Million dollar baby - 23-Jul-09

GLOBAL EQUITIES RESEARCH

The worst of the financial turmoil has passed. A week ago, Nouriel Roubini said ”There is light at the end of the tunnel, there is a bottoming out of the U.S. and of the global economy. And the light at the end of the tunnel for once is not an incoming train. In many ways, the worst is behind us in terms of economic and financial conditions”; Roubini also called for a second stimulus plan that should be in the $200/250bn range. If the next stimulus is too large, financial markets would start to get worried about U.S. fiscal sustainability, with severe negative consequences for bond markets. But long term rates remain subdued (U.S. 10-year Treasury rate at 3.54 %) and equities soar: yesterday, the Nasdaq composite index rose for a 11th session in a row and is now up 22.15 % Year-to-Date, while the S&P 500 semiconductor index (S5SECO) is up roughly 40 %. And many sectors fare better: healthcare, real estate services, investment banks & brokerage… No doubt fund managers will regard major indexes’ current level as an entry signal with, for example, a 1,000 pts target for the S&P 500 provided the major 956 pts resistance is broken up with increase of volumes and open interest.
The dollar is obviously on the downside for the short term. One major explanation may be the recent rise in oil prices (from $60 /bbl on July 13th to $64.25 /bbl yesterday). The EUR/USD exchange rate is now well above 1.42 (1.4234 this morning). With monetary policy on hold in all the major developed economies, relative interest rate differentials are not likely to play much of a role in driving exchange rates over the next year or so. The dollar might be seen as more vulnerable to the potential side effects of unconventional monetary policy than the euro. Anyway, there are six key reasons why the dollar should strengthen. First, the dollar is on the right side of fair value at around 5 % below its long run average on a real trade-weighed basis. The OECD currently pegs purchasing power parity (PPP) for EUR/USD at 1.17 (GBP/USD at 1.53, USD/JPY at 117); Second, relative growth differentials should offer some support. The upswing in the U.S. is likely to be weak – GDP growth of only 1.0 % in 2010 – but output in the euro-zone may do not better than stagnate. Third, the dollar has tended to move closely in line (inverted) with the oil price in recent years. Oil prices should keep being weak amid a weak recovery. This should help to shrink the U.S. trade deficit and support the U.S. currency. What’s more, the ongoing loss of risk appetite that is likely to accompany the lacklustre global economic expansion should further underpin the greenback. Fourth, credit easing should be viewed as more of a plus than a negative for the U.S. currency to the extent that it supports the economy and financial systems. Fifth, while many continue to worry about the U.S. currency losing its reserve asset status, the chances of a beefed-up SDR usurping the dollar are slim. Sixth, there are four main bulwarks against arise in U.S. inflation: depressed demand growth worldwide, especially in the U.S., tied to persistent deleveraging by American consumers and banks; large and rising excess capacity tied to that sharply lower demand (especially in the traded-goods sector); rising unemployment and stagnating real compensations; and finally, and most important, the Fed’s unshaken and unconditional commitment to price stability. As inflation fears have emerged, Ben Bernanke and the FOMC members have made clear their readiness to withdraw monetary stimulus quickly –should the need arise.
The latest U.S. housing data suggest that existing home sales (15.00 BST) have largely bottomed out, although that stabilisation masks the increasing importance of sales of foreclosed homes on the figures. The recent rebound in the pending home sales index suggests that existing home sales recovered to about 5.0m at an annualised pace in June. Meanwhile, the 3.6% rebound in US housing starts (data released on Friday 17th) to 582,000 annualised in June, from 562,000, would have been even stronger if not for a big drop in the volatile multi-family home starts category. In addition, starts in May were revised up to 562,000, from 532,000. The good news is that the end of the slump in housing activity may finally be in sight. But even after the rebound over the past two months, starts are still only a quarter of what they were at the height of the boom back in 2005. Housing should become less of a drag on economic growth in the second half of the year, even if housing is now a small part of the overall economy (probably 2.5% of GDP in Q2 compared with 6% plus in 2005).
Japan’s exports fell in June at the slowest pace this year (-35.7 % YoY vs. -40.9 %) as demand picked up worldwide, helping the trade surplus widen for the first time in 20 months. This morning (05.30 GMT) U.S. index futures were up: DJIA +0.43 %, S&P 500 +0.45 %, Nasdaq 100 +0.40 %.

ECONOMIC DATA WITH IMPACT

US earnings : 3M (MMM), AT&T (T), Bristol-Myers Squibb (BMY), Philip Morris Int'l (PM), Raytheon (RTN), Safeway (SWY), UPS (UPS), Wyeth (WYE), Xerox (XRX), Amazon.com (AMZN), American Express (AXP), Capital One Financial (COF), Microsoft (MSFT)
Jobless Claims (13h30 UK) expected 558k from previous 522k / interesting as it keeps improving the last few weeks, important as employment is the missing point to the current economic recovery / minor though as weekly data + earnings focus
Existing Home Sales (15h UK) expected 4.83 mn from previous 4.77 mn / should reflect that housing sector has been bottoming in the US / interesting

POSITIVE IMPACTS

ROCHE : H1 sales SFR24bn (23.56bn exp) / Operating SFR7.97bn (7.36bn exp) / Raised Genentech synergy target to SFR 1 bn (from 750-850m) / Said that 2009 sales in diagnostic & pharma divsions to grow well ahead of market
LOGITECH : Q1 sales $328m (310m exp) / Ebit $-32.9m (-43.6m exp) / Sees Q2 sales $465-485m (492m exp) /with return to profit
TECHNIP : Q2 revenue €1.73bn (1.57bn exp) / Operating margin 11.3% (9% exp) / Backlog €6.07bn / Raised FY revenue forecasts to $6.4bn from 6.1-6.4bn + lifted subsea op. margin forecast to 18% from 16-18% before
VEOLIA : French state-owned bank Caisse des Depots et Consignations, which owns 70% of Transdev, a French public transport operator, has decided to open negotiations with Veolia about a tie-up between Transdev and Veolia (Les Echos)
NESTLE-NOVARTIS : ALCON reported better Q2 results, boosted its own FY forecasts, but remaining in line with analysts views
CASINO : Mercialys (54% owned by Casino) raised its 2009 target for yoy growth in rental revenue & recurring op. cash flow to 15%
KPN : Q2 revenue €3.41 bn (3.48bn exp) / EBITDA €1.32 (1.26bn exp) / Interim Div €0.23, in line / Keeps 2010 EBITDA, free cash flow & dividend guidance / Lowered 2010 revenue outlook
DEUTSCHE POST : Q2 Rev. €11.07bn (11.5bn exp) / Adj EBIT €257m (203m exp) / Sees 09 net pft substantially above 08 level / Aims to reach €1bn cost saving in 2Q 2010 / Does not expect further deteioration in Biz in H2
CREDIT SUISSE : Q2 rev. SFR 8.6bn (8.5bn est) / PTP 1.6 bn (1.5bn est) / ROE 17.5% (12.2 % est) / Tier 1 Ratio 15.5% / Net new money 10.7Bn in wealth management 8.5bn (6.8 est) / Eco remains challenging
ING is seeking buyers for its private-banking biz in Europe & Asia (could be valued at more than $1bn)
ERICSSON-STM : Wireless chipmaker ST-Ericsson, the JV between STM & Ericsson, reported a wider Q2 operating loss but said markets were stabilising as destocking in the industry was largely over / Announced a new organization to further strengthen its technological leadership and integrate the operations further.
NATIONAL EXPRESS : Stagecoach was named by transport industry sources as the interested party after National Express confirmed receipt of a second approach (The Times)

EBAY : Q2 revenue $2.1bn (1.99bn exp)buoyed by growth at PayPal / EPS $0.37 (0.36 exp) / Sees Q3 EPS $0.34-0.36 (0.35 exp) with Q3 revenue at $2.05-2.15bn (2bn exp) / Saw some improvement across all of its properties

NEGATIVE IMPACTS

TELENOR : Q2 rev. NK 24.5bn (24.7bn e) / Ebitda NK7.82bn (7.60bn e) but announced a NK1.97bn impairment charge on goodwill in Telenor Serbia / Still sees 2009 organic rev. in line with 2008, although "on the negative side" / Cut slightly FY capex outlook
ABB : Q2 revenue $7.9bn, in line / Ebit $1bn (884m exp) / But Q2 orders $7.3bn (7.7bn exp) / Demand developments are still hard to predict for the rest of the year / Mid-term targets confirmed
UNIBAIL RODAMCO : H1 recurring EPS €4.68, in line / NAV €131.7 (139.1 exp) / Outlook unchanged for a more than 7% rise in recurring EPS over all 2009 / Confirmed it will distribute 85%-95% of its recurring EPS for the year
PORSCHE's board of directors in an all-night meeting endorsed talks to sell a stake to the Gulf state of Qatar and to boost its finances with a capital hike of at least €5 bn / Porsche also agreed with CEO and CFO on their dismissal with immediate effect
PUBLICIS : Q2 revenue €1.13bn, in line but Q2 org. growth down 8.6% (-7.9% exp) / H1 operating €287m (284m exp) / Said Q3 will show less deterioration than Q2 / Kept 2009 targets, eyeing negative sales growth but will outperform overall market
MOBISTAR (FTE) : H1 revenue €762m (757m exp) / Ebitda €278m (280m exp) / Outlook unchanged
ALLIANZ may have to inject another $1.5 billion into its US life insurance unit, as the unit faces a downgrade by rating agencies (FTD)
MEDIASET : Publitalia, Mediaset's advertising arm, saw an 11% drop in advertising revenues in the H1 / Said a turnaround could only be ascertained starting in September
EADS : Russian carrier Aeroflot said it was delaying the delivery of 5 new A320 family planes due to the fall in passenger numbers
CONTINENTAL's CEO accused Schaeffler of blocking attempts to merge the 2 companies (Manager magazin).

