Altitude

GLOBAL EQUITIES RESEARCH
Another day of good news yesterday, or should we say another day of news, which we are now used to cheer as they are telling us we are getting out of the crisis, and the only question remains the speed of the economic growth to be expected in the coming years. Already the speed of the recovery, stimulus or not, is rather impressive and makes bear strategists postpone their Armagedon forecast for Q4 (which means in another life given the current market visibility, clearing out by the way a bit more every day).
The US housing market downturn appears to be drawing to a close. After falling by 32% since 2006, the Case-Shiller National index suggested that prices increased by a seasonally adjusted 1.4% in Q2. This is the first increase since prices started falling three years ago. The alternative FHFA index also suggests that prices have started to rise again. It recorded a 0.5% m/m increase in June. That 32% peak to trough decline had left housing looking slightly undervalued relative to incomes, so there is some scope for further rebound. The large inventory overhang and the weakness of mortgage applications are likely to constrain the recovery in prices for a start, but housing will now be adding to the GDP and will no longer be a drag, and the sector is joining the virtuous circle which makes any Armagedon forecast a pure fiction as time is passing by.
The important one this week was to be the Consumer Confidence, as any decline would have reinforce the view that the consumer is not part of the recovery for now, and being a so big component for the GDP a sustainable one would be far from safe. The Conference Board measure actually increased in August, from 47.4 in July to 54.1, reversing the decline of previous two months. This presumably reflects the recent surge in the S&P 500 above 1,000. Admitedly confidence remains well below its historical average of 95 and it has not even regained the level of 61 seen before the collapse of Lehmans almost a year ago. But the recovery is now happening on every front, starting with the manufacturing sector, going through the banks, which will be even more supported by the housing business increase, which with the equity markets rebound at a time of extremely low mortgage rates will boost households wealth effect, and might turn the so far artificial recovery into a complete and solid one.
Elsewhere, the news that Ben Bernanke has been nominated for a second term as Fed Chairman caused few ripples in the markets mainly as it was largely expected. But at the margins, the news that the deflation-conscious Bernanke is going to be at the helm for another four years provides tentative support that the zero-interest rate policy will remain in place until 2011 at the earliest. And this, once again is good news. Bernanke and Obama is the winning team to fight this rough moment, and they seem to own the weapon, the charisma, and the money to succeed in their mission.
Today's avalanche of news, ie good news, might keep the market very well supported, and make it move slightly but surely toward the pre Lehman levels 1200 on the S&P and 3200 on the cash Eurostoxx. Durable orders will be strong, and even stronger next month, while it makes no doubts anymore that the housing sector has been bottoming. (see eco data below)

ECONOMIC DATA WITH IMPACT

German Ifo business sentiment (09.00 UK time) expected up for a fifth consecutive month in August. Given further evidence of an improvement in global demand and signs in the hard data that Germany is starting to respond, the headline index should be rising from 87.3 to about 89.0 / minor as we already know Germany is doing well and its GDP will be positive in Q3 once more.
Mortgage Applications (12h UK) / previous was +5.6% / the higher the better / minor as weekly and volatile data
Durable goods orders (13.30 UK) expected +3% showing a strong rebound in July / ex transport +0.7% / Upside possibility to that consensus thanks to the continued improvement in the survey evidence – the ISM new orders index hit a two-year high in July – also pointing to another increase in core orders / expect a big rebound in the transportation sector. We already know that Boeing more than doubled the bookings it took last month while we suspect the success of the "cash for clunkers" scheme will also have prompted a rebound in orders for motor vehicles and parts / important, and should be even stronger next month
New home sales (15.00 UK) expected +386k from 384 previous / although July rebound is modest, it seems pretty clear that sales activity is passed the worst. Indeed, the current sales balance of the NAHB home-building index suggests that within three months the number of new home sales will have climbed from 384,000 in June to around 500,000 / interesting
Oil inventories (15h35 UK)
Atlanta Fed President Lockhart (16h30 UK)

POSITIVE IMPACTS

HEINEKEN : H1 rev €7.147Bn (6.94 e) / H1 Op pft €993M (927 e) / H1 Net pft €483M (446 e) / Co expects neg FX impact on result to be larger / Beer consumption decline to ease end 2009 / Interim Div €0.25
DAIMLER : Issues new € 2bn bond expiring 2014 with a 185 bp spread and a 4.65% coupon
NATIXIS : Q2 Revenue €568m (€750m exp) / Net Loss €883m (€-910m exp) / Has included an additional provision of €748m / / BPCE will cover €35bn of GAPC assets /Tier1 ratio 9.3% & core at 8.2% / Affirms return of profit in 2H2009 / Says 2012 ROE is over 12%
ING has asked for final bids for its private banking operations and is seeking about $1.8bn (Source) / At least 6 bidders are interested according source.
FRENCH BANKS : BNP, GLE & ACA have signed up to the new rules. It includes deferring traders’ bonuses over 3 years, paying 1/3 of awards in shares, and imposing strict LT performance criteria in order to receive full payment. The govt has also appointed bonus watchdogs at banks that have received state aid
SWISS LIFE H1 Total income chf10.2bn (10.9 e)/ H1 Gross Written Premiums chf10.387bn (sfr10.75bn e) / Net Profit chf172m (162m exp) / Solvency ratio 155% (in line) / Press conf at 8:00 UKT
SUEZ ENVIRONNEMENT H1 Revenue €5.87bn (In line) / EBITDA €951m (€926m exp) / Confirms 2009 Free cash flow target above 2008 / Sees overall stability in 2009 Sales & EBITDA vs Previous goal of low single-digit growth
GAZPROM Q1 Sales Rubles931bn (912bn exp) / Net income 104bn (75bn exp)
WPP : H1 rev £4.29Bn (4.32e)/ LFL Rev –8.3%(-7.8% e)/EBITDA £455.7M (434 e)/ Interim div 5.19p/Evidence of stronger order book

NEGATIVE IMPACTS

ROCHE failed to win expanded use for its Avastin tumor drug in the U.K. after the country’s medical spending adviser said the treatment and others cost too much to use in the most common type of kidney cancer.
SANOFI : Patients with a particular gene variation are 2 times more likely to have a heart attack or stroke while taking the Plavix than those without the variation, according to a study to be published Wednesday in the Journal of the American Medical Association
BAYER : Britain's healthcare cost-effectiveness watchdog has rejected an appeal to make 3 drugs available to kidney cancer patients on the state National Health Service (NHS).
TUI will be replaced by Aixtron AG (AIXG.DE) in its Dow Jones STOXX 600 Index on Sept 21.
INBEV plans to raise beer prices in most U.S. markets later this year to help cover some input costs
LLOYDS may have to write off £500m on loans made to Admiral Taverns Ltd (FT reported) / Impression of “Déjà vu”
GERMAN BANKS : German Fin Minister Peer Steinbrueck said the govt may need to pump more money into credit markets if measures by the banks aren’t sufficient to feed the economy (Handelsblatt)
HYPO REAL ESTATE needs up to €7bn of new state aid (Bild reported)
RBS has delayed the sale of assets in India, China and Malaysia after an initial round of negotiations with STAN failed (Mint reported)/ Separatly ABN says to file legal demerger documentation with the Dutch chamber of commerce in September 2009....Legal separation from RBS still aimed to be achieved by the Year-end
ANTOFAGASTA : H1 rev $1.18Bn (1.195e) / H1 EPS 23.9cts (25.8 e)/ DIV 3.4 cts / To increase copper prod by over 50% to ~700k t from 2011 / Short term outlook remains uncertain

TRADING IDEAS

BUY Retail names as AHOLD (to play island possibility) / CARREFOUR & L OREAL (ahead of results) / METRO
BUY Cars such as RENAULT / PEUGEOT & BUY OIL names such as BP / TOTAL / ENI on eco recovery
BUY NOKIA / ERICSSON on double bottom possibility

BUY AEGON / SELL MUNICH RE // BUY AHOLD / SELL UNILEVER // BUY NOVARTIS / SELL ROCHE // BUY VINCI / SELL LAFARGE // BUY EDF / SELL EON // BUY INTEL / SELL TEXAS // BUY CONOCOPHILLIPS / SELL CHEVRON // BUY GENERAL ELECTRIC / SELL 3M

BROKER METEOROLOGY

DIAGEO RAISED TO OVERWEIGHT FROM EQUALWEIGHT ....................... BY MORGAN STANLEY

FORTIS CUT TO HOLD FROM BUY BY ING
LINDT CUT TO HOLD FROM OVERWEIGHT BY JP MORGAN
CADBURY CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
SOLVAY CUT TO NEUTRAL FROM BUY BY UBS
CRH CUT TO NEUTRAL FROM BUY BY UBS
KBC CUT TO NEUTRAL FROM OUTPERFORM BY EXANE
KLEPIERRE CUT TO NEUTRAL FROM OUTPERFORM BY EXANE

DATA

WTI : 72,1 (-2,60 %)
Eur/$ : 1,4295 (-0,01 %)
$ /Yen : 94,17 (0,03 )
10 Yr US : 3,45 ( 1,28 bp)
10 Yr Euro : 3,27 ( -3,6 bp)

Indices : US close ; Europe close
SOX : 0,53 %;0,70%
S&P :0,24 %; 0,80 %
DOW: 0,32%; 0,85 %
NAS :0,31%; 0,69%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,87 %; 0,58 %
ENERGY : -1,43 %; -0,10 %
FINANCIAL : 1,08 %; 1,45 %
HEALTHCARE : 0,38 %; 0,56 %
TECHNO : 0,13 %; 0,52 %
TELECOM : 0,17 %; 0,79 %
INDUSTRIAL : 0,49 %; 1,08 %
UTILITIES : -0,47 %; 0,05 %

TO BE COMING

Today
Results :Suez Env sales / WPP / Natixis / Heineken / Corio / Dexia / Antofagasta / Irish Life / Swiss Life / Abengoa / Gazprom
Dividend :Intercontinental Hotels (GBp 8,111111) / QUALCOMM ($ 0,17)
Events :Semi conductor conf at Morgan Stanley

Thursday
Results : Accor / L'Oreal / Credit Agricole / Bureau Veritas / Premier Oil / SeaDrill / Baloise / Casino / Diageo / Cimpor / Essilor / Bouygues / Fortis / GDF Suez / Natixis / Ingenico / OZ Minerals / Lagardere / Dell
Dividend : Time Warner ($ 0,1875)
Events:

Friday
Results : Carrefour / Aegis
Dividend : France Telecom (€ 0.60) / Lockheed Martin ($ 0,57) / McDonald's ( $ 0,5)
Events :

Monday
Results : Vinci (AMC) / Eiffage / Wendel / Sun Microsystems
Dividend :Halliburton ($ 0,09) / Schlumberger ($0.21)
Events:

Tuesday
Results :Vivendi (BMO) / US car sales
Dividend : Banco de Sabadell (€ 0,07)
Events:Global Industrials Conference at Morgan Stanley

ECONOMIC DATA PREVIEW

In the United States, watch the Durable goods orders (13.30 GMT) for July expected to increase significantly from -2.5% to +3% lead by the incentive in the car sector. Meanwhile durable goods orders excluding transportation are expected to slightly decrease from +1.1% to +0.9%.

In Germany, watch the IFO business climate (9.00 GMT) expected to rise for a fifth consecutive month in August after reaching a low point in March 2009, confirming the progressive recovery in Germany.

ECONOMY

United States: Conference Board consumer confidence rebounded in August
After rising from 40.8 in April to 54.8 in may the Conference Board consumer confidence retreated for the next two months to reach 47.40 in July. August release revealed a much better figure than expected as the consumer confidence reached 54.10 (expected 47.9). Looking at the breakdown the Present Situation index increased slightly to 24.9 from 23.3 last month mainly lead by consumer’s assessment of the job market and the Expectations index improved from 63.4 in July. to 73.5 the highest level since December 2007. Nevertheless consumer confidence improvement needs to be putted into perspective looking as the data before Lehman Brother Bankrupty was showing an average level of 63.7 between January and September 2008.

Germany: The final release of the GDP for the second quarter confirm the progressive recovery
After slumping to an historical low at the first quarter (-3.5% QoQ, -6.7% YoY) German economy is progressively recovering as showed by the final release of the German GDP for the second quarter at +0.3% QoQ, -5.9 % YoY confirming the preliminary release. German’s GDP has been significantly lead by government spending increasing by 0.4% since the first quarter boosting private consumption which gained 0.7%. Meanwhile gross fixed capital investment rose by 0.8% and construction increase by 1.4%. Machinery equipment rose from -18.5% at the first quarter to -0.5% and exports rose from -10.5% to -1.2%. Nevertheless as Germany starts 2009 with a “growth deficit” of 2% the GDP in volume should contracted by 4.9% this year the sharpest contraction since the German reunification