Friends

GLOBAL EQUITITES RESEARCH

Our friends today will be the Industrial Production and the Michigan Index. The Retail Sales survey was disappointing, which tells that for the moment the economic recovery is not leaning on a pick up in consumption yet. As the Fed suggested in yesterday's policy statement, it provided very little evidence that household spending is stabilising. The 0.1% m/m fall in sales is disappointing given the consensus forecast of a 0.6% gain, driven by the boost to auto sales from the "Cash for Clunkers" scheme. In the event, auto sales rose by just 2.4% m/m adding a mere 0.5 percentage points to sales growth.Admittedly, auto sales are likely to provide a much stronger boost to sales in the next few months. And the latest rebound in the gasoline price, after the fall in July that dragged gasoline prices down by 2.1%, will to support nominal sales too.

About the Industrial Production, The continuing rapid improvement in the survey evidence suggests that the recession in manufacturing may have ended in July. Moreover, we already know that the factory sector shed fewer jobs last month, while hours worked rebounded. The jump in the ISM manufacturing production index to a two year high is consistent with a modest recovery in output. Economists have pencilled in a 1.0% m/m increase in both industrial production and manufacturing output in July. We could see a particularly big rebound in motor vehicle output as Chrysler resumed some production last month and the retooling shutdowns actually began a month or two earlier this year, so the data will show increased production of vehicles that has more to do with the emergence of General Motors and Chrysler from bankruptcy than it does the government's subsidies. So, two key vital signs for the economy's health -- output and sales -- are getting a big boost from a sector that's been all but given up for dead : autos . This week, the economic data are showing that auto production and sales finally have turned around. A production recovery started with a bang in the month of July." It's not entirely due to the government's cars-for-clunkers program.

Industrial production today should rise for the first time in nearly a year, and for only the second time during this recession, now in its 20th month. Industrial production, of course, is one of four key indicators used to determine whether the economy is growing or shrinking (the others are payrolls, incomes and business sales). Industrial production plunged in the fourth quarter of 2008 and fell at a 19% annual rate in Q1. The Q2 was nearly as bad. Through June, output had fallen 15% from its peak in late 2007. Manufacturing output had fallen 17.5%, and the capacity utilization rate for factories dropped to the lowest on record. Autos weren't the only cause of the industrial collapse, but they were a big factor. Industries as diverse as electronics and glass are all dependent at some level on auto production. For years, auto sales had been kept artificially high by easy credit and very generous concessions from the automakers. When demand cooled, the automakers and dealers found themselves with millions of unsold cars. In an attempt to whittle down the inventories, production fell from a seasonally adjusted annual rate of more than 12 million vehicles at the peak in 2005 to just 3.95 million in June, far below the domestic sales rate of 7.19 million. And that was before the clunkers program.

Auto production will rise in coming months. It's not just autos that are doing better. Aerospace, construction materials, metals, plastic and rubber should also rise. In July, nine of 18 industries reported higher orders in the ISM index. In many industries, the story is similar to autos : Falling demand led to bloated inventories, which led to severe production cutbacks. But now inventories are matched more closely to demand, so production can resume again. That is the story of third-quarter growth.

About the Michigan Index, August's provisional estimate of the University of Michigan's measure of consumer confidence will show whether the fall in July - the first in five months - was just a blip related to the rapid surge in gasoline prices, or something more serious. After all, gasoline prices have been fairly stable over the past few weeks while the S&P 500 has breached the 1,000 mark for the first time since October. Even the housing market has shown signs of life, with some measures recording a rise in prices.

Some higher levels then to be expected for equity indices, and a lower than expected Industrial production data will be forgiven as next month will be much stronger. H2 is picturing an economic recovery, which will be translated into a sharp upside rally for equity indices (not saying a sharp economic recovery…yet). Strategists believe analysts are too optimistic, admitting though that if they were to be right then the equity market is cheap. So far, analysts have been wrong, true, they were too cautious ! The favorable base effect, in addition to the confidence gradually coming back, some possible inflows from US pension funds and some M&A deals asleep since two years coming back profiting from low yield environment should help the Eurostoxx reaching the 3200 level and the S&P 1200 very quickly.



ECONOMIC DATA WITH IMPACT


CPI (13h30 UK time) expected flat from previous 0.7% // ex food & energy 0.1% from previous 0.2% / The drop back in gasoline prices in July should be big enough to generate a monthly decline in the headline consumer price index and push the annual rate of inflation further into negative territory / The 0.7% m/m jump in consumer prices in June was mainly due to a 17.3% m/m spike in gasoline prices. With gasoline prices subsequently falling by 4% m/m in July, about a quarter of that increase should be reversed / Core prices increased by 0.2% m/m inJune, suggesting that there are few immediate signs of either deflation or accelerating inflation / minor as focus will be economic pick up possibility which we should attend through the Industrial Production in 45 mn

Industrial Production (14h15 UK time) expected 0.4% from previous -0.4% / important one as recovery from the manufacturing sector seems to be on track (see intro above)

Michigan Index (15h gmt) expected 69 from previous 66 / interesting as fresh August data / confidence is coming back which the equity market rise and the better employment report should feed even more


POSITIVE IMPACTS



INFINEON : Sistema could take an equity stake in IFX as part of an alliance between the 2 firms, (Kommersant)

̀HOCHTIEF : Q2 sales €4.7bn (4.9bn exp) / PTP €161m (145m exp) / New orders €5.7bn (5.6bn exp) / Outlook unch. / Considering an IPO for its concessions unit

SWATCH : H1 sales SFR2.48bn (2.45bn e) / Operating SFR345m (320m e) / Sees improving trend to continue in the months to come

BRITISH LAND would be a takeover target for a consortium of some of the richest families in the world (Lakshmi Mittal and Abu Dhabi's ruling family) / Possible bid for the property company could total up to £10bn pounds (Daily Telegraph)

AEGON completed bookbuilding for a €1 bn share issue, shares placed at €5.25 per share in Amsterdam and $7.50 on the NYSE

ERICSSON doubled its lead in the mobile network gear market in the Q2 as Nokia Siemens Network, lost share (researcher Dell'Oro)

MAN GROUP sold the rest of its shares in MF Global to Nomura / Man Group will receive proceeds of $112 m

VOLKSWAGEN agreed to buy a 42% stake in PORSCHE / VW will pay up to €3.3bn this year for an initial stake / To finance the deal, Volkswagen plans a capital increase of preference shares in the H110 / In order to alleviate Porsche's debt, Porsche's families will sell their automobile trading biz to VOW / The unit, with an EV of €3.55bn, will be sold by 2011 / Porsche also aims to raise capital in the H1 2011 / Lower Saxony will retain the right to block important decisions / Gulf state of Qatar will be the 3rd-largest investor in the new Co

CENTRICA extended its Venture offer deadline to 1.00 pm on Friday 28 Aug. / Has acceptances from about 40.8% of Venture shares

BNP is looking to sell its operations in Argentina (La Nacion) / Interested buyers include Standard Bank, Banco Itau and HSBC



NEGATIVE IMPACTS


THYSSENKRUPP : Q3 sales $9.3bn (9.48bn e) / PT loss €772m (-710m e) / Order intake €7.9bn (8bn e) / Confirmed gloomy outlook

DAIMLER : Creditors of Chrysler have won approval from a federal bankruptcy court to sue Daimler and pursue a claim that its 2007 sale of Chrysler stripped the U.S. automaker of its most valuable assets



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

BUY CARREFOUR / METRO / AHOLD to play retail sector recovery

BUY K+S / BEIERSDORF 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 // BUY VISA / SELL AMER EXPRESS // BUY EXXON / SELL CHEVRON


BROKER METEOROLOGY


SAFRAN RAISED TO HOLD FROM SELL BY CITIGROUP

KBC RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY JP MORGAN

ROYAL DUTCH SHELL TO BUY FROM SELL BY CITIGROUP

LOGICA NAMED THE BEST UK TECH PLAY BY MORGAN STANLEY

NORLISK NICKEL RAISED TO HOLD FROM SELL BY ING


AIR FRANCE – KLM CUT TO SELL FROM HOLD BY CITIGROUP

MISYS CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY

BANK OF IRELAND CUT TO SELL FROM HOLD BY UBS

RAIFFEISEN BANK CUT TO SELL FROM HOLD BY ING

ANGLO PLATINIUM CUT TO NEUTRAL BY BANK OF AMERICA - MERRILL LYNCH


MOODY’S CUT LONG TERM DEBT OF MAN POWER TO BAA3 FROMM BAA2 MAN POWER


DATA


WTI : 71,0 (0,35 %)

