Don't Worry be Happy

GLOBAL EQUITIES RESEARCH

Interesting week ahead in term of macro data as to measure the housing activity level. Housing, which led the economy into recession, may be one of the forces that helps to pull it out of the ditch. After 14 quarters of declining investment in homes averaging one percentage point of GDP per quarter, residential investments could actually add to the nation's gross domestic product in the third quarter, economists say. No one expects a renewed housing boom. But at least sales and construction spending aren't falling any more. There are a some signs of stabilization abound : Home builders are gradually becoming more hopeful, even though surveys show most builders are still very discouraged. The builders' housing market index has risen in four of the past five months. Housing starts have increased in four of the past five months after tumbling to a post-war record low. Building permits for single-family homes have risen at a 109% annual rate over the past three months. Sales of new single-family homes have risen three months in a row after falling to a record low in March. Sales of existing homes have risen four of the past five months, supporting by a government subsidy for first-time buyers and by sales of foreclosed homes. Three of these key housing indicators will be released in the coming week, with the fourth arriving a week later. Economists surveyed expect all four to continue to rise modestly

Today’s NAHB will be a good indicator as to evaluate the improvement in housing , so important to the economic recovery pace and its sustainability. Tomorrow’s Housing Starts will trigger some suspense too, while the PPI should be seen as non event since we already got the CPI out last week. Thursday’s Jobless Claims and Leading indicators will not be too much of a focus, but Fridays’ Existing Home sales might be market mover. The Federal Reserve Bank of Kansas City hosts its annual symposium in Jackson Hole this week. Fed Chairman Bernanke is scheduled to speak at the symposium on Friday.

Another key economic indicator is the market on its own. It will be interesting to see if it is able to sustain the level and keep on rising. It would, and will, bring confidence to households who prefer to refund their debts for now more than to spend. The market last week proved to be resilient, and managed to maintain its highs, ignoring both the Retail Sales and the Consumer confidence Michigan surveys which were disappointing given respectively the "cash to clunkers" stimulus and July's equity market rise. There might be a few reasons for that. The main one, probably, is the under invested fund management stance, which are taking opportunity for any consolidation to step in, screwing trading looking at catching the top in order to play the heavy amount of uncertainty which might, according to the street trading consensus, head to a market collapse. Another reason for the market resiliency might be that whatever July data, August ones will be much better as it will fully integrate the stimuli effect, as well as the latest booming equity indices rise. Also, who cares bad data, we now understood that according to the FOMC comments, the Fed and US officials will maintain a quantitative easing policy as long as things are not getting better, which means until the employment report is improving, hiring being the Obama mandate focus which Bernanke will serve fully. The base effect will now be very friendly (the economic shock happened last year mid October), and the valorisations will be very attractive when referring at 2010 pe. And last, a recovery is well taking place through the manufacturing sector, important and safe economic indicator, which sooner or later given what we just mentioned, should lead to a consumer recovery.

Earnings stories will be related to the housing sector too. With earnings season winding down the week ahead doesn't contain the market-moving quarterly reports or economic releases of the past few weeks, but one area sure to garner attention is the housing sector with Lowe's (LOW) and Home Depot (HD) which are set to report their latest earnings results. Like other retailers, both companies have cut costs, kept inventory lean and slowed their store growth after a collapse in the housing market and the recession dented demand for big ticket and non-essential items. Against the prospects of a still-tough quarter, analysts said they expect both companies' results to post potential upside after they lowered costs to help limit profit declines, echoing a theme common throughout the industry. With consumer sentiment improving and more shoppers increasingly taking on home repair and maintenance projects on their own, that also likely bodes well for the stocks. Lowe's and Home Depot "will need to show stable gross margin, tight expense control, and provide signs that merchandising initiatives are helping to offset some of the broader macro pressure". "This should provide confidence that estimates for the balance of the year have upside and more importantly, that earnings can grow in 2010 faster than current consensus." Other names of interest include prominent retailers Target (TGT) and Sears Holdings (SHLD), as well as widely-held names Deere (DE) and Hewlett-Packard (HPQ).

Nice bullish run ahead. Investors should gradually be coming back, which should make the rally more consistent. Temporary targets 1200 on the S&P, and 3200 on the cash Eurostoxx.



ECONOMIC DATA WITH IMPACT


Empire Manufacturing Index (13h30 UK time) expected 2.2 from previous –0.5 / minor as just a regional survey

US June Total net flows (14h UK time) / previous was –66.6bn$ / the highest the better / minor

NAHB Housing market index (18h UK time) expected 18 from previous 17 / interesting to measure the housing sector possible rebound, or at least stabilization, which would be good for the economic recovery pace


POSITIVE IMPACTS



EDF hired Barclays to prepare the auction of its U.K. electricity distribution network planned for next month(~£4Bn) (Sunday Times) / Separatly EDF would have cut elec. Prices for some 30k household & biz. Despite rate increase on Aug. 15 (Some of the biz. that will pay less were being targeted as clients by alternative providers such as Poweo…) (Les Echos)

VEOLIA may sell a £500M stake in its U.K. water biz. to Blackstone or Goldman (Sunday Times).

RWE has its eye on acquiring a majority stake in Polish power company Enea (FTD) / The financial sources said RWE has already submitted a bid for the 67% stake that Poland's gov. wants to sell. The newspaper put the value of stake at around $2.3bn

EON (minor) wants to sell its ultra-high-voltage German power grid by the end of this year, earlier than originally planned, (Spiegel)

RENEWABLE ENERGY plans to raise prices on its solar energy components next year, when it expects demand to pick up (CEO)

RDSA recently made an A$3 Bn takeover approach for Arrow Energy although the talks ended in stalemate (Sunday Telegraph)

SOC GEN & BARCLAYS Received a security license from Saudi Arabia’s mkt authority, allowing it to operate in the kingdom.

ALLIED IRISH BANKS : A possible investment in Co was the subject of discussions between an executive from the Canadian Imperial Bank of Commerce and Irish finance minister Brian Lenihan (Sunday Business Post)

ING : Indian financial services firm Religare Enterprises has submitted a non-indicative bid to buy the ING’s Asian private banking assets (Economic Times)./ Sepatly Co stopped marketing its European Infrastructure Fund partly because of “market conditions,” (the Independent)/Co hasn’t decided what to do with the fund’s 29% stake in Welcome Break & almost 25% of a wind farm project in Holland.

BNP : Taiwan Cooperative Bank may sell a 4%-5% stake and give a board seat to BNPto help enhance its corporate governance (Economic Daily News) / Taiwan Cooperative, which is around 36%-owned by the government, will seek the government's approval

SWEDBANK aims to exit state guarantee fund programme as soon as possible / says nothing changed in view on Co's outlook / Co. unveiled a $2.1 billion fully underwritten rights issue to bolster its balance sheet .

PORSCHE – VW : The planned merger of VW & Porsche may be brought forward to next year (Die Welt quoting VW CFO) / Separatly Qatar Holding said it would invest a total of more than €7Bn in buying a 10% stake in Porsche & cash-settled options in VW.

VOLVO AB :2nd-largest truckmaker, won’t join any investor group bidding to buy Volvo Cars from Ford., denying a newspaper report.

FIAT : Chrysler Group is planning to produce Fiat 500 subcompact at a Chrysler plant in Mexico (WSJ)

BAE SYSTEM denied a report that its supply chain is at risk from suppliers failing to obtain adequate credit

EADS : U.K. gov will lend Airbus $340m to help fund development of the A350 long-haul aircraft.

BHP – RIO : BHP CFO said that the Co's balance sheet can be leveraged up if the right acquisition target comes along / BHP's net leverage is currently ~12% & could probably be pushed out to around 35% to 40% while maintaining BHP's solid A-grade credit rating.

ENI (minor) has drawn up a shortlist of six bidders for gas wells in the Adriatic coast region and Pianura Padana (Corriere della Sera)

BRIT. LAND may sell half of its £2.3Bn Broadgate office complex to Blackstone (the Daily Telegraph)

METRO is ready to discuss a takeover of Karstadt department stores owned by insolvent retailer Arcandor AG

NOKIA : A U.S. International Trade Commission issued an initial determination in favor of Nokia in an action brought against it by InterDigital Inc (InterDigital alleged in its 2007 complaint that Nokia's 3G WCDMA handsets infringed on four U.S. patents)

SANOFI 's recently approved heart drug could play a role in reducing Canada's burgeoning health-care costs (head of Canadian ops)



NEGATIVE IMPACTS


UBS may disclose data on 4k to 5k American clients as part of the settlement agreement initialed by Switz. & the U.S. (Sonntag & NZZ)

DBK : Moody's Downgrades $310 M Of Alt-A Rmbs Issued By Deutsche Bank

SWISSCOM : The sales decline may continue in the coming years at the same pace as 2009 or ease somewhat (CEO)

GSK : Novartis has launched a legal action against Glaxo Smith Kline claiming that its larger rival is infringing one of its patents

BAYER filed a lawsuit claiming it’s entitled to patent royalties on the Simponi arthritis drug made by J&J Centocor unit. Bayer claims Simponi is made with a process covered by a patent it owns, and wants cash compensation (sales could reach over $1Bn a year)

DIAGEO: Sainsbury said it would vigorously fight a legal action from Diageo over the drinks copyright on alcoholic beverage Pimm's

H&M : July Total sales +7% (8.8% expected)



TRADING IDEAS


BUY the Dollar & (Dollar names) such as STM the biggest European dollar related stock

BUY MUNICH RE / ALLIANZ which consolidated and ready to resume their upside trend

BUY K+S on double bottom possibility


BUY K+S / SELL BAYER // BUY VINCI / SELL LAFARGE // BUY ENI / SELL ROYAL DUTCH // BUY LVMH / SELL PPR // BUY BAKER HUGHES / SELL HALIBURTON // BUY GENERAL ELECTRIC / SELL 3M


BROKER METEOROLOGY


ALPHA BANK RAISED TO BUY FROM HOLD BY CITIGROUP

RHEINMETALL RAISED TO BUY FROM NEUTRAL BY BANK OF AMERICA - MERRILL LYNCH


SWATCH CUT TO HOLD FROM BUY BY DEUTSCHE BANK

HANNOVER RE CUT TO HOLD FROM BUY BY CITIGROUP



DATA


WTI : 66,8 (-6,23 %)

Eur/$ : 1,4152 (-0,36 %)

$ /Yen : 94,63 (0,69 )

10 Yr US : 3,53 ( -3,54 bp)

10 Yr Euro : 3,32 ( -10,7 bp)


Indices : US close ; Europe close

SOX : -2,55 %;-3,01%

S&P :-0,85 %; -1,64 %

DOW: -0,82%; -1,61 %

NAS :-1,19%; -1,86%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -2,32 %; -3,26 %

ENERGY : -1,45 %; -2,22 %

FINANCIAL : -0,65 %; -1,92 %

HEALTHCARE : -0,33 %; -1,04 %

TECHNO : -0,98 %; -1,74 %

TELECOM : -0,34 %; -1,30 %

INDUSTRIAL : -1,61 %; -2,41 %

UTILITIES : -0,04 %; -1,01 %



TO BE COMING



Today

Results :Michel Page / Vtech Holdings interim

Dividend :Chevron ($ 0,68) / Honeywell International ($ 0,3025)

Events :



Tuesday

Results : British Land / Vestas Wind / Hewlett-Packard / Home Depot (BMO) / SBM Offshore / Cardinal Health / Petrobras

Dividend : Microsoft ($0.13)

Events: Sulzer EGM



Wednesday

Results : Telekom Austria

Dividend : HSBC Holdings (0,088889 GBp) / Informa (GBp 4.00) / Pearson (GBp 13,55556) / SABMiller ($ 0,466667) / BAT (GBp 31,00) / Scottish & Southern Energy (GBp 51,33333) / Scottish & Southern Energy (GBp 51,33333) / Thomson Reuters ($ 0,311111) / 3M ($ 0,51)

Events :



Thursday

Results : Ahold / Holcim / Heinz / Gap / Rio Tinto / Sears

Dividend :

Events:



Friday

Results :

Dividend : ArcelorMittal ($0,1875) / Goldman Sachs ($ 0.35) / Johnson & Johnson ($ 0,49)

Events:





ECONOMIC DATA PREVIEW



In United States watch the Empire Manufacturing Survey (13.30 GMT) in the New York region is expected up at 2.20 in August following –0.55 in July.



In Europe, look also at the Trade Balance (10.00 GMT) for July



ECONOMY



United States: Industrial Production increased in july

US Industrial Production rose for the first time in nine months led by the auto rebound. The US industrial increased more than expected by 0.5 % in July following a 0.4 % decline and +0.4 % estimated. The Manufacturing output (less mines and utilities) climbed by 1 % in July after having decreased by 0.6 % in June and the motor vehicle output surged by 20.1 % led by the “cash for clunkers “ stimulus plan and after a 2.4 % drop. The electronic and computers output rose by 0.6 %. The capacity of utilization increased by 68.5 % in July from its lowest level (68.1 %) since 1967 68.1 %.



United States: consumer prices unchanged in July

The US Consumer Prices as expected were unchanged in July following a 0.7 % in June. The Core prices (ex food and energy) slightly rose by 0.1 %. Energy prices retreated 0.4 % in July after a 7.4 % rise the previous month. But from a year ago, prices dropped 2.1 % (from –1.4 % in June) to their record lowest level and while Core prices advanced 1.5 % and the energy prices tumbled 28.1 %. Even if the economic situation is slowly improving, deflation remains a serious threat that Fed should focus on.



United States : University of Michigan confidence was down in August

The preliminary University of Michigan consumer confidence fell more than expected in August at 63.2 for the second consecutive month while consensus expected a rise at 69 and following 66 in July. This drop in consumer confidence is due to the falling employment, slowing wage growth and tight credit conditions.



Eurozone: consumer prices decreased more than expected

The July’s final figures confirmed that Eurozone fell even more in deflation. European consumer prices dropped more than expected (-0.6 %) by 0.7 % in July as food and energy prices decrease. Energy prices dropped by 1.8 % in July and tumbled from a year ago to a new record low of –14.4 %. Food prices retreated –0.4 %. From a year ago, prices dropped to a new record low of –0.7 % in July following an upward revision in June at –0.1 %. Ex-food and Energy, prices increased by 1.3 % in July, the lowest level in more than three years…