Bond Street

The U.S. bond market is on the forefront this week. The U.S. Treasury prepares to auction a record $155bn in notes this week amid an unprecedented pace of borrowing to stimulate the economy and service deficits. The government more than doubled note and bond offering to $963bn in the first half of 2009 as it tries to end the U.S. economic recession. It may sell another $1.1 trillion by year-end. The budget deficit this year is projected to reach $1.85 trillion, equivalent to 13 % of the nation’s GDP according to the CBO. The CBO expects $1.43 trillion deficit in 2010, $974Mn In 2011 and $633Mn in 2012 (4 % of GDP expected at that time). The government is depending on foreign investors like China, the largest foreign holder of U.S. debt with $801.5bn. It added a net $38bn to its holdings in May. Demand from indirect bidders, whose ranks include foreign central banks, increased to 30.4 % of debt sold through auctions this year, from 21.6 % in 2008. The U.S. Treasury plans to sell $6bn (reopening) in 19 years and 6 months TIPS (Treasury Inflation Protected Securities) today, $42bn in 2-year note tomorrow, $39bn in 5-year note on Wednesday July 29th and $28bn in 7-year on Thursday 30th. Auctions in 3- and 10-notes and 30-year bond will take place in August 11th, 12th and 13th. The previous record for nominal notes was $104bn in 2-, 5-, and 7-year notes sold the week of June 22th. The government and the Fed have spent, lent or pledged more than $12 trillion to snap the steepest recession in five decades and revive credit markets that froze last year.
Emerging-market equity funds drew $2.6bn ($2.1bn bor BRICs) in the week ended July 22nd, boosted by optimism that U.S. demand for exports will recover, according to EPFR. The inflows into emerging-market funds were the most since June 10th. Investors have funneled almost $32bn into emerging-market stock funds this year, helping the MSCI Emerging-Markets Index to a 45 % rally. Rebounding exports and increased household spending helped South Korea’s GDP jump 2.3 % in Q1. That’s the fastest pace in almost six years. The outperformance of China and emerging markets in recent months demonstrates that decoupling survived last year’s episodes. When investors last believed in decoupling back in 2007, there were substantial hot money inflows into China. That has started to resume.
The main data release this week is Friday’s U.S. Q2 GDP number. GDP may have contracted by 1.0% QoQ at an annualized rate in Q2, down from 5.5% in Q1. The biggest drag on GDP growth was undoubtedly business investment, with consumption, residential investment and the inventory rundown all subtracting modestly. In contrast, the monthly international trade figures point to a big positive contribution from net external demand. Looking ahead to Q3, the slower pace of inventory rundown and a strong stimulus-related surge in government spending mean that there is a good chance that GDP will start to expand again. Friday’s release will also incorporate the results of the five-year benchmark revision to the GDP figures. Major methodological changes mean that those revisions could, potentially at least, be very significant.
This morning (05.30 BST) Asian stocks rose for a 10th day. The MSCI Asia pacific Index climbed 1.3 percent to 109.43. Acceleration in China’s economic growth and better-than-expected U.S. earnings have helped drive a 12 % climb in the past 10 days. That’s the longest winning streak since January 2004. Japan’s Nikkei 225 rose 1.8 % to 10,118.27. South Korea’s Kospi Index gained 1.3 % as a central bank index showed the country’s consumer confidence rose to the highest in almost seven years in July.

ECONOMIC DATA WITH IMPACT

US new home sales-June (15.00 BST) that should show a modest rebound (355 k annualized expected, +3.8 % MoM). The recovery in the NAHB homebuilders’ current sales index points to an increase in new home sales in the next few months.
Dallas Fed manufacturing index for July (minor) should also be on the upside (15.30 BST).
Euro-zone M3 money supply data (09.00 BST) for June that will reveal whether the ECB’s record 12-month €442bn refinancing operation to euro-zone banks encouraged them to lend to firms and consumers. M3 may have increased slightly in June, while private sector lending decelerated to around 1.5% on a year earlier – a fresh record low.

