THEY’ LL BE BACK- 21-Jul-09

GLOBAL EQUITIES RESEARCH

Another day yesterday adding to the half full glass which now does not seem to be so half empty anymore. Not only the few earnings releases were better such as Halliburton, but the U.S. index of leading economic indicators rose 0.7% in June, the third straight monthly gain, signalling that a recovery is very likely in the second half of the year. Over the past six months, the index has improved at a 4.1% annual rate, up sharply from a negative 6.2% rate in the prior six months. This is the fastest pace since the first quarter of 2006. The trend is consistent with a slow recovery this autumn, according to Ken Goldstein, an economist at the Conference Board.
Seven of the ten indicators increased in June . The positive contributors - beginning with the largest positive contributor - were interest rate spread, building permits, stock prices, weekly initial claims, average weekly manufacturing hours, index of supplier deliveries, and manufacturers' new orders for consumer goods and materials. The negative contributors were real money supply, manufacturers' new orders for non-defence capital goods, and index of consumer expectations. The coincident index fell 0.2% in June on continued weakness in employment and production. The lagging index fell 0.7% in the month. "All in all, the behaviour of the composite indexes suggests that the recession will continue to ease and that the economy may begin to recover in the near term," the Conference Board said. One thing to add being the positive wind at last blowing on equity indices no longer under pressure from hedge fund selling flows following redemptions, but on the other hand supported by strong US earnings which should bring confidence gradually back on the market which has clearly become an economic component on its own. The virtual circle is at last in place.
Things are improving but they are surely not perfect yet. While companies are topping earnings-per-share estimates, many are missing revenue estimates. "It's a tribute to corporate America's ability to keep a lid on costs and improve margins but also highlights the tough economic environment". But things have to start somewhere. Let's improve margins first, which most players did not think possible so early at that stage, and then business will spread thanks to higher confidence and spending, which will bring more volume and press firms to hire back again. This is a very logical and classic process which Obama and the Fed are familiar with, precisely the reason why they upgraded the growth forecast but stayed pessimistic about the employment forecast short term.
Big day today, with an avalanche of quarterly reports from companies including DuPont , Caterpillar and Continental Airlines. United-Health Group and Western Union are also on Tuesday's calendar, while technology firms Apple and Advanced Micro Devices are poised to report after the closing bell.
But also today Federal Reserve Chairman Ben Bernanke will head to Capitol Hill to deliver his semi-annual testimony to the House Financial Services Committee. Beyond wading through the mass of earnings reports slated for release during the next three weeks, investors are trying to decipher the potential impact of proposed health care and energy legislation now working its way through Congress. "While there is no doubt Mr. Bernanke will be reserved in his outlook, the Fed did just moderately upgrade their GDP forecasts and one imagines Mr. Bernanke will spend some time explaining why the Fed believes the economy will grow 2.1% to 3.3% in 2010 as opposed to 2.0%-3.0%, said an analyst who "expect Chairman Bernanke to present a more upbeat outlook on activity and inflation. The market will also be hoping for some guidance on what tools the Fed expects to use when the time eventually comes to put that quantitative easing into reverse. Although the Fed minutes from the last FOMC meeting revealed that the unwinding will be monitored by the monetary policy in adequation to the demand, and the bad loans will not be sold before a very long time.
Fundamental investors will gradually be back, even more as every day is feeding us with news, which on top of clearing us happen to be positive. Visibility has a price even more when it leads to some blue sky and clear road after such a rough ride. 2549 to be broken anytime on the cash Eurostoxx. Very friendly conditions with long term yields still trading in low attractive levels. Next step after the earnings festival being the coming up M&A deals which will be the next booster to the equity business.

ECONOMIC DATA WITH IMPACT

US earnings : DuPont , Caterpillar and Continental Airlines before the opening / Apple and AMD after the closing bell
Bernanke semi annual Testimony (15h UK) / might have to answer a few questions on the Fed’s handling of the financial crisis, particularly its role in the Bank of America takeover of Merrill Lynch. We already know the Fed is happy with the economic improvement and still expect some impact from the stimulus to come. As to inwinding of it, they already said they would use the monetary policy, and would sell the bad loans before a very long time. Minor then, focus earnings which are providing clues regarding the US economic pace ahead of the Q2 GDP ou t on Juky 31st.

POSITIVE IMPACTS

DIAGEO : China Investment took a 1.1% stake in Diageo worth $365 m (FT) The stake makes CIC Diageo's 9th-largest shareholder
HANDELSBANKEN : Q2 total income SK8.22 bn (8.11bn est) / NII SK5.64 bn (5.36bn est.) / Net commission SK1.86 bn (1.69bn est) Operating SK3.45 bn (2.92bn est) / Loan losses 939m (1.61bn est) / Liquidity situation has strenghtened further
NORDEA : Q2 NII €1.31bn (1.35bn exp) / Net com. €412m (402m exp) / Operating €818m (580m exp) / Loan losses €425m (449m e)
MORRISON said Q1 sales growth is well ahead of market views / Strong start to the year has been maintained through the Q2
SEVERN TRENT : Trading between April 1 and July 21 has been in line with its expectations
SABADELL is in advanced talks to buy the Florida commercial banking unit of Bank of New York Mellon Corp for just under $200m
INTESA SANPAOLO launched a €5.9bn securitisation of residential mortgages, which it underwrote completely
GAS NATURAL said it has sold electricity and gas distribution and transport assets to EDP for €330 m
ACTELION : Q2 revenue SFR449.6m (417m exp) / Ebit 158.3m (140m exp) / Confident will exceed initial guidance
NOVARTIS : U.S. regulators have approved Novartis' Tekturna HCT combination as an initial treatment for patients who are unlikely to respond sufficiently to a single drug
SPAIN : Spanish savings banks Unicaja and CajaSur have reached a 3-way merger agreement with Caja Jaen, which will create Spain's 6th largest savings bank in terms of asset volumes and the 5th largest in terms of deposits (State news agency EFE)

TEXAS INSTRUMENT : Q2 revenue $2.46bn (2.42bn e) / EPS $0.25 (0.22 ep) / Sees Q3 revenue $2.50-2.80bn (2.53bn e) + Q3 EPS $0.30-0.40 (0.29 exp) but said it needed to be prepared for slow to no growth for a while… / Expectations were already high after Intel…
LEGG MASON : Q1 revenue $613m, in line but EPS $0.35 (0.22 exp) / AuM totaled $656.9 bn as of June 30, up 4% during the quarter amid the stock market's rally, but down 29% from a year earlier

NEGATIVE IMPACTS

DBK is involved in a probe into possible criminal wrong doing after it hired detective to carry out surveillance of board members and shareholders / The affair risks damaging the reputation of the bank, especially in Germany, where corporate snooping & unauthorised use of data are viewed with particular hostility given the country’s history (FT)
VOLVO : Q2 sales SK54bn (55.9bn exp) / Operating loss SK6.89bn (-4.71bn exp) / FCF SK-2.9bn / Repeats FY09forecast for Europ. heavy truck mket down at least 50% & Northam heavy truck mket down 30-40% / Could impact RENAULT which owns 20% stake
CONTINENTAL may consider a €1 bn capital increase (FTD)
LUFTHANSA : The EU Commission said it will continue its talks with Lufthansa, indicating both sides have failed to strike any deal regarding Lufthansa's planned takeover of Austrian Airlines
PEUGEOT : FAURECIA reported H1 results = H1 sales €4.38bn (4.51bn exp) / Operating loss €187m (-3m exp) / May sales down 22% / June sales -16% / Sees a drop in its sales of around 10% in Europe and 35% in NorthAm in H2 with very slow recovery in 2010
NEXT sees consumer environment in the H2 similar to that of the H1 / Like for like sales in the H2 will be in the range of -3.5% to -6.5%
TEL. ITALIA (Minor) : Wind is no longer pursuing a merger with 3 Italia, but would consider it if 3 Italia decided to seek a tie-up with it (Sawiris in Corriere) / He added that Wind is ready to compete against TIT, Tim & Voda with the use of its more advanced 3G network

TRADING IDEAS
BUY AIR FRANCE / BOUYGUES / FTE / DTE / IBERDROLA to play economic recovery should be highlighted by the earnings season

BUY PEUGEOT / SELL BMW //BUY DANONE / SELL NESTLE // BUY BAYER / SELL BASF // BUY TOTAL / SELL ENI // BUY AEGON / SELL ING

BROKER METEOROLOGY

BRITISH AIRWAYS RAISED TO BUY FROM HOLD BY GOLDMAN SACHS

NOKIA CUT TO HOLD FROM BUY BY JEFFERIES
MERCK KgaA CUT TO HOLD FROM BUY BY DEUTSCHE BANK
METRO AG CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN

DATA

WTI : 63,7 (-0,55 %)
Eur/$ : 1,4201 (-0,21 %)
$ /Yen : 93,91 (0,52 )
10 Yr US : 3,59 ( -2,13 bp)
10 Yr Euro : 3,42 ( 1,7 bp)

Indices : US close ; Europe close
SOX : 1,25 %;0,37%
S&P :1,14 %; 0,56 %
DOW: 1,19%; 0,61 %
NAS :1,20%; 0,61%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 2,45 %; 1,34 %
ENERGY : 1,53 %; 0,58 %
FINANCIAL : 1,10 %; 0,99 %
HEALTHCARE : 0,46 %; -0,04 %
TECHNO : 0,97 %; 0,50 %
TELECOM : 1,43 %; 0,77 %
INDUSTRIAL : 1,96 %; 1,15 %
UTILITIES : 0,80 %; 0,39 %

TO BE COMING

Today
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 (BMO) / 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 (BMO) / 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) / Suedzucker (€0.40) / Colgate-Palmolive ($ 0.44) / Procter & Gamble ($0.44)
Events:

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

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

Monday
Results :Union Fenosa / Honeywell / Banco Popular Espanol / Thales / SSAB / Ubisoft / Amgen / Verizon
Dividend : ABB (CHF 0.48)
Events: