Growth Hormone

GLOBAL EQUITIES RESEARCH

The key event of the day is the release of the advanced U.S. Q2 GDP data (13.30 BST). The pace of decrease of the GDP certainly decreased sharply, with and expected drawback of 1.0 % QoQ at an annualized rate in Q2 vs. 5.5 % in Q1 and -6.1 % in Q1. The biggest drag on GDP growth is undoubtedly business investment, with consumption, residential investment and the inventory rundown 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. Today’s release will also incorporate the results of the 5-year benchmark revision to the GDP figures. Major methodological changes mean that those revisions could be very significant.
Is there a risk of the Chinese credit bubble bursting out? On July 15th, China reported a 7.9 % growth rate for Q2 2009 compared to the same period a year earlier. Meanwhile, China's stock markets are on fire, and its property markets are heating up fast as well. Shanghai's two stock markets are up 75 % and 95 % respectively so far this year. China's 8 % output growth target will be met because China's economic statistics are based on recorded production activity, rather than being a measure of expenditure growth--defined as the sum of consumption, investment, government spending, and net exports--as U.S. data are. The U.S. stimulus package, for example, attempts to boost GDP by undertaking measures that will boost consumption, investment, and government spending. China, however, decrees measures that will generate recorded increases in production spending. Part of the Chinese stimulus package involves large transfers of funds from the central-government planners directly to state-owned enterprises and to fixed-asset investment projects that are aimed at public works spending largely under its control. Chinese measures aimed at boosting demand growth to meet ambitious production growth targets intensified sharply at the end of Q2. In June, growth in the money supply measure known as M2 surged to 28.5 % YoY-up sharply from a 15 % rate at the beginning of the year, which was far more typical of the pace of money growth over the past decade. New loans by banks rose by about $1 trillion, or twice the expected rate, during H1 2009 and rose 34.5 % YoY in June from a 30.6 % growth rate in May. The worst outcome for China would be one that includes ever-rising inflation pressures, as money and credit flows augmented by "hot money" capital inflows push the inflation rate up to a level that threatens China's stability. That outcome would coincide with a likely bursting of the stock and property market bubbles that are inflating in China now on the hopes that a H2 recovery will validate China's goal of sustained 8 % growth in 2009.
Global equity markets are clearly on the upside. Q2 earnings are far better than analyst’s estimates: S&P 500’s Q2 earning estimates were revised to -25 % vs. -34 % earlier this month by analysts and they will certainly be revised again. “Green shoots” help the markets: a more positive Beige Book and weekly jobless claims below 600k again in the U.S., composite PMI up in the euro-zone, industrial production up +8.3 % in Q2 in Japan, are good incentives.

ECONOMIC DATA WITH IMPACT

US Q2 GDP data (13.30 BST) which is expected to have decreased by 1.0 % QoQ (annualized) vs. -5.5 % in Q1. /major.
Chicago PMI for July (14.45 BST) could move up to 42 from 39 pointing to an improvement in the manufacturing sectors, including car makers. /minor
Euro-zone, July’s CPI (10.00 BST) that will drop further in negative territory. German inflation fell from 0.0 % to -0.6 % and the Spanish rate fell from -1.0 % to -1.4 %. /minor
Euro-zone unemployment rate for June (10.00 BST) could rise from 9.5 % to 9.36 %. /minor

POSITIVE IMPACTS

FERROVIAL-CINTRA agreed to merge = Ferrovial will offer 1 of its shares for 4 Cintra shares / Shareholders will vote on the merger in Oct. / Ferrovial controls 67% of Cintra / Note that some Cintra minority shareholders requested a share swap ratio 1.5 at least
VALLOUREC : Q2 sales €1.08bn (942m exp) / Ebitda €238.5m (190m exp) / Anticipates a low point in activity in Q3 with destocking coming to an end / Promised deeper cost cuts in 2H after having cut operating costs by around €500m in 1H
PPR : H1 revenue €9.24bn (9.16bn exp) / Recurring operating income €707 m (€620 m exp)
SCHNEIDER : H1 revenue €7.8bn, in line / Ebita €726m (708m exp) / FCF €726m / Still targets 12% Ebita margin in 2009 and sees organic sales trend in the H2 in line with the level of the H1
L’OREAL : Q2 sales €4.4 bn, down 2.1% like-for-like (-2.4% exp) / Sees a gradual improvement in performance in the course of 2009
MICHELIN : H1 sales €7.14 bn (7.18bn exp) / Operating before non-recurring items €282 m (100m exp) / H1 FCF €575m / Said too early to talk about real upturn, but industry stocks have returned to more normal levels / Net debt down 10.7% at €3.82 bn at end-June
CNP : H1 revenue €17.6bn (17.1bn exp) / Ebit €877m (858m exp) / Embedded value per share at €70.9 / Solvency ratio 114%
UCB : H1 net sales €1.4 bn, in line / Rebitda €363m (295m exp) / Still sees FY revenue €3.1-3.3 bn, EBITDA of at least €680m
BELGACOM : H1 revenue €3bn, in line / Ebitda €994m (973m exp) / Still sees 1% revenue decline in 2009, EBITDA margin 32-33%
ENEL : H1 EBITDA €7.94 bln (7.67bn exp) / Net debt at €55.77 bn end June (56.3bn exp) / Sees FY results higher than in 2008 / The board will decide on 2009 interim dividend at Oct. 1 meeting / Plans to issue bonds up to €10 bn by 30 Jun. 2010
ANGLO-AMERICAN : H1 operating $2.1 bn (1.98bn exp) / Underlying EPS $0.91 (0.67 exp) / Net debt of $11.3 bn at 30 June 2009 (11bn exp) / Will not pay interim dividend
RENTOKIL : Q2 revenue £626m, in line / Adj. PTP £33.5m, in line / Greater progress than exp. on cost savings / FCF £116.7m
MEDIASET : H1 revenues €1.95 bn, in line / Net profit better / Stuck to guidance of lower FY 2009 operating and net result.
COMMERZBANK : Vontobel said it had agreed to buy Commerzbank's Swiss arm for an undisclosed amount / Separately, CBK is poised to sell its wealth management unit Bankhaus Reuschel to Conrad Hinrich Donner Bank
LUFTHANSA : Austria's Takeover Commission will grant Lufthansa its request for a deadline extension in its takeover of Austrian Airlines
HOCHTIEF : The consortium of which Hochtief's Australian Leighton unit is a member, has won a A$3.5 bn desalination project (press)

