Muenchener Ruck / Old Mutual (BMO) / Skanska / Suez Environnement sales / Telecom Italia / Unilever (BMO) / Wendel / Zurich Financial (BMO)
US \\ Cardinal Health (BMO)
Asia \\ Activision Blizzard / Bridgestone / El Paso / Pioneer / Sara Lee
Dividend : Rolls-Royce (GBp 6)
Events: Coach AGM / Man Group analyst meeting
Friday
Results : EU \\ Assicurazioni Generali / British Airways interim / CNP / Eiffage sales / Hannover Re / Hermes International / Italcementi / Lafarge
US \\ AIG / Electronic Arts
Dividend : IBM ($0.55)
Events: Energias de Portugal investor day
Monday
Results : EU \\ Allianz / Ciments Francais / Euler Hermes / Puma / Veolia Environnement sales
US \\ InterContinental Hotels
Asia \\ HTC
Dividend : Applied Materials ($0.06) / Exxon Mobil ($0.42)
Events :
Tuesday
Results : EU \\ Arkema / Barclays / CGGVeritas (BMO) / Credit Agricole (AMC)HSBC / Intesa Sanpaolo / Imperial Tobacco / Mediaset / OMV / Terna / TF1 / Yell Group
US \\ Applied MaterialsAsia \\ Hutchison
Dividend :
Events:
Wednesday
Results : EU \\ Abengoa (BMO) / E.On / Henkel / Holcim (BMO) / ING (BMO) / Sainsbury (BMO) / Swisscom (BMO) / Swiss Life / UniCredit
Dividend : BP (GBp 9,457778) / Du Pont de Nemours ($0.41) / Home Retail (GBp 5,222222) / Telefonica (€0.50)
Events:Logitech investor day / Monsanto investor day / SAP at echEd Shanghai event / Annual Healthcare Conference at Credit Suisse
ECONOMIC DATA PREVIEW
Watch in the United-States the weekly release of initial jobless claims and continuing claims (13.30 GMT). Initial jobless claims and continuing claims are both expected to slow down as the virtuous circle : investment–employment–consumption is progressively taking place in the United-States.
Watch in the Euro area the European Central Bank announces rates for November(12.45 GMT). The European Central Bank should leave its refi rate unchanged in November, but as the inflation should get back in positive territory in November and should get close to 1.6% in January and 2% at spring 2010, the ECB will react before the “disaster” will happen. Consequently the Frankfurt institute will most likely increase its rate by 25 bp in December 2009 or at the latest in January 2010.
Watch in the United-Kingdom the Bank of England announces rates for November(12.00 GMT). The Bank of England which cut its leading rate in February by 50bp, followed by another 50bp cut in March reaching 0.50% an historical low. The Bank of England will keep its leading rate at 0.50% in November.
ECONOMY
United-States: The ISM non manufacturing unexpectedly declined in October but remained at a consistent level
The ISM non-manufacturing index unexpectedly declined from 50.9 in September to 50.6 in October (forecast 51.5). This slight decline was led by a fall in inventory at 43.0 (prior47.5) and employment at 41.1 (prior 44.3) the exact opposite of what happened in the manufacturing survey. Meanwhile Business activity rose from 55.1 to 55.2 and new orders rose from 54.2 to 55.6. Despite this slight decline the ISM non manufacturing remained at a consistent level and a similar drop has been seen in July which has been reversed the last month. After over cutting capital spending, US companies are investing again, not only in the manufacturing sector but also in services showing that private motors are now taking over public motors.
United-States: Status quo for the Fed Fund rates in November
Conscious of the gravity of the situation, the Fed has been very reactive in maintaining its leading rates at between 0 and 0.25% since December 2008. The maximum has been done in order to save the economy of Uncle Sam, consequently: cutting further the Fed funds rates will be useless and the Fed Fund rate will remained unchanged in November. Nevertheless, after being very accommodative, the Fed will have to lead the recovery to compose with the return of higher consumer prices. Consequently the Fed will be forced to increase its fund rates. At this time, Ben Bernanke confirmed that the Fed will not adopt such a policy as long as unemployment does not drop significantly, and will not commit itself into a phase of tough monetary tightening in order not to penalize the recovery. This is why we anticipate Fed fund rates to rise to 0.5% in spring 2010 and reach 1.75% in a year from now.
Euro area: Sharp drop of producer price index in September
Producer price index fell by 0.4% in September(prior +0.5%) pulling the annual rate down from -7.5% to -7.7% YoY. The level of producer prices remained very close to July release at -8.4% YoY the lowest rate since the beginning of the statistic. This drop was mainly led by the drop of energy prices from a year ago making a negative contribution to costs. Nevertheless even without energy PPI dropped by 4.3% YoY. Looking at the breakdown intermediate goods prices dropped by 7.3% and consumer good prices by 2.7% while energy prices dropped by 17.6%. As PPI inflation tends to lead core CPI inflation by around a year the trend decline should last in the coming months
Friday, October 30, 2009
Place Your Bets
GLOBAL EQUITIES RESEARCH
Next week will be important and thrilling as it will bring some fresh news which should impact fund managers decisions. Indeed the ISM to be released as soon as on Monday will tell whether the little drop from 55 to 52.7 was a little and healthy consolidation from the sharp rise from the previous month which sent the index on some 55 level (consensus is 53). As such, it will tell whether the more contrasted September economic activity was due to the sharp rise from July and August, cash for clunkers and Tax credit or not. Also the employment report will be as important as usually, with once more some possible positive impact as we are not yet in a period where employment is expected to get better (6/12 months lagging time), meaning any improvement at this stage would be very much cheered. Employment being the big need to make sure the economic activity pick up will be sustainable, so we find US consumption back on the scene, so important to the GDP (70%).
Talking about employment, October’s surprise fall in German unemployment is encouraging, although it is probably too soon to call the end of the labour market downturn. The fall of 26,000, which pushed the unemployment rate down to 8.1% from 8.2%, was the sharpest since August 2008 and the fourth in a row. While earlier data were flattered by statistical changes, that does not seem to have been the case this month. Together with the moderate rise in consumer confidence over recent months and recently announced income tax cuts, this is good news for the consumer sector. Admittedly, there are clouds on the horizon. Unemployment might well rise further as subsidies under the ‘Kurzarbeit’ scheme expire – note that surveys of employment still point to further job cuts to come. And there is no guarantee that cautious German consumers will spend the money gained from income tax cuts. Nonetheless, signs of improvement in the labour market support the view that Germany’s economic recovery will help the Euro zone. We still think the US recovery will be stronger
Japan's unemployment rate fell for the second straight month as companies gained more confidence in the stimulus-fuelled global recovery but prices continued to tumble, underscoring weak demand at home. The jobless rate stood at a seasonally adjusted 5.3 percent, down from 5.5 percent last month. A recent survey by Nikkei financial daily showed that major Japanese companies plan to hire 29 percent fewer graduates next spring than they did this year.
In the meantime, we might be ready for a new upside rally triggered by the friendly US GDP survey yesterday. Indeed, the good news is that the 3.5% annualised rebound in Q3 US GDP confirms that the most severe and longest recession since the 1930s is over. The economic growth should continue at this pace for another few quarters, as pent up investment demand is released, inventories are being restocked and the boost to infrastructure spending from the fiscal stimulus continues. The consumption increased by 3.4% in the Q3, boosted by a 22.3% surge in spending on durables, which mainly reflects the jump in vehicle purchases stemming from the Cash for Clunkers scheme. But that was a one-off surge, which my well have brought forward some sales that would otherwise have happened in Q4, putting even more pressure on the next quarter macro events (starting next week). Residential investment rebounded by an impressive 23.4%, perhaps boosted by the temporary tax credit for first time buyers (which is extended. That was the first gain in homebuilding in nearly 4 years. Both exports and imports rebounded strongly, by 14.7% and 16.4% respectively. The relatively modest contribution from inventories, which added only 0.9% to overall growth, is predicting some brighter days for Q4.
Island reversal possibility on the Nikkei (bull), which could find a reason through the (temporary ?) strength of the dollar following the better than expected GDP. Would we find a logic back on the currency ? with the yen weakening in line with the Japanese economy doubts while the dollar should be boosted by the strong US recovery which should last another few quarters (at least)
Wherever we head mid term, the current rally should remain for more than a couple sessions anyway.
ECONOMIC DATA WITH IMPACT
Personal Income & Personal spending (12h30 UK time) expected flat and –0.5% from previous 0.2% & 1.3% / interesting, would be nice to see higher income and higher spending for the economic recovery sustainability
PCE (12h30 UK time) expected 0.2% from previous 0.1% / minor as inflation is not the focus for now
Employment cost Index (12h30 UK time) expected 0.4% from previous 0.4% /not the focus for today / minor
POSITIVE IMPACTS
SANOFI :Q3 Sales €7.4Bn (7.435 exp) / Q3 Op income €2.955Bn (2.919 exp) / Q3 EPS €1.71 (1.61 exp) / Predicted adj EPS ex items to grow by around 11% (10% exp)
ACS : 9M sales €12.06 Bn / 9M EBITDA €1.09Bn (1.08 exp) / 9M net pft €1.79Bn (1.73 exp)
SANDVIK : Q3 Net sales SEK 16.6Bn (16.8 exp) / Q3 Pretax loss SEK523M (944m exp) / Order intake SEK17.2 Bn (16.5 exp)
SSAB : Q3 Sales SEK6.94Bn (5.78 exp) / Pretax loss SEK1.1 Bn (1.2 exp) / Demand for steel showed some sign of recovery / Cost saving program proceeding faster than expected
ERSTE BANK : Q3 NII €1.336bn (1.27bn exp) / Risk costs €557m (538m exp) / Core Tier1 6.5% Q3-end / No guidances for 2009
GERMAN BANKS : Germany wants to establish itself as a market for financial products that conform with Islamic law “seeing great interest from investors in Islamic countries” / Separatly CBK, HYPO must pay back state aid as soon as conditions allow (Eco min)
RIO TINTO : Ups 09 CAPEX goals from $2.5bn to at least $5Bn / 9M debt -42% at $22.3Bn / Cost reduction on track ($2.5Bn)
WPP :Q3 Rev £2.007Bn (2.02 exp) / Q3 LFL rev –8.7% (-9.1% exp ) /
LLOYDS may start its fundraising by Nov. 4, as CEO and his advisers begin detailed consultations with investors about the plan (FT). Daily Telegraph wrote that the rights offer could be priced at 30 pence a share.
SOCIETE GENERALE : CAC reweighting, SOC GEN weight will increase to 4.35% from 3.56%
NEGATIVE IMPACTS
BELGACOM : Q3 rev €1.48Bn (1.47 exp) / Q3 EBITDA €494M (483 exp) / Interim DIV €0.4 (0.50 exp) / Confirms FY guid
ALCATEL : Q3 Rev €3.69Bn (3.91 exp) / Adj Op loss €11M (-8 to -14.4 exp) / Net loss €182M (-252 exp) / Reafirms guidance.
RENAULT : Q3 rev €8.1bn (8.74 exp) / Q3 Global vehicules sales +0.8% on Yr / Reaffirms sees Positive FCF In FY 2009 as exp / Sees increase mkt shr in Europe in FY 2009
FERROVIAL : 9M Revenue €9.05bn (€9.11bn exp) / EBITDA €1.946bn (€1.96bn exp) / Construction EBITDA down 19.3% / Bottom line hit by capital loss on Gatwick sale / Net debt €22.2bn at end-Sept
CARREFOUR : A Taiwanese court has rejected an appeal by Carrefour against a fine for misleading advertisements,
SIEMENS : Deutsche Bahn is threatening the cancelling of a tender for 300 IC and ICE trains due to high price demands (Handelsblatt)
EADS : weaker $ very painful /benefits from good hedging rate to end eventualy / Made “big” mistakes with A400M / Aims to deliver as many aircraft in 09 as in 08
LINDE Should report Q3 Sales €2.9 bn vs 2.91 bloom expectations and Q3 Op pft €615M vs 628 bloom expectations (german press)
UBS is likely to show ongoing client outflows in the third quarter even as it reports a narrower quarterly net loss next week.
NOKIA : Samsung Electronics said it sold a record of 60.2 M phones in July-September quarter, with its mkt shr rising to 20.7%.
TRADING IDEAS
BUY NIKKEI INDEX on island reversal possibility + Dollar recovery which for ones fits with stronger US data (weak Yen good for exporters)
BUY BNP ahead of results next week that we believe will be very good.
BUYARCELORMITTAL with a buy opportunity with an island possibility still / BUY ADIDAS ahead of results next week
BUY PHILIPS / STM which closed their gap // BUY ACCOR to play upside trend now & BUY PINAULT on double bottom possibility
BUY SALZGITTER / SELL THYSSEN // BUY STM / SELL INFINEON // BUY REED ELSEVIER / SELL PEARSON / BUY LOCKHEED MARTIN / SELL HONEYWELL
BROKER METEOROLOGY
E.ON RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY HSBC
FORTIS RATED NEW BUY BY DEUTSCHE BANK OF AMERICA – ML
PEUGEOT RAISED TO OVERWEIGHT FROM NEUTRAL BY HSBC
RENAULT RAISED TO HOLD FROM SELL
SOLVAY RAISED TO BUY FROM HOLD BY ING
NOVATEK ADDED TO RUSSIA FOCUS LIST BY GOLDMAN SACHS
LLOYDS RAISED TO NEUTRAL FROM UNDERWEIGHT BY EXANE
BHP BILLITON RAISED TO BUY FROM HOLD BY ING
LOGITECH RAISED TO NEUTRAL BY GOLDMAN SACHS
DASSAULT SYSTEMES RAISED TO NEUTRAL FROM SELL BY UBS
DEXIA RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN
SEB (SEBA SS) RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN
SWEDBANK RAISED TO OVERWEIGHT FROM NEUTRAL BY JP MORGAN
INTESA SANPAOLO RAISED TO BUY FROM HOLD BY CITIGROUP
TOMTOM CUT TO NEUTRAL BY UBS
NOVO NORDISK CUT TO HOLD FROM BUY BY CITIGROUP
DATA
WTI : 80,0 (3,47 %)
Eur/$ : 1,4843 (0,14 %)
$ /Yen : 91,05 (0,25 )
10 Yr US : 3,49 ( -1,14 bp)
10 Yr Euro : 3,32 ( 6,6 bp)
Indices : US close ; Europe close
SOX : 2,15 %;1,53%
S&P :2,25 %; 1,64 %
DOW: 2,05%; 1,40 %
NAS :1,84%; 1,52%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 4,05 %; 4,04 %
ENERGY : 2,43 %; 1,97 %
FINANCIAL : 3,91 %; 2,53 %
HEALTHCARE : 1,06 %; 0,52 %
TECHNO : 1,99 %; 1,37 %
TELECOM : 0,62 %; -0,11 %
INDUSTRIAL : 2,19 %; 2,09 %
UTILITIES : 0,93 %; 0,56 %
TO BE COMING
Today
Results : EU \\ Acerinox / Anglo Pacific / Arcelor Mittal / Banco Santander / BG Group (BMO) / British American Tobacco interim / Broadvision / EDP Renovaveis / ENI / GlaxoSmithKline / Heineken trading statement / Mediobanca / NH Hoteles / Nordea Bank / Prudential / SAP / Seche Environnement / Svenska Handelsbanken / Symantec / TeliaSonera (BMO) / TomTom / Umicore
US \\ ConocoPhillips (BMO) / General Dynamics / Goodyear / International Paper (BMO) / Lazard / Symantec (AMC)
Asia \\ Nomura / PetroChina
Dividend : Rolls-Royce (GBp 6)
Events:
Monday
Results : EU \\ Abb / Alstom / AstraZeneca / BASF final details (BMO) / Continenta / Dassault Systemes / Deutsche Bank (BMO) / Deutsche Lufthansa (BMO) / Geberit / Lonza / Man AG / Neste Oil (BMO) / Renault sales / Standard Chartered / Telenor / Volkswagen
US \\ American Electric Power / Colgate-Palmolive / Eastman Kodak / Electronic Arts / ExxonMobil / Kellogg (BMO) / Procter & Gamble / Sprint /
Dividend : Inditex (€0.50)
Events: Pernod Ricard AGM
Tuesday
Results : EU \\ Agfa-Gevaert / Alcatel-Lucent / Belgacom (BMO) / Edison / Energias de Portugal // Red Electrica / Sandvik / Sanofi-Aventis (BMO) / Shire / SSAB (BMO) / WPP trading statement
US \\ Chevron / Constellation Energy / Duke Energy / Electronic Artes / Ford / NYSE Euronext /
Asia \\ Hitachi / Samsung Electronics / Sony
Dividend :
Events : DuPont Annual investor meeting
Wednesday
Results : EU \\ Altran Technologies sales / Linde / Metro AG / TNT
US \\ Ford (BMO)
Dividend :Ashmore Group (GBp 9,266667)
Events: Cardinal Health
Thursday
Results :EU \\ Antofagasta production report / BMW / Endesa / Fresenius / Swiss Re / Telecom Italia Media / UBS
US \\ US car sales / Kraft Fodds (AMC) / Master Card (BMO)
Dividend :
Events:Coach AGM / Man Group analyst meeting
ECONOMIC DATA PREVIEW
Watch in the United-States the personal income and personal expenses for September (12.30 GMT). For September, we anticipate that household personal income up 1%, mainly led by the decline in job destruction and by the rise in wages. Meanwhile, household expenses which increased by 1.3% in August the sharpest rise since October 2001, should regress by 0.5% in September. This mainly due to the fall in retail sales in September impacted by the end of the cash for clunkers program.
Watch in the Euro zone the first estimation of the inflation for October (10.00 GMT). The deflation will still hit the euro area in October but to a smaller extent due to the rise in energy prices and commodities Consequently we anticipate the consumer prices index to be - 0.1%YoY in October. Nevertheless, it should get back to positive territories to reach 0.9% in December and 1.5% at the beginning of 2010.
ECONOMY
United-States: The GDP rose by 3.5% at the third quarter
After declining by 0.7% at the second quarter, the US GDP rose by 3.5% at the third quarter, meaning 0.5% more than the consensus forecast. Looking at the breakdown the US GDP was firstly boosted by the sharp rebound of household consumption rising by 3.4%(annualized) meaning its best performance since the first quarter 2007. Better, after fourteen quarters of decline, residential investment rise by 23.4% at the third quarter, the highest progression since the second quarter 1986. Meanwhile company’s capital spending is recovering. Indeed after six consecutives quarter of fall, equipment and software investment rise by 1.1% at the third quarter. If this rebound remained limited it open the way to the virtuous circle : growth-investment-employment-consumption. In addition the last ISM new order index are reaching very encouraging levels in regards to future productive investment. It is important to notice that the GDP rise at the third quarter has not been artificially boosted by foreign trade or by a massive restocking. For the future the very encouraging ISM (manufacturing and services) data; the Fed low interest rate, the under evaluated dollar not to mention the $ 450 bn upcoming public investment will boost the US GDP in the coming months. In such condition we that after falling by 2.2% in 2009, the US GDP will rise by 2.8% in 2010.
United-States: Initial jobless claims and continuing claims declined last week
Initial jobless claims declined slightly last week from 531000 to 530 000. This figures are confirming that the labour market is slowly recovering as after over laying off companies are now matching more closely economic fundamentals. On the other hand continuing claims declined sharply last week from 5 945 000 to 5 797 000. This is the sixtieth consecutive reduction of continuing claims confirming that the hiring process is progressively recovering in the United-States. Nevertheless has employment is a lagging indicator of the activity the unemployment rate should rise in the coming month to stabilize around 10% till the beginning of 2010.
Euro area: Sharp rise of the economic confidence in October
After reaching an historical low at 64.6 in March 2009, the euro area economic confidence index rose for a seventh consecutive month in October to reach 86.2 its highest level since September 2008 meaning just before the Lehman brother fall. Indeed, the euro zone economy is recovering as showed by the sharp rise in French business confidence indicator which reached its highest mark since September 2008, and by the seventh consecutive rise the IFO index in Germany in October. As the economic sentiment index is the best leading indicator of the Euro area GDP this suggest that the GDP should decline at a much slower pace at the third quarter 2009.
Germany: Unemployment surprisingly declined in October
German unemployment dropped unexpectedly from 8.2% in September to 8.1% in October its level of March 2009. The fall of 26 000 was the sharpest since August 2008 and will boost in the short term household consumption. As employment remained a lagging indicator of the economic activity we cannot say to soon that this is the end of the labour market downturn and unemployment should rise in the coming month to reached 9.4% in 2009. It should stabilise at this level in 2010.
Next week will be important and thrilling as it will bring some fresh news which should impact fund managers decisions. Indeed the ISM to be released as soon as on Monday will tell whether the little drop from 55 to 52.7 was a little and healthy consolidation from the sharp rise from the previous month which sent the index on some 55 level (consensus is 53). As such, it will tell whether the more contrasted September economic activity was due to the sharp rise from July and August, cash for clunkers and Tax credit or not. Also the employment report will be as important as usually, with once more some possible positive impact as we are not yet in a period where employment is expected to get better (6/12 months lagging time), meaning any improvement at this stage would be very much cheered. Employment being the big need to make sure the economic activity pick up will be sustainable, so we find US consumption back on the scene, so important to the GDP (70%).
Talking about employment, October’s surprise fall in German unemployment is encouraging, although it is probably too soon to call the end of the labour market downturn. The fall of 26,000, which pushed the unemployment rate down to 8.1% from 8.2%, was the sharpest since August 2008 and the fourth in a row. While earlier data were flattered by statistical changes, that does not seem to have been the case this month. Together with the moderate rise in consumer confidence over recent months and recently announced income tax cuts, this is good news for the consumer sector. Admittedly, there are clouds on the horizon. Unemployment might well rise further as subsidies under the ‘Kurzarbeit’ scheme expire – note that surveys of employment still point to further job cuts to come. And there is no guarantee that cautious German consumers will spend the money gained from income tax cuts. Nonetheless, signs of improvement in the labour market support the view that Germany’s economic recovery will help the Euro zone. We still think the US recovery will be stronger
Japan's unemployment rate fell for the second straight month as companies gained more confidence in the stimulus-fuelled global recovery but prices continued to tumble, underscoring weak demand at home. The jobless rate stood at a seasonally adjusted 5.3 percent, down from 5.5 percent last month. A recent survey by Nikkei financial daily showed that major Japanese companies plan to hire 29 percent fewer graduates next spring than they did this year.
In the meantime, we might be ready for a new upside rally triggered by the friendly US GDP survey yesterday. Indeed, the good news is that the 3.5% annualised rebound in Q3 US GDP confirms that the most severe and longest recession since the 1930s is over. The economic growth should continue at this pace for another few quarters, as pent up investment demand is released, inventories are being restocked and the boost to infrastructure spending from the fiscal stimulus continues. The consumption increased by 3.4% in the Q3, boosted by a 22.3% surge in spending on durables, which mainly reflects the jump in vehicle purchases stemming from the Cash for Clunkers scheme. But that was a one-off surge, which my well have brought forward some sales that would otherwise have happened in Q4, putting even more pressure on the next quarter macro events (starting next week). Residential investment rebounded by an impressive 23.4%, perhaps boosted by the temporary tax credit for first time buyers (which is extended. That was the first gain in homebuilding in nearly 4 years. Both exports and imports rebounded strongly, by 14.7% and 16.4% respectively. The relatively modest contribution from inventories, which added only 0.9% to overall growth, is predicting some brighter days for Q4.
Island reversal possibility on the Nikkei (bull), which could find a reason through the (temporary ?) strength of the dollar following the better than expected GDP. Would we find a logic back on the currency ? with the yen weakening in line with the Japanese economy doubts while the dollar should be boosted by the strong US recovery which should last another few quarters (at least)
Wherever we head mid term, the current rally should remain for more than a couple sessions anyway.
ECONOMIC DATA WITH IMPACT
Personal Income & Personal spending (12h30 UK time) expected flat and –0.5% from previous 0.2% & 1.3% / interesting, would be nice to see higher income and higher spending for the economic recovery sustainability
PCE (12h30 UK time) expected 0.2% from previous 0.1% / minor as inflation is not the focus for now
Employment cost Index (12h30 UK time) expected 0.4% from previous 0.4% /not the focus for today / minor
POSITIVE IMPACTS
SANOFI :Q3 Sales €7.4Bn (7.435 exp) / Q3 Op income €2.955Bn (2.919 exp) / Q3 EPS €1.71 (1.61 exp) / Predicted adj EPS ex items to grow by around 11% (10% exp)
ACS : 9M sales €12.06 Bn / 9M EBITDA €1.09Bn (1.08 exp) / 9M net pft €1.79Bn (1.73 exp)
SANDVIK : Q3 Net sales SEK 16.6Bn (16.8 exp) / Q3 Pretax loss SEK523M (944m exp) / Order intake SEK17.2 Bn (16.5 exp)
SSAB : Q3 Sales SEK6.94Bn (5.78 exp) / Pretax loss SEK1.1 Bn (1.2 exp) / Demand for steel showed some sign of recovery / Cost saving program proceeding faster than expected
ERSTE BANK : Q3 NII €1.336bn (1.27bn exp) / Risk costs €557m (538m exp) / Core Tier1 6.5% Q3-end / No guidances for 2009
GERMAN BANKS : Germany wants to establish itself as a market for financial products that conform with Islamic law “seeing great interest from investors in Islamic countries” / Separatly CBK, HYPO must pay back state aid as soon as conditions allow (Eco min)
RIO TINTO : Ups 09 CAPEX goals from $2.5bn to at least $5Bn / 9M debt -42% at $22.3Bn / Cost reduction on track ($2.5Bn)
WPP :Q3 Rev £2.007Bn (2.02 exp) / Q3 LFL rev –8.7% (-9.1% exp ) /
LLOYDS may start its fundraising by Nov. 4, as CEO and his advisers begin detailed consultations with investors about the plan (FT). Daily Telegraph wrote that the rights offer could be priced at 30 pence a share.
SOCIETE GENERALE : CAC reweighting, SOC GEN weight will increase to 4.35% from 3.56%
NEGATIVE IMPACTS
BELGACOM : Q3 rev €1.48Bn (1.47 exp) / Q3 EBITDA €494M (483 exp) / Interim DIV €0.4 (0.50 exp) / Confirms FY guid
ALCATEL : Q3 Rev €3.69Bn (3.91 exp) / Adj Op loss €11M (-8 to -14.4 exp) / Net loss €182M (-252 exp) / Reafirms guidance.
RENAULT : Q3 rev €8.1bn (8.74 exp) / Q3 Global vehicules sales +0.8% on Yr / Reaffirms sees Positive FCF In FY 2009 as exp / Sees increase mkt shr in Europe in FY 2009
FERROVIAL : 9M Revenue €9.05bn (€9.11bn exp) / EBITDA €1.946bn (€1.96bn exp) / Construction EBITDA down 19.3% / Bottom line hit by capital loss on Gatwick sale / Net debt €22.2bn at end-Sept
CARREFOUR : A Taiwanese court has rejected an appeal by Carrefour against a fine for misleading advertisements,
SIEMENS : Deutsche Bahn is threatening the cancelling of a tender for 300 IC and ICE trains due to high price demands (Handelsblatt)
EADS : weaker $ very painful /benefits from good hedging rate to end eventualy / Made “big” mistakes with A400M / Aims to deliver as many aircraft in 09 as in 08
LINDE Should report Q3 Sales €2.9 bn vs 2.91 bloom expectations and Q3 Op pft €615M vs 628 bloom expectations (german press)
UBS is likely to show ongoing client outflows in the third quarter even as it reports a narrower quarterly net loss next week.
NOKIA : Samsung Electronics said it sold a record of 60.2 M phones in July-September quarter, with its mkt shr rising to 20.7%.
TRADING IDEAS
BUY NIKKEI INDEX on island reversal possibility + Dollar recovery which for ones fits with stronger US data (weak Yen good for exporters)
BUY BNP ahead of results next week that we believe will be very good.
BUYARCELORMITTAL with a buy opportunity with an island possibility still / BUY ADIDAS ahead of results next week
BUY PHILIPS / STM which closed their gap // BUY ACCOR to play upside trend now & BUY PINAULT on double bottom possibility
BUY SALZGITTER / SELL THYSSEN // BUY STM / SELL INFINEON // BUY REED ELSEVIER / SELL PEARSON / BUY LOCKHEED MARTIN / SELL HONEYWELL
BROKER METEOROLOGY
E.ON RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY HSBC
FORTIS RATED NEW BUY BY DEUTSCHE BANK OF AMERICA – ML
PEUGEOT RAISED TO OVERWEIGHT FROM NEUTRAL BY HSBC
RENAULT RAISED TO HOLD FROM SELL
SOLVAY RAISED TO BUY FROM HOLD BY ING
NOVATEK ADDED TO RUSSIA FOCUS LIST BY GOLDMAN SACHS
LLOYDS RAISED TO NEUTRAL FROM UNDERWEIGHT BY EXANE
BHP BILLITON RAISED TO BUY FROM HOLD BY ING
LOGITECH RAISED TO NEUTRAL BY GOLDMAN SACHS
DASSAULT SYSTEMES RAISED TO NEUTRAL FROM SELL BY UBS
DEXIA RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN
SEB (SEBA SS) RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN
SWEDBANK RAISED TO OVERWEIGHT FROM NEUTRAL BY JP MORGAN
INTESA SANPAOLO RAISED TO BUY FROM HOLD BY CITIGROUP
TOMTOM CUT TO NEUTRAL BY UBS
NOVO NORDISK CUT TO HOLD FROM BUY BY CITIGROUP
DATA
WTI : 80,0 (3,47 %)
Eur/$ : 1,4843 (0,14 %)
$ /Yen : 91,05 (0,25 )
10 Yr US : 3,49 ( -1,14 bp)
10 Yr Euro : 3,32 ( 6,6 bp)
Indices : US close ; Europe close
SOX : 2,15 %;1,53%
S&P :2,25 %; 1,64 %
DOW: 2,05%; 1,40 %
NAS :1,84%; 1,52%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 4,05 %; 4,04 %
ENERGY : 2,43 %; 1,97 %
FINANCIAL : 3,91 %; 2,53 %
HEALTHCARE : 1,06 %; 0,52 %
TECHNO : 1,99 %; 1,37 %
TELECOM : 0,62 %; -0,11 %
INDUSTRIAL : 2,19 %; 2,09 %
UTILITIES : 0,93 %; 0,56 %
TO BE COMING
Today
Results : EU \\ Acerinox / Anglo Pacific / Arcelor Mittal / Banco Santander / BG Group (BMO) / British American Tobacco interim / Broadvision / EDP Renovaveis / ENI / GlaxoSmithKline / Heineken trading statement / Mediobanca / NH Hoteles / Nordea Bank / Prudential / SAP / Seche Environnement / Svenska Handelsbanken / Symantec / TeliaSonera (BMO) / TomTom / Umicore
US \\ ConocoPhillips (BMO) / General Dynamics / Goodyear / International Paper (BMO) / Lazard / Symantec (AMC)
Asia \\ Nomura / PetroChina
Dividend : Rolls-Royce (GBp 6)
Events:
Monday
Results : EU \\ Abb / Alstom / AstraZeneca / BASF final details (BMO) / Continenta / Dassault Systemes / Deutsche Bank (BMO) / Deutsche Lufthansa (BMO) / Geberit / Lonza / Man AG / Neste Oil (BMO) / Renault sales / Standard Chartered / Telenor / Volkswagen
US \\ American Electric Power / Colgate-Palmolive / Eastman Kodak / Electronic Arts / ExxonMobil / Kellogg (BMO) / Procter & Gamble / Sprint /
Dividend : Inditex (€0.50)
Events: Pernod Ricard AGM
Tuesday
Results : EU \\ Agfa-Gevaert / Alcatel-Lucent / Belgacom (BMO) / Edison / Energias de Portugal // Red Electrica / Sandvik / Sanofi-Aventis (BMO) / Shire / SSAB (BMO) / WPP trading statement
US \\ Chevron / Constellation Energy / Duke Energy / Electronic Artes / Ford / NYSE Euronext /
Asia \\ Hitachi / Samsung Electronics / Sony
Dividend :
Events : DuPont Annual investor meeting
Wednesday
Results : EU \\ Altran Technologies sales / Linde / Metro AG / TNT
US \\ Ford (BMO)
Dividend :Ashmore Group (GBp 9,266667)
Events: Cardinal Health
Thursday
Results :EU \\ Antofagasta production report / BMW / Endesa / Fresenius / Swiss Re / Telecom Italia Media / UBS
US \\ US car sales / Kraft Fodds (AMC) / Master Card (BMO)
Dividend :
Events:Coach AGM / Man Group analyst meeting
ECONOMIC DATA PREVIEW
Watch in the United-States the personal income and personal expenses for September (12.30 GMT). For September, we anticipate that household personal income up 1%, mainly led by the decline in job destruction and by the rise in wages. Meanwhile, household expenses which increased by 1.3% in August the sharpest rise since October 2001, should regress by 0.5% in September. This mainly due to the fall in retail sales in September impacted by the end of the cash for clunkers program.
Watch in the Euro zone the first estimation of the inflation for October (10.00 GMT). The deflation will still hit the euro area in October but to a smaller extent due to the rise in energy prices and commodities Consequently we anticipate the consumer prices index to be - 0.1%YoY in October. Nevertheless, it should get back to positive territories to reach 0.9% in December and 1.5% at the beginning of 2010.
ECONOMY
United-States: The GDP rose by 3.5% at the third quarter
After declining by 0.7% at the second quarter, the US GDP rose by 3.5% at the third quarter, meaning 0.5% more than the consensus forecast. Looking at the breakdown the US GDP was firstly boosted by the sharp rebound of household consumption rising by 3.4%(annualized) meaning its best performance since the first quarter 2007. Better, after fourteen quarters of decline, residential investment rise by 23.4% at the third quarter, the highest progression since the second quarter 1986. Meanwhile company’s capital spending is recovering. Indeed after six consecutives quarter of fall, equipment and software investment rise by 1.1% at the third quarter. If this rebound remained limited it open the way to the virtuous circle : growth-investment-employment-consumption. In addition the last ISM new order index are reaching very encouraging levels in regards to future productive investment. It is important to notice that the GDP rise at the third quarter has not been artificially boosted by foreign trade or by a massive restocking. For the future the very encouraging ISM (manufacturing and services) data; the Fed low interest rate, the under evaluated dollar not to mention the $ 450 bn upcoming public investment will boost the US GDP in the coming months. In such condition we that after falling by 2.2% in 2009, the US GDP will rise by 2.8% in 2010.
United-States: Initial jobless claims and continuing claims declined last week
Initial jobless claims declined slightly last week from 531000 to 530 000. This figures are confirming that the labour market is slowly recovering as after over laying off companies are now matching more closely economic fundamentals. On the other hand continuing claims declined sharply last week from 5 945 000 to 5 797 000. This is the sixtieth consecutive reduction of continuing claims confirming that the hiring process is progressively recovering in the United-States. Nevertheless has employment is a lagging indicator of the activity the unemployment rate should rise in the coming month to stabilize around 10% till the beginning of 2010.
Euro area: Sharp rise of the economic confidence in October
After reaching an historical low at 64.6 in March 2009, the euro area economic confidence index rose for a seventh consecutive month in October to reach 86.2 its highest level since September 2008 meaning just before the Lehman brother fall. Indeed, the euro zone economy is recovering as showed by the sharp rise in French business confidence indicator which reached its highest mark since September 2008, and by the seventh consecutive rise the IFO index in Germany in October. As the economic sentiment index is the best leading indicator of the Euro area GDP this suggest that the GDP should decline at a much slower pace at the third quarter 2009.
Germany: Unemployment surprisingly declined in October
German unemployment dropped unexpectedly from 8.2% in September to 8.1% in October its level of March 2009. The fall of 26 000 was the sharpest since August 2008 and will boost in the short term household consumption. As employment remained a lagging indicator of the economic activity we cannot say to soon that this is the end of the labour market downturn and unemployment should rise in the coming month to reached 9.4% in 2009. It should stabilise at this level in 2010.
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