Eur/$ : 1,4271 (-0,15 %)

$ /Yen : 95,23 (0,42 )

10 Yr US : 3,60 ( 0,56 bp)

10 Yr Euro : 3,42 ( -3,2 bp)


Indices : US close ; Europe close

SOX : 2,19 %; 0,60 %

S&P :0,69 %; 0,20 %

DOW: 0,39 %; 0,02 %

NAS :0,53 %; 0,21 %



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 2,65 %; 1,68 %

ENERGY : 0,85 %; 0,27 %

FINANCIAL : 1,59 %; 1,13 %

HEALTHCARE : 0,07 %; -0,58 %

TECHNO : 0,98 %; 0,58 %

TELECOM : -0,19 %; -0,43 %

INDUSTRIAL : 0,41 %; 0,18 %

UTILITIES : -0,09 %; -0,51 %



TO BE COMING



Today

Results :Hochtief / Thyssenkrupp

Dividend :

Events :



Monday

Results : Nexus / 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:



ECONOMIC DATA PREVIEW



In United States watch the Consumer Prices Index for July (13.30 GMT) expected down to 0.0 % from +0.7 % in June. From a year earlier prices are expected to decline by 1.9 % from –1.4 % in June.

Watch the Industrial Production for July (14.15 GMT) that is expected to rise by 0.4 % after eight months decline (-0.4 % in June)



In Europe, look also at the Consumer Prices Index (10.00 GMT) for July that are expected down 0.6 % following a 0.2 % rise the previous month. From a year ago, prices are expected to decline by 0.6 % in July confirming that Europe fell in deflation.



ECONOMY



United States: advance retail sales dropped in July

The US advance Retail Sales unexpectedly fell in July by 0.1 % for the first time in three months, whereas the consensus expected a 0.8 % increase following a upward revision of +0.8 % in June. The auto sales rose by 2.4 % driven by the “Cash for Clunkers “ program

Excluding auto, sales of most of the sectors declined (Furniture –0.9 %, Electronics –1.4 %, Gasoline stations –2.1 %, Food and Beverages –0.3 %). The Retail Sales ex-autos dropped 0.6 %. But if we look at the Retail Sales ex-auto & Gas, they declined by 0.4 % for the fifth consecutive months. That means consumer spending that count for 70 % of the GDP is impacted by the unemployment, the fall in wages or the difficulty to obtain credit.



United States: mport prices declined

The US import prices declined in July by 0.7 % (+2.6 % in June) for the first time in six month. The import prices were drag down by the decrease in energy prices. Excluding fuel, prices fell only by 0.2 %. From a year ago, prices dropped 19.3 % in July following a 17.7 % decline in June.



United States : Initial jobless claims rose

The US new claimants for a job increased more than expected the week ended the August 8th by 4 000 to 558 000, staying below 600 000 for the sixth consecutive week. The continuing claims decreased to 6 202 Million the week ended the August 1st after rising to 6 343 000 the previous week.



Eurozone: GDP contracted at a slower pace in the second quarter

The Euro-area economy slightly contracted in the second quarter by 0.1 % for the fifth consecutive quarter after having declined by 2.5 % in the second quarter. This quite good figure was due to the French and German GDP that surprisingly expanded.

In France the GDP unexpectedly rose by 0.3 % (-0.3 % expected) in the second quarter after 4 quarters decrease (GDP fell 1.3 % in Q1) The exports that rose by 1 % in the second quarter after a 7.1 % drop in the first quarter drove the GDP growth and meanwhile the imports continued decreasing at slower pace by 2.3 % versus –5.8 % the previous quarter. The consumer spending also increased by 0.3 % from the first quarter led by the car stimulus plan while the investment by private companies fell 1.8 %. But the Inventories declined again by 0.6 % after –0.7 % in the first quarter. In a yearly basis the GDP growth is still negative and it contracted by 2.6 % in the second quarter following a downward revision of –3.4 % in the previous quarter.

In Germany, the GDP also grew by 0.3 % in the second quarter from a 3.5 % drop in the first quarter. From a year earlier GDP contracted 5.9 % (but less than expected –6.6 %).

Theses figures are encouraging but situation remains fragile as stimulus plans ended, interest rates that don’t decrease and euro that is still too high.