Action

Profit taking and new short positions were driving the equity indices the last two days, ignoring the nice productivity data,and playing the idea that most of the upside rally has been done, recovery or not. It's been a few time we picked up on such moves, short from Goldman nice data probably remember it very well. Fact is that we should profit from buying flows in the next few sessions more heavy in term of data news, while the last two days were empty in volume as much as in newsflow. The productivity data is too much connected with the GDP pace, it was obviously due out good, and played already through the Q2 GDP. Now is time for fresh data and updates, which might unfreeze new investors as these data will talk about Q3.
We are starting to see signs of positive feedback loops in the economy, in which positive numbers lead to more positive numbers. And this is what this week data, starting today with the trade Balance and the FOMC comments, tomorrow with the Retail Sales and on Friday with the Industrial production will be telling you. We very much agree with O'Sullivan and his boss at UBS, Maury Harris, who won the MarketWatch Forecaster of the Month award for the sixth time, based on their accurate predictions for 10 different U.S. indicators released in July. Looking to the future, O'Sullivan and Harris predict the economy will grow 2.5% in the third quarter and 3% in the fourth quarter. The economy will grow 2.6% in 2010 compared with 2009, they say. Their forecasts are slightly stronger than the consensus, but much weaker than the typical rebound of 7% or 8% growth that's usually been seen following very deep recessions. "It is a recovery, nonetheless," he said. "And it's sustainable." O'Sullivan acknowledges that growth might be a lot stronger or weaker than he expects. "There are risks on both sides," he said. "It's hard to be extra confident" in the forecast. Still, he thinks the factors that could supercharge the economy will be offset by other factors that will be a drag. On the upside, there's a massive amount of stimulus still in the pipeline. The inventory cycle could be "quite strong," he said. The cash-for-clunkers program shows how much pent-up demand there is for consumer durables. However, many households are still paying down debts, trying to deleverage. Banks are still tight with credit. Consumers could hold back on spending and try to push their savings rate higher, although O'Sullivan and Harris figure the current savings rate of about 5% is probably about as high as it will go.
The dollar should keep on improving, and the FOMC meeting today might even help. Since the credit crisis reached its peak, the dollar has tended to lose ground on favourable economic news and rallying equity markets, while rising on bouts of safe-haven buying on negative news and falling equities. The U.S. currency rose on Friday along with equities, indicating a correlation directly to the economic outlook may be reasserting itself. More typically, the dollar rises along with positive economic news -- and the potential for rising interest rates, boosting yields on the country's bonds -- as those qualities make a nation's currency more attractive compared to other countries where the growth outlook and interest rates may not be as appealing to investors. In that regard, the U.S. looks more likely to emerge from the recession before both Europe and Japan, making the dollar more attractive than the euro and yen. "If currencies were to trade on cyclical differences from here on, the U.S. dollar would be set for clear outperformance," said currency strategists, who expects the U.S. economy to grow 2.1% in 2010, which the euro-zone grows just 0.5%.
The Fed is also widely expected to allow its program of buying up to $300 billion in Treasurys to expire when that amount is reached, likely sometime in September. The practice of a central bank buying its own country's debt, one of several strategies known as quantitative easing, tends to devalue the currency because it often involves increasing the amount of money in circulation. "In the eyes of foreign exchange investors, this would be a first step toward 'normalization' of U.S. macroeconomic policy." "Such an announcement would be U.s. dollar-positive." Indeed, the British pound continued a slide since the Bank of England's unexpected decision Thursday to boost its quantitative-easing program. "If the Fed were to announce an increase in its Treasury purchase program, which is to be completed next month, it would be a surprise and while it might lead to a quick uptick in the bonds, it would likely undermine the dollar," said another strategist.
The Commercial real estate industry is likely to be high on the agenda when Bernanke and his colleagues sit down in Washington today for the FOMC meeting. Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid program designed to restore the flow of credit. If non-residential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy. The Fed is "paying very close attention," Bernanke told the Senate Banking Committee on July 22, the second of two days of semi-annual monetary-policy testimony before the House and Senate. "As the recession's gotten worse in the last six months or so, we're seeing increased vacancy, declining rents, falling prices, and so, more pressure on commercial real estate." Amid such glimmers of improvement, commercial real estate is a "particular danger zone," said Janet Yellen, president of the Federal Reserve Bank of San Francisco, in a July 28 speech. A dozen lawmakers questioned Bernanke on the topic during his July testimony. Some asked about extending the Term Asset- Backed Securities Loan Facility, the emergency program the Fed began in March to restart the market for securities backed by auto, credit-card and education loans. The central bank expanded the facility in June to cover as much as $100 billion in loans to support commercial mortgage-backed securities. Forty-one House members signed a July 31 letter seeking a one-year extension through December 2010 and asking for a decision by mid-August. Fed policy makers will prolong the program if they judge financial markets are still "some distance from normal operation," Bernanke said during his July 22 testimony. "We will certainly be monitoring the situation." The Fed likely will change the end date -- just not right away, said former central-bank Governor Lyle Gramley.
Things are improving, and this is as good as it gets and the only fact for now. Hard to predict the speed of the recovery, but bearing in mind the governments are deeply involved, their success depends on the recovery one, meaning they will hardly fail, and we should rather think strong than weak at this stage, since weak is already there, and already most players did not believe in any recovery at all a few months ago. The landscape can move very quickly, especially once the positive dynamic is set up. More data today, tomorrow with the Retail Sales and on Friday with the Industrial Production should wake investors up once again, and trigger short covering from the classic and healthy consolidation of the last two days.

ECONOMIC DATA WITH IMPACT

Trade Balance (13h30 UK time) expected -30 bn$ / a rebound in the quantity of oil being imported and the further climb in the oil price will be the main factor behind a reversal of the sharp narrowing in the trade deficit seen in May / the survey evidence suggests that both exports and imports should soon stop falling / nice underlying trend with business coming back, but should not impact much trading short term
FOMC meeting (19h15 UK time) / should not bring much new, but upbeat comments about the economy, while the stimulus should remain

POSITIVE IMPACTS

BHP BILITON : FY sales $50.21bn (49.8bn exp) / Underlying Ebit $18.21bn (17.4bn exp) / Nebt debt $5.6bn (6.2bn exp) / H2 div 41c Said developed economy restocking has started with China demand exceptionally strong for import-replacing domestic production
SWISSCOM : H1 revenue 5.92 bn SFR (SFR 5.9 bn SFR) / Ebitda SFR2.34bn (2.33bn exp) / Confirmed 2009 guidance
E.ON : H1 Sales €42.5bn (€44.9bn exp) / Adj EBIT €5.7bn (€5.5bn exp) / Net Debt €47bn / Sees FY Adj net income down 5-10% vs around 10% previously / Reiterated plans €10bn in asset sales by 2010 / Conf call at 1400 UKT
NOBEL BIOCARE : Q2 rev. €153.5 m (€158 m e) / Ebit €41.8m (34.2m e) / Said visibility remains low & does not allow reliable outlook
SAS : Q2 revenue SK12.2bn, in line / PT loss SK1.04bn (-1.14bn exp) / Plans 1K-1500 job cuts under new restructuring program
NOKIA & Microsoft plan to unveil a partnership to put Microsoft's Office software on Nokia mobile devices
THYSSENKRUPP is looking to sell its Blohm + Voss marine-related business (Hamburger Abendblatt)
PUBLICIS’ CFO said that Publicis' acquisition of Razorfish would be earnings enhancing from 2010-2011 onwards (expected)
REPSOL : CNOOC is still interested in buying a stake in YPF's Argentine, as it separately pushes to form a $15 bn JV Repsol
IBERIA : The board of Iberia has urged its chairman, to look for other merger alternatives beyond British Airways, so that a deal can be reached this year (El Economista) / Lufthansa and Air France-KLM are now emerging on Iberia's tie-up table
TIT‘s main shareholder TELCO is ruling out a capital increase to pay its loans (La Repubblica) / Telco has to pay some €2.7bn in loans, with expirations in Dec. and Jan. / The shareholders are working on the renegotiation of Telco's debt with a larger group of banks

NEGATIVE IMPACTS

NESTLE : H1 sales SFR52.3bn (52.7bn exp) / Org. grwth 3.5% (3.9% exp) / RIG 0.5% (0.7% exp) / Expects further EBIT margin improvement in constant currencies in 2009
ING: Q2 Underlying profit €229m (€653m e) hurt by €584m real estate revaluations / PTP insurance €278m (123m e) / Bk € -204m (-444m e) / Loan Loss Provision €852m (€776m e) / No Interim div. / Tier1 9.4% / Begins to see signs of recovery / Conf call 8:00 UKT
LANXESS : Q2 sales €1.24bn (1.21bn exp) / Ebitda €112m (110m exp) / Said customers have concluded destocking, but so far there is hardly a tendency to restock … / Sees Q3 EBITDA before special items around level of Q2 (120m exp)…
FRAPORT : July passenger volume down 3.3% / July cargo falls 10.4%
ERICSSON’s CEO said he does not see wireless operators cutting capex any further but added that signs of an recovery remain elusive.

TRADING IDEAS

BUY the Dollar & (Dollar names) such as STM the biggest European dollar related stock / Oils such as TOTAL / ENI/ EXXON to play US recovery on track which the Dollar should profit from.
BUY CARREFOUR / METRO / AHOLD to play retail sector recovery
BUY GSZ on reversal head & shoulder / BUY YAHOO on double bottom possibility

BUY LVMH / SELL PPRRE // BUY EDF / SELL RWE // BUY TOTAL / SELL BP // BUY VISA / SELL MASTERCARD // BUY EXXON / SELL CHEVRON

BROKER METEOROLOGY

JC DECAUX RAISED TO BUY FROM HOLD BY DEUTSCHE BANK
BG GROUP RAISED TO HOLD FROM SELL BY ING
UMICORE RAISED TO NEUTRAL FROM UNDERPERFORM BY EXANE

IBERDROLA RENEWABLES CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
EDP RENOVAVEIS CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
DEUTSCHE POST CUT TO HOLD FROM BUY BY CITIGROUP
MERCK KgaA CUT TO MARKETPERFORM FROM OUTPERFORM BY BERNSTEIN

DATA

WTI : 69,5 (-1,81 %)
Eur/$ : 1,4148 (-0,01 %)
$ /Yen : 95,52 (0,50 )
10 Yr US : 3,66 ( -0,77 bp)
10 Yr Euro : 3,47 ( -1 bp)

Indices : US close ; Europe close
SOX : -1,43 %;-1,21%
S&P :-1,27 %; -1,38 %
DOW: -1,03%; -1,17 %
NAS :-1,13%; -1,43%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,56 %; -1,26 %
ENERGY : -1,76 %; -1,24 %
FINANCIAL : -3,21 %; -3,27 %
HEALTHCARE : -0,29 %; -0,58 %
TECHNO : -0,99 %; -1,07 %
TELECOM : -1,28 %; -1,15 %
INDUSTRIAL : -1,22 %; -1,61 %
UTILITIES : -0,34 %; -0,55 %

TO BE COMING

Today
Results :Nestlé / BHP Bilitton / E.On / ING / TUI Travel trading statement / Swisscom / Lanxess / Sara Lee / Xilinx
Dividend :BT Group (GBp 1,222222) / Northumbrian Water (GBp 9,444444) / Wal-Mart Stores($0,2725)
Events :Heinz AGM / Xilinx AGM

Thursday
Results : Aegon / RWE / Premiere AG / SalzfitterTUI AG / Estee Lauder
Dividend :
Events: Prudential analyst meeting

Friday
Results : Hochtief / Thyssenkrupp
Dividend :
Events :

Monday
Results : Nexus / Michel Page / Vtech Holdings interim
Dividend :
Events:

Tuesday
Results :British Land / Vestas Wind / Hewlett-Packard / Home Depot
Dividend : Microsoft ($0.13)
Events:

ECONOMIC DATA PREVIEW

In United States watch the release of the Trade Balance for June due at 13.30 GMT. The US trade deficit is expected to widen at -$28.6bn after narrowed in May at -$26.0 bn.
Look also the Fed’s Open Market Committee meeting and the FOMC rate decision

In France, have a look at the Consumer Prices Index (7.45 GMT) for July expected to decline again by 0.8 % to their lowest level since World War II.
In Europe, keep an eye at the Industrial Production (10.00 GMT) expected slightly up 0.2 % in June from +0.5 % in May. From a year ago, the Industrial Production is expected to contract 16.4 % following the 17 % decline the previous month.

ECONOMY

United States: the productivity rose in the second quarter
The US NonFarm productivity rose in the second quarter more than expected (+5.5 %) by 6.4 % after a downward revision of +0.3 % in the first quarter. From a year ago, productivity was up 1.8 %. The output fell by 1.7 % and the employee hours dropped by 7.6 % after a 9 % drop. The unit labour costs have been weaker than expected. Labour costs decreased by 5.8 % annualised in the second quarter following a 2.7 % drop in the previous three months, or the second consecutive drop and the biggest since 2001. The consensus expected a 2.5 % decline. The expenses were down 0.6 % over the past 12 months or the biggest fall in five years.
Lower expenses is an encouraging step toward ending the big employment slump as companies need to fire fewer workers as sales stabilize.

United States: Wholesales inventories fell in June
The wholesales inventories declined in June for the tenth consecutive month led by a gain in sales. The stockpiles dropped by 1.7 % (versus –0.9 % expected) and following a revised drop in May. This pushing down of the wholesales inventories may set a stage for a return to growth as demand stabilize and sales continue growing.

United Kingdom: trade deficit widens in June
The UK’s trade in goods deficit widened in June to £6.4 bn from –£6.2 bn in May. The consensus expected the deficit to narrow at £6.2 bn. The total trade balance widened less than forecasted at -£2.2 bn from -£1.9 bn in May and £-2.3 bn expected. But deficit still appears to be on an improving trend if we look at the Q2 deficit that was smaller than in Q1. Meanwhile the exports rose 1.7 % in June.