NEGATIVE IMPACTS

AIR FRANCE : Q1 operating loss €496m (-140m exp) / Strong liquidity at €5.7bn / Sees gradual H2 cargo activity stabilization but sees deterioration of passenger business in Q2 albeit at a slower pace…
BULGARI : Q2 revenue €218.3m (223m e) / Q2 loss €11m (-4m e) / Saw positive sales signals in July / Biggest problem is the US
VINCI : H1 sales down 3.2% to €15.2 bn, in line / Order book at end June +6% / Maintained financial targets
LAFARGE : H1 revenue 7.99 bn (€8.14bn e) / Operating €1.13bn, in line /Said that lower volume will pressure op. margins / Cut again its annual cement volumes growth forecasts = Sees volume in its markets down 4% to 8% overall from -2% to -5% before…
TOTALFINA : Q2 adj. Net income €1.7bn (1.66bn exp) / But prod. 2.18m boepd (2.22m exp) / Interim dividend €1.14, unch. & in line
ENI : Q2 adj. Ebit €2.55bn (2.52bn exp) / Adj. Net profit €900m (938m exp) / Q2 hydrocarbon output at 1.733 m boepd / Lowered interim 2009 dividend of €0.5/shr from €0.65 / Confirmed growth of FY hydrocarbon output at 2%
BRITISH AIRWAYS : Q1 revenue £1.98bn (2.02bn exp) / Operating loss of £94 m (-61m exp) / No visible signs of improvement
ALSTOM-SCHNEIDER : 5 other consortiums would be lining up for Areva’s T&D unit / An auction process is seen to star in September
THALES : As expected, Airbus urged airlines to switch a majority of speed sensors on long-haul jets to parts made by Goodrich in the wake of the Air France jet disaster / The move affects planes fitted with sensors manufactured by Thales
DBK’s CEO repeated that he doesn't see the financial crisis as over, and is awaiting a wave in credit defaults / Slumps in various sectors may stabilize in 2010, but still look far removed from a recovery (Die Zeit)
CONTINENTAL’s supervisory board approved a capital increase of as much as €1.5 bn aimed at stabilizing its finances / The fate of the CEO appears in doubt following the latest clash with Schaeffler Group.
GAS NATURAL : Repsol does not rule out reducing its about 30% stake in its Gas Natural affiliate if it needs to raise cash fast


TRADING IDEAS
BUY ALLIANZ / NOKIA / GSZ / VIVENDI / AMD on reversal head & shoulder
BUY YAHOO on double bottom possibility

BUY GLAXO / SELL ASTRA // BUY SWISS RE / SELL MUNICH RE // BUY HEINEKEN / SELL PERNOD // BUY PHILIPS / SELL SIEMENS // BUY AEGON / SELL AXA
BUY AMD / SELL INTEL // BUY BIOGEN / SELL AMGEN // BUY MARRIOTT / SELL LAS VEGAS SANDS // BUY DELL / SELL HEWLETT PACKARD

BROKER METEOROLOGY

TNT RAISED TO BUY FROM HOLD BY ING
KBC RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
LOGICA RAISED TO OVERWEIGHT BY MORGAN STANLEY
CAP GEMINI RAISED TO OVERWEIGHT FROM EQUAL BY MORGAN STANLEY
MORISSON RAISED TO NEUTRAL FROM REDUCE BY NOMURA
BT GROUP RAISED TO NEUTRAL FROM REDUCE BY NOMURA
EUROPE MEDIA STOCKS RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY CREDIT SUISSE
LOGICA RAISE DO BUY FROM UNDERPERFOR
DEUTSCHE BANK CUT TO EQUALWEIGHT FROM OVER BY MORGAN STANLEY
AIR FRANCE – KLM CUT TO SELL FROM HOLD BY RBS
RIO TINTO CUT TO NEUTRAL FROM OUTPERFORM BY CREDIT SUISSE
ACS CUT TO HOLD FROM BUY BY CITIGROUP
LANXESS CUT TO UNDERWEIGHT FROM NEUTRAL BY HSBC
ERSTE BANK CUT TO NEUTRAL FROM BUY BY UBS
MAN GROUP CU TO SELL FROM NEUTRAL BY UBS
REED ELSEVIER CUT TO HOLD BY DEUTSCHE BANK
LANXESS CUT TO UNDERWEIGHT FROM NEUTRAL BY HSBC
RUSSIA STOCKS CUT TO UNDERWEIGHT FROM OVER BY CREDIT SUISSE

MOODY’S CUTS BANCO SANTANDER PUERTO RICO SENIOR UNSECURED RATION TO A3 FROM A2
MOODY’S CUTS BBVA PUERTO RICO DEBT AND DEPOSIT RATINGS TO A3 FROM A2


DATA
WTI : 67,6 (6,54 %)
Eur/$ : 1,4135 (0,42 %)
$ /Yen : 95,37 (-0,22 )
10 Yr US : 3,64 ( 2,78 bp)
10 Yr Euro : 3,43 ( 0,6 bp)

Indices : US close ; Europe close
SOX : 0,13 %;1,38%
S&P :1,19 %; 1,90 %
DOW: 0,92%; 1,73 %
NAS :0,84%; 1,57%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 3,28 %; 3,78 %
ENERGY : 1,26 %; 1,58 %
FINANCIAL : 2,31 %; 2,79 %
HEALTHCARE : 0,18 %; 1,10 %
TECHNO : 0,51 %; 1,43 %
TELECOM : 1,00 %; 1,18 %
INDUSTRIAL : 1,94 %; 2,55 %
UTILITIES : 1,32 %; 1,55 %

TO BE COMING

Today
Results :Total / 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 / American Electric Power / Constellation Energy
Dividend :
Events :Singapore Airlines AGM / Nissan unveils new electric car on Sunday the second

Monday
Results : US car sales / Metro Group / Linde / Anglo American / HSBC / Arkema / Barlcays
Dividend : Banco Santander (€0,135234) / KPN (€ 0,23) / Xilinx ($0.14)
Events:

Tuesday
Results : BNP Paribas (BMO) / BMW / Beiersdorf / UBS / Givaudan / Statoil Hydro / Electronic Arts / Kraft Foods
Dividend :
Events :

Wednesday
Results : Soc Gen (BMO) / Fortis / Adidas / Allied Irish Bank / Swiss Re / Prudential / Lloyds / Carlsberg / OMV / Henkel / Activision Blizzard / Cisco Systems / Procter & Gamble
Dividend :Thomas Cook (GBp 4,166667) / Alcoa ($ 0,03) / Boeing ($0,42) / Intel ($ 0,14) / Pfizer($0,14) / Pfizer ($0,16) / Schering-Plough($0,065)
Events:

Thursday
Results :Deutsche Telekom / Portugal Telecom / Telecom Italia / Aviva / Commerzbank / KBC interim / Zurich Financial / Hannover Re / Ladbrokes / Unilever / Altana sales /CBS/ Comcast / El paso / AIG
Dividend : IBM ($0,55)
Events:American Superconductor AGM / Barclays General Meeting / British Airways General Meeting in relation to issue of £350,000,000 5.80 per cent Convertible Bonds due 2014



ECONOMIC DATA PREVIEW

Today in the United-States, watch the release of the first estimation of the GDP for the second quarter (13.30 GMT) that is expected to decline at a1.5 % pace following the 5.5 % drop of the first quarter. The US recession would probaly eased in the second quarter helped by the stimulus-related surge in government spending.

In the Eurozone, have a look at the estimate of the CPI (10.00 GMT) in July expected down again at –0.4 %

ECONOMY

United States: initial jobless claims
The US weekly initial jobless claims rose last week by 25 000 to 584 000 (the concensus expected 575 000 new claimants) from a previously revised 559 000. But the applications held below the levels of the last month where more than 600 000 claims were filed every week.

eurozone: the Economic Sentiment rose in July
The european economic confidence increased more than expected in July to 76 (the highest level since november 2008) from 73.2 (revised) in June. This good figure is a sign that this deepest recession is easing and that the growing confidence is an evidence that the worst of the recession has passed. Consumer, industrial and service sector sentiment all increased by a similar amount but remain at a low levels. But the recent hard data on industrial production, the continued rise in unemployment and tightening of credit conditions all suggest that this is too much to hope for and an actual expansion seems unlikely before the end of the year.