QUALCOMM : Q2 revenue $2.74bn (2.7bn exp) / EPS $0.54 (0.51 exp) / Sees Q4 revenue $2.55bn-2.75bn (2.71bn exp) / Said that CDMA inventories have stalilized, yet remains near historically low levels…

TRADING IDEAS

BUY DT BOERSE on reversal head & shoulder & VIVENDI / ENEL on island possibility
BUY BAYER ahead of results next week
BUY EDF / GSZ / AIR FRANCE / BOUYGUES / FTE / DTE / IBERDROLA to play economic recovery should be highlighted by the earnings season

BUY ALSTOM / SELL SIEMENS // BUY AEGON / SELL AXA orING // BUY DANONE / SELL NESTLE // BUY BAYER / SELL BASF // BUY DELL / SELL HEWLETT PACKARD

BROKER METEOROLOGY

ENSKILDA BANKEN RAISED TO HOLD FROM SELL BY CITIGROUP

CONTINENTAL AG CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
SKF CUT TO SELL FROM NEUTRAL BY GOLDMAN SACHS


DATA

WTI : 65,6 (0,66 %)
Eur/$ : 1,4237 (0,12 %)
$ /Yen : 94,22 (-0,71 )
10 Yr US : 3,55 ( 0,59 bp)
10 Yr Euro : 3,38 ( 1,1 bp)

Indices : US close ; Europe close
SOX : 2,65 %;2,02%
S&P :-0,05 %; 0,10 %
DOW: -0,39%; 0,09 %
NAS :0,53%; 0,41%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 0,01 %; -0,21 %
ENERGY : -0,96 %; -0,58 %
FINANCIAL : 0,05 %; -0,60 %
HEALTHCARE : -0,63 %; 0,22 %
TECHNO : 0,54 %; 0,49 %
TELECOM : 0,32 %; 0,53 %
INDUSTRIAL : 0,35 %; 0,48 %
UTILITIES : -0,49 %; -0,56 %

TO BE COMING

Today
Results :Saint Gobain (AMC) / ABB (BMO) / Technip (BMO) / Publicis / Lagardere sales / Telenor (BMO) / Credit Suisse / KPN / Roche (BMO) / Logitech / BroadCom / ConoccoPhillips / Stora Enso / Bankinter / Lonza / Scania / Stora Enso (BMO) Svenska Cellulosa / Skanska / Bristol Myers Squibb / King Fisher / Ford (BMO) / American Express (AMC) / AT&T (BMO) / Broadcom (AMC) / Xerox / Amazon / Mc Do / 3M (BMO) / Microsoft (AMC) / Union Pacific / Philip Morris Internat (BMO) / Manpower / Wyeth (BMO)
Dividend :
Events :

Friday
Results : Vodafone / United Utilities / Acciona / Danone / Ericsson (BMO) / Kesko / Saab / Ericsson / Metso / Merck KGaA / Syngenta (BMO) / Havas sales / TF1 / Telia Sonera (BMO) / Schlumberger (BMO) / Black & Decker
Dividend :
Events:

Monday
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

ECONOMIC DATA PREVIEW

Watch in the United-States the weekly release of the initial jobless claims and continuing claims due at 13.30 GMT, both data are expected to slightly increase as the labour market remained tense despite the progressive economic recovery.

Watch in the United-States the existing home sales due at 15.00 GMT, expected to rise for a third consecutive month led by the drop of prices and interest rates./JB

ECONOMY

United-States: House price index unexpectedly rose in May
After dropping in March (-1.3%) and April (-0.3%) US house price index unexpectedly rose by 0.9% in May (forecast
-0.2%). Increasing at the same pace than in January 2009, this is the highest rise since September 2005. Following the rebound of building permit and housing starts and the rise of the NAHB index this encouraging data is suggesting that the real estate market is slowly stabilizing. Nevertheless a point do not make a trend and its is important to wait for next house market statistics to have a confirmation of the smooth recovery.

France: Consumer spending rose more than expected in June
After declining by 0.2% in May French consumer spending rose by 1.4% in June (forecast +0.3%) the most in five months, led by the June discount sales. Indeed looking at the breakdown Household goods rose from -0.8% in May to 3.0% in June, textile and leather rose by 3.6% after declining by 1.4% in May and more generally the retail sector rose by 2.1%. On more time and like in January and March French consumer showed that there are very reactive to discount sales. For a long time wages have been disconnected to consumer prices in France and we are now seen a reconnection. It is important to bear in mind that household consumption account for 50% of the French GDP. If we add the unexpected rise (by 2.6%) of the industrial production we can say that there are signs of economic stabilization in France. Nevertheless these improvements are very fragile and can be reverse if the euro currency and energy prices remained strong and if the European Central Bank do not cut its leading rate according to the deflation situation and to the Euro area historical recession of the first quarter.