POSITIVE IMPACTS

ARCELORMITTAL might form a JV spinoff of its $3bn stainless steel unit (FT) / Posco & Outokumpu would be 2 possible candidates
SUEZ ENVIRONNEMENT could cede a 2% stake it owns in GAS NATURAL in the long term (CEO in Expansion)
ERICSSON said it had won an auction for the wireless assets of Nortel Networks, paying $1.13 bn
BMW & DAIMLER will expand their cooperation in purchasing automotive components (BMW’s board member in WirtschaftsWoche)
COMMERZBANK's revamp of its investment banking operation is proceeding well ahead of schedule (Handelsblatt)
PEARSON : H1 revenue £2.4bn (2.28bn exp) / PTP £62m (53m exp) / Interim div. 12.2P / Trading ahead of expectations
NATIONAL GRID : Current trading in line with expectations / Strong operational and financial performance in 2009/10
JULIUS BAER : H1 revenue SFR1.22Bn (in line) / PTP 391m (368m e) / Tier 1 ratio 16.7% / Private Banking inflows Healthy / Net new private banking asset of SFR4Bn (5.8bn exp) / Expects to cut cost by 10-15%
CREDIT SUISSE : Israeli holding company Koor Industries said it had once again raised its stake in CSGN, to 2.33% from 1.73%
SANOFI said it is taking control of Indian vaccine maker Shantha Biotechnics / Transaction values Shantha Biotechnics at €550 m
TF1 : H1 sales down 16% to €1.13 bn, in line / Kept outlook for 13% fall in consolidated revenues for 2009 / Said that July followed June trends on advertising sales but was "less difficult" than previous months…
THOMSON signed a restructuring agreement with its senior creditors = The plan involves converting €1.29 bn of the senior debt into stock + 2 types of notes, leaving €1.55 bn of debt (-45%), with modified terms + lengthened maturities / The debt reduction will come via a €350 m rights issue + the issue of €639 m of redeemable notes + €300m of notes which will be paid by the end of 2010 / TMS reported H1 revenue -1.9% with net loss of €325m, including a €306m non-cash impairment / Cash position of €511m at June 30.
WOLSELEY : Trading environment remains in line with expectations set out in the May / Trading challenging until at least the end of the calendar year / Has decided to sell the Belgium, slovakian and czech republic businesses
LUFTHANSA : Today is the deadline for Lufthansa to tell the Austrian takeover commission whether it wants to extend its Austrian Airlines takeover deadline beyond July 31
NATIONAL EXPRESS is set to reject the £500 m bid it received last week from Capital Partners & Cosmen family (Sunday Express) / Stagecoach would have appointed DBK to draw up plans for an all-share takeover offer (Sunday Times)

NEGATIVE IMPACTS

VOLKSWAGEN may look at a €4 bn capital increase to secure its planned takeover of Porsche because its management is worried that Porsche's debt, reportedly €14 bn, could hurt its credit rating (FTD) / VW wants to buy half of Porsche soon and the rest in 2011
BARCLAYS’ CEO said thatthe worst of the crisis is still ahead, with the end of the ongoing recession dependent on unemployment, which has yet to peak (Corriere della Sera)
PORSCHE : DBK told the owner families of Porsche a K increase would not be enough to pay for Porsche's obligations (Der Spiegel)
RYANAIR : Q1 PTP €135m (122m exp) / Results distorted by 42% reduction in fuel costs / Sees FY net profit towards lower end of €200 to €300 m range previously guided / Limited visibility beyond next 2 months
TNT : Q2 rev. €2.53bn (2.54bn exp) / Ebit €178m (184m exp) / Interim div. €0.18 / Ups cost-saving targets to €550-600m from €400m
THALES : H1 rev. €5.74 bn, in line / Ebit €68m, after provision of €102 m on A400m (300m exp) / New orders booked in H1 = €5.86 bn
THOMAS COOK : Creditor for Arcandor have hired UBS to review the options for Arcandor’s 53% stake in Thomas Cook / In addition to a possible IPO or a sale, UBS is seeking to renegotiate Thomas Cook's credit / Rewe, previously interested in buying Thomas Cook, is losing interest in such a transaction (WirtschaftsWoche)
UK FACES CREDIT CARD CRISIS ON US SCALE : The IMF has predicted that of the $2,467bn of consumer debt in Europe, much of which comes from the UK, 7% will be lost…

TRADING IDEAS

BUY ENI / ROYAL DUTCH / BP / TOTAL to play US energy names reporting this week & BUY AHOLD / BAYER ahead of results this week
BUY NOKIA / GSZ on reversal head & shoulder & VIVENDI / ENEL on island possibility still
BUY FTE / DTE to play economic recovery

BUY PEUGEOT / SELL RENAULT // BUY SAINSBURY / SELL TESCO // BUY AEGON / SELL AXA // BUY BAYER / SELL BASF
BUY RESEARCH IN MOTION / SELL APPLE // BUY DELL / SELL HEWLETT PACKARD

BROKER METEOROLOGY

DEXIA STARTED AT BUY BY UBS
LLOYDS RAISED TO BUY FROM REDUCE BY NOMURA
OMV RAISED TO EQUALWEIGHT FROM UNDER BY MORGAN STANLEY
TOMTOM RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN
LONMIN RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
UBI BANCA RAISED TO HOLD FROM SELL BY DEUTSCHE BANK

ASML REMOVED FROM BENELUX TOP PICKS LIST AND CUT TO HOLD FROM BUY BY ING
ASTRAZENECA CUT TO NEUTRAL FROM OUTPERFORM BY EXANE
MONTE PASCHI CUT TO SELL FROM HOLD BY CITIGROUP
INTESA CUT TO HOLD FROM BUY BY CITIGROUP
DANONE CUT DO THOLD FROM BUY BY DEUTSCHE
HEINEKEN CUT TO HOLD FROM BUY BY RBS
INBEV CUT TO HOLD FROM BUY BY RBS
SABMILLER CUT TO SELL FROM HOLD BY RBS


DATA

WTI : 68,8 (2,88 %)
Eur/$ : 1,4240 (0,26 %)
$ /Yen : 94,80 (-0,28 )
10 Yr US : 3,67 ( 1,19 bp)
10 Yr Euro : 3,48 ( 1,8 bp)

Indices : US close ; Europe close
SOX : -1,26 %;-2,98%
S&P :0,30 %; -0,53 %
DOW: 0,26%; -0,30 %
NAS :-0,39%; -1,17%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 1,01 %; -0,28 %
ENERGY : 1,09 %; 0,06 %
FINANCIAL : -0,18 %; -0,89 %
HEALTHCARE : 1,65 %; 0,78 %
TECHNO : -0,73 %; -1,51 %
TELECOM : 0,03 %; -0,46 %
INDUSTRIAL : 0,24 %; -0,77 %
UTILITIES : 1,49 %; 0,33 %

TO BE COMING

Today
Results :Union Fenosa / Honeywell / Banco Popular Espanol / Thales / SSAB (BMO) / Ubisoft / Amgen / Verizon
Dividend :ABB (CHF 0.48) / Swiss Life (CHF 5.00)
Events :

Tuesday
Results : Ahold (BMO) / Alleanza Assicurazioni / BBVA (BMO) / Banco Espirito Santo (BMO) / BP (BMO) / Bureau Veritas (AMC) / Deutesche Bank (BMO) / EADS / Endesa (BMO) / ST Micro (After US close) / Verbund /
Dividend :
Events:

Wednesday
Results : Sanofi Aventis / Arcelor Mittal / Gas Natural / France Telecom / Santander / ACS / Acerinox / Akzo Nobel / Acciona / Infineon / SAP / Atos / Saipem / Maroc Telecom / M6 Metropole TV / EDF Energies Nouvelles sales / Rhodia / Bayer / Daimler / Time Warner / ConocoPhillipsSymantec / General Dynamics / Nissan / Honda MotorNec Electronics / Nomura
Dividend :
Events : Unicredit EGM / Eletronic Arts AGM

Thursday
Results : Siemens / L'Oreal sales / Alcatel Lucent / Centrica / Grupo Ferrovia / Air France-KLM / Renault / Repsol / Enel / Royal Dutch Shell / ENI / Vinci sales / BASF / Maurel & Prom / Solvay / Clariant / Air Liquide / Mediaset / HeidelbergCement / Deutsche Postbank / Lufthansa / Dassault Systemes / Telefonica / Abertis / AstraZeneca / B Sky B (BMO) / Capgemini / CGGVeritas / Continental AG / Exxon Mobil / Neste Oil / Kellogg / Goodyear / Colgate Palmolive / Mastercard / Motorola / Walt Disney / Sony / NTT DoCoMo / Nec
Dividend :
Events:

Friday
Results :Total / Vallourec / Schneider Electric / Michelin / Eiffage sales / Ciments Français / Italcementi / Assicurazioni Generali / CNP sales / JC Decaux / PPR / Rexel / Belgacom / SAB Miller / Enel / British Airways / Anglo American / Anglo gold / Chevron / Sun Micro
Dividend :
Events:Singapore Airlines AGM

ECONOMIC DATA PREVIEW

Watch in the United-States the release of the new home sales for June due at 15.00 GMT. New home sales are expected to rise by around 4.0% lead by the rise of household purchase power due to the Obama stimulus plan and to the effects of the drop of interest rates.

Keep an eye in France to the total jobseekers for June due at 17.00 GMT, expected to increase as domestic and foreign demand remained weak forcing companies to cut jobs./JB

ECONOMY

Euro zone: PMI manufacturing and services rise in July
After reaching an historical low at 33.5 in February, the PMI manufacturing, rose for four consecutive months, and rise again in July to reach the level of 46. This index which seems to have reached a low point is progressively recovering getting closer to the level of 50 marking the border between contracting and the expanding activity. Meanwhile, the indicator of the PMI services index also increase for the five consecutive month to reach a level of 45.6. Even if these data are encouraging they remained very fragile as explained below.

Germany: Significant increase of the IFO business climate
After reaching a low point in March at 82.2 the IFO business climate rise for three consecutive months. July revealed a new increase of this index from 85.9 to 87.3. Meanwhile IFO current assessment increase from 82.4 to 84.3 and IFO expectations rise from 89.5 to 90.4. This rise of industrial business sentiment suggest that the worst have passed in Germany after the sharp drop of the GDP at the first quarter (.-3.8%,-6.9% YoY). Nevertheless this improvements remained very fragile. Indeed if the euro and energy prices remained high and if the rise of commodity prices do not end the trend could be reverse.

United Kingdom: Sharp drop of the GDP at the second quarter
The sharp drop of the GDP at the first quarter (-2.4%,-4.9% YoY) did not mean that the UK economy reached a ground floor. Indeed the advanced released of the GDP for the second is particularly bleak (-0.8%,-5.6% YoY) and far worse than the consensus forecast (-0.3%,-5.2% YoY) Mainly based on finances the UK economy remained strongly hit by the effects of the credit crunch and at the opposite of the United-States it will take a long time before the economy recover.