General Electroshock - 17-Jul-09

FROM GLOBAL EQUITIES RESEARCH:

Confirmation that things are getting better in the US a bit more everyday. Yesterday’s better earnings from JP Morgan Biogen, Baxter, Marriott in addition to the previously Goldman, Intel, Johnson & Johnson ones, brought more clues that might trigger a switch from most banks’ strategists still awaiting new lows on the idea that the March rally was a bear one before collapsing again. Greenspan’s Testimony and many other earnings releases will be the focus next week, and should hardly counter that view. Even the jobless claims came out better than expected, keeping in mind that the biggest improvement for the job sector should happen in September, as seasonal workers did spoil the reports according to the ISM job components more reflecting a 100/200 job destructions vs the 450k seen through the non farm payroll earlier this month. Today should hardly bring enough bad news to prevent overweight cash fund managers to jump in as soon as next week.
Today’s Housing starts could well be friendly when looking at the NAHB data out last night on 17 level. It did fit with the higher mortgage applications data out earlier this week. The paradox once again being that the reason for the June equity consolidation are a boost for the current equity level. Investors jumped into yield market back again, which drove the 10 year yield from 4% to 3.3% (trading 3.50 yesterday on the T notes) with the mortgage rates impact that comes with it, which supports the housing sector and will add to the safety of the current economic recovery.
Europe might be lagging, but we never believe in a possible disconnection between the US and the rest of the world, especially when talking about similar developed countries and not emerging ones, with the former being 14 trillion dollars GDP vs Germany 2.9 trillions, just behind China (3 tn), with France and Germany weighting half of the European GDP. The upshot is that the weak dollar combined to the high reactivity from US officials are making the road to success a safe bet at this stage in the US. Even more as Obama made the job hiring, and so the economic recovery, a mandate focus. The n°1 heavy weight economy back on track will be profitable for everyone, and should pull Europe behind, while the Chinese economy will remain strong until 2011 for sure, being sponsored by the government until that date.
Today’s focus will be GE, very much reflecting the wide economic landscape. The other names might be more story specific, especially Bank of America and Citigroup suffering from rumours of inquiries from the government inside the management. But already, the nice banking sector reports are very promising for the housing stability, both sectors being responsible for the nightmare we just escaped. A solid frame from the banks and the housing sector is another guarantee that the recovery will be sustainable.
A matter of days, if not a matter of hours before the 2549 are broken on the cash Eurostoxx, which would be very stimulating for the non believers, and trigger some equities inflow which will be very supportive. An estimation would say that out of 3 trillion dollars sleeping in monetary funds following the “cash is king rule”, not even 1tn did enter the equity business. 2500 big resistance for today. Target 3400 area on the Eurostoxx once the misprice is granted. What we play here is the end of the bear market which started in March 2000 after the Eurostoxx reached 5522 at that time, falling at 1847 in March 2003 to rebound on 4572 July 2007 and reach new low last March at 1765, under the pressure of hedge funds redemption selling everything whatever the price more than because of the macro background. Upside gap to be closed on the Nasdaq between 1905/1945 which IBM better earnings out last night will help to close.

ECONOMIC DATA WITH IMPACT

GE earnings (11h30 UK) / conf call 13h30 UK / comments will be interesting and important in term of economic reading
Bank of America Merrill (12h30 UK) / conf call 14h30 UK / not as important as GE in term of economic and market impact as we already
had Goldman and JP Morgan
Citigroup (13h UK) / conf call 16h UK / might not be as good as the others given the latest rumours that the government is secretly enquiring inside the firm
Housing Starts & Building Permits (13h30 UK) expected 530k & 524k from previous 532k & 518k / likely to provide more evidence that the recovery in housing activity is taking place / interesting
Option expiries (monthly)

POSITIVE IMPACTS

ESSILOR : H1 sales €1.66 bn, in line / Confirmed H1 operating margin at the same level as 2008 / Conf call 0800 UKT
VEDANTA RESOURCES is in talks with European & Japanese steel producers to find a JV partner in the steel sector (Biz Standard)
BALOISE said it will revamp its swiss business to boost growth and earnings
LUFTHANSA has submitted a new offer to the EC aimed at tackling antitrust concerns over the its plan to buy Austrian Airlines
LANXESS stuck to its profit target for the Q2 but repeated that weak demand could persist into next year (Swiss investor magazine)
ELISA : Q2 revenue €355 m (359 m exp) / EBITDA €116 m, in line / Repeats sees 2009 sales, underlying profit flat or slightly lower y/y
C&W : EBITDA guidance is unchanged from 21 may 2009
TIETOENATOR : Q2 sales €444.8 m (436 m exp) / Operating €10.4 (1 m exp) / Repeats 2009 outlook / Small readacross CAP GEMINI
FORTUM: Q2 Sales €1.19bn, in line / Underlying Ebit €400m, in line / Repeated in good position to handle challenging market
BRITISH AIRWAYS is seeking to sell its OpenSkies airline (Daily Telegraph)
EDISON launched a €700 m, 5-year bond yesterday & said orders for the bond were in excess of €7 bn
ACTELION said tests to treat pulmonary arterial hypertension patients showed good results & the phase III trial will be launched 2010

IBM : Q2 revenue $23.25bn (23.47bn exp) / EPS $$2.32 (2.02 exp) / Sees FY EPS $9.70 (9.20 exp) on continued margin improvement
GOOGLE : Q2 revenue $4.07bn, in line/ EPS $5.36 (5.08 exp) / However, said that Q3 will likely be affected by summer seasonality

NEGATIVE IMPACTS

SWEDBANK : Q2 Total Income SK9.23bn, in line / NII SK5.24bn (5.7bn exp) / Op. loss SK1.85bn (-1.25bn e) / Impairment losses on loans SK6.67bn (5.99bn exp) / Tier1 ratio 11.3% / Sees the downward trend to continue for some time
SANDVIK : Q2 sales SK18bn (18.4bn e) / PT loss 2.44bn (-2.84bn e) / Order intake SK16.5bn (17.1bn e) / No improvement so far
CARREFOUR : Q2 sales €23.40bn (23.6bn exp) / LfL hypermarket sales down 1.4% in H1, but stable market share / Q2 France sales fall 3% / Does not see short-term market improvement but believes strategic initiatives should show positive results in the H2
ACCOR : Q2 revenue €1.79bn (1.84bn exp) /H1 LfL sales -8.1% / H1 hotel sales -9.6% / Prepaid services sales growth slowed to 0.5% (Dissappointing) / Does not see short term market improvement
ADP : The airport operator said that passenger traffic in June was down 5.7% compared to a year ago
K+S : Canadian peer Potash said that NorthAm potash inventories continued to rise in June & are 115% above the prior 5-year average

CITIGROUP : The White House & Citi both denied a Fox Business report that President Obama visited Citi’s headquarters in NY yest.

TRADING IDEAS
BUY CHEVRON & TOTAL to play a possible oil pirces recovery short term and economic growth coming
BUY DANONE on its way to close its gap
BUY RENAULT & PEUGEOT to play recovery on track + Killed +oil prices + switch to electrical cars ready to go very soon
BUY AIR FRANCE to play economic recovery should be highlighted by the earnings season + time is a great heeler, the crash impact will fade

BUY BAYER / SELL BASF // BUY PEUGEOT / SELL DAIMLER // BUY SAP / SELL PHILIPS // BUY TOTAL / SELL ENI // BUY AEGON / SELL ING

BROKER METEOROLOGY

NOVARTIS RAISED TO OVERWEIGHT FROM NEUTRAL BY JP MORGAN
BG GROUP RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
INTEGRA RAISED TO HOLD FROM SELL BY ING
PUBLICIS RAITED NEW OVERWEIGHT BY HSBC
BMW RAISED TO NEUTRAL FROM NEUTRAL BY NOMURA
VALEO STARTED AT BUY. BY UBS
ORLIKON RAISED TO NEUTRAL FROM SELL BY UBS


NOKIA CUT TO NEUTRAL FROM BUY BY UBS
REPSOL CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
ROSNEFT CUT TO HOLD FROM BUY BY ING
EDP RENOVAVEIS CUT TO HOLD BY CITIGROUP
SURGUTNEFTEGAZ CUT TO HOLD FROM BUY BY ING
ACERGY CUT TO UNDERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
SEVERN TRENT CUT TO UNDERWEIGHT FROM EQUAL BY MORGAN STANELY

DATA

WTI : 61,6 (0,23 %)
Eur/$ : 1,4120 (-0,20 %)
$ /Yen : 93,63 (0,52 )
10 Yr US : 3,54 ( -3,07 bp)
10 Yr Euro : 3,34 ( -3 bp)

Indices : US close ; Europe close
SOX : 1,93 %;0,10%
S&P :0,86 %; -0,39 %
DOW: 1,11%; -0,12 %
NAS :1,19%; -0,04%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 2,55 %; 0,66 %
ENERGY : 1,04 %; -0,42 %
FINANCIAL : 0,03 %; -1,47 %
HEALTHCARE : 0,81 %; 0,05 %
TECHNO : 1,61 %; 0,23 %
TELECOM : -0,30 %; -0,68 %
INDUSTRIAL : 1,74 %; -0,11 %
UTILITIES : 0,24 %; -0,77 %


TO BE COMING

Today
Results :Pernod Ricard trading statement / Atlas Copco / Invensys interim / Fortum / Alleanza Assicurazioni / Sandvik (BMO) / Maroc Telecom sales / Bank of America - ML / Citigroup (12.00 GMT) / General Electric (10.30 GMT)
Dividend :
Events :Novartis AGM / Cable & Wireless AGM / Dell AGM

Monday
Results : Boliden / Texas Instrument (AMC) / Halliburton
Dividend :
Events: Wyeth AGM

Tuesday
Results : Hermes sales / Iberdrola Reenovables / Nordea / Svenska Handelsbanken / Nordea Bank / OZ Minerals / AMD (AMC) / Apple (AMC) / Caterpillar (11.30 GMT) / Dupont (BMO) / Lockheed Martin (BMO) / Merck & Co / Schering-Plough (BMO) / Coca Cola Co / United Technologies (BMO) / Yahoo! (AMC)
Dividend :
Events :

Wednesday
Results : Fiat / Glaxo Smith Kline / Iberdrola / BHP Billiton production / Ingenico sales / Tele 2 / TomTom / Norsk Hydro (BMO) / Sand Disk / Pfizer / Elli Lilly (BMO) / Morgan Stanley / Boeing (11.30 GMT) / Pepsi / Qualcomm / eBay (AMC) / Bank of New York / Wells Fargo (BMO) / Altria (11.00 GMT) / Qualcomm / US Bank Corp / Alcon (AMC) / Eli Lilly
Dividend :London Stock Exchange (GBp 17,77778)
Events:

Thursday
Results :Saint Gobain (AMC) / Technip (BMO) / Telenor (BMO) / Unibail Rodamco / Credit Suisse / KPN / Roche / Logitech / BroadCom / ConoccoPhillips / Stora Enso / Bankinter / Lonza / Scania / Bristol Myers Squibb / American Express (AMC) / AT&T (BMO) / Xerox / Amazon / Mc Do / 3M / Microsoft (AMC) / Union Pacific / Philip Morris Internat / Manpower / Wyeth (BMO)
Dividend :
Events: