On The Road Again

GLOBAL EQUITIES RESEARCH

The classic Tuesday counter day was another bear trap, which after the nice employment report saw some non beliver long players taking profits and bear players profiting from a low volume activity and the lack of news (so lack of good news…), trying another shot of short positions.The equity indices took some breath once again, which provided the pulse to resume their upside trend, which today’s and tomorrow’s data will boost even more.

FOMC, as predicted, was no bad news and so no news. The Fed has only purchased about half of the $1,250bn of agency mortgage-backed securities it expects ultimately to buy. Admittedly the Fed has now bought nearly all of the Treasury securities it initially pledged to purchase. But that relatively small $300bn programme was always more of a sideshow. The minutes from the Fed's last meeting in June revealed that officials saw little point in extending it because a small increase in purchases would probably have little impact on yields, while a big increase might be misinterpreted as a willingness to monetise the budget deficit. Yesterday's statement clarified that the Fed now expects to complete its purchases of Treasury securities by the end of October. It intends to slow down the pace of its remaining purchases, presumably to avoid any shock to the markets when it stops. Unsurprisingly, the statement took a slightly more upbeat tone on the economy, suggesting that activity is now "leveling out", not just contracting at a slower pace. Otherwise, the wording stayed close to the last statement issued in late June. In particular, the Fed still expects to maintain the fed funds rate at "exceptionally low levels" for "an extended period". The Fed will want to see the unemployment rate not only peak, but start to fall back before beginning to tighten policy. Under those circumstances, we don't see rates rising until some time in 2011.

After the FOMC yesterday, time for further interesting news today with the Retail Sales today. The roaring success of the "cash for clunkers" programme, which offers subsidies of between $3,500 and $4,500 to consumers who trade in older vehicles and buy new, more fuel-efficient models, was the driving factor behind a healthy gain in retail sales in July. Economists are expecting that the 15.5% jump in the number of autos sold will generate something like a 0.7/ 0.8% m/m increase in overall retail sales values. What's more, the tripling in size of the "cash for clunkers" scheme to $3bn will mean that auto sales are likely to support overall retail sales for another month or two. However, the underlying trend in sales is likely to remain weak. But overall, this data should be friendly, and should remain so for a while.

The stimulus might be contested by bear players saying things will be back to a weak environment once the stimulus is no longer in place, but how do they know ? This stimulus is proving to be efficient so far, and will be even more impacting the economy next month. It might be enough to get things back in order, and the economy to be working on its own. Output should be boosted, which will help the employment sector. Firms’ cost cutting from a few months ago being so drastic, any activity uptick should prompt some hiring earlier than might be thought. Also, not worth reminding that the economic recovery will determine the success of Obama’s team, who made the hiring one of its main mandate goal, and Bernanke is part of the team and should be reelected in January by the way.

The dollar should be rising for a while then. The dollar’s bounce in the wake of last week’s US better-than-expected employment report has prompted suggestions that relative growth expectations are finally set to support the US currency in the months ahead, even if risk appetite continues to grow. Movements in relative growth expectations have often been quite closely linked to movements in exchange rates. But while forecasters have become relatively more upbeat about the growth outlook in the US than in other major developed economies since the start of the year, this has not been accompanied by a strengthening of the dollar. In fact, the US currency has fallen sharply since March even as relative growth expectations have continued to shift in favour of the US economy. This has resulted from a sharp unwinding of global risk aversion. Volatility across all asset classes has plummeted since the spring amid signs of improvement in the global economy. Investors who had previously sought refuge in the dollar have lost their will to do so. But things have changed. Now that markets have stabilised, portfolio flows are less likely to be driven by fear, and more by fundamentals. Of course, some investors continue to worry about the outsized US budget deficit and the status of the dollar as a reserve currency in light of the adoption of “credit” easing by the Fed. But unconventional monetary policy should be viewed as more of a plus than a negative for the dollar to the extent that it supports the economy and financial system. Deflation in the US remains a bigger risk for now than runaway inflation triggered by quantitative easing.

Both French & German Q2 GDP came out this morning positive ! +0.3% in France while the expectations were –0.5% from a –1.2% in Q1, German one came out +0.3% vs –0.6% expected, from a previous –3.8% revised to –3.5%. This should make the eurozone GDP out today non event.

Today’s Retail Sales and tomorrow’s Industrial Production should send equity indices toward new highs by Monday, once fund managers are back from holidays.



ECONOMIC DATA WITH IMPACT


Eurozone Q2 GDP (10h UK time) / got some inside already early this morning from a better French GDP

Wal Mart figures (12h UK time)

US Retail Sales (13h30 UK time) expected 0.8% from previous 0.6% // ex autos 0.1% from 0.3% / important data this week, with the industrial production tomorrow, as we deal with July fresh data, which will show the recovery should remain and might even increase its speed thanks to the “cash for clunkers” stimulus (see intro), but also to an increasing confidence from investors

Jobless Claims (13h30 UK time) expected 545k from previous 550k / minor as weekly and volatile data

Business Inventories (15h gmt) expected –0.9% from previous –1% / minor, although important subject, as story behind the data hard to read : lower inventories might impact the GDP short term, but might say the economy speed is increasing + low inventories means rebuilt in inventories will be required soon, which means it will boost the GDP anytime soon


POSITIVE IMPACTS



AB INBEV : Q2 sales $9.5bn (9.62bn exp) / Org. volume gwth -1.1% but Ebitda ex-items $3.60bn (3.21bn exp) / Expects solid perfo in H2 but with slower Ebitda growth / Confirmed its $1bn FY target of merger synergies / Challenging Q3 on tough volume comps

PRUDENTIAL : H1 New Business £1.32bn / EEV Operating £1.25bn (£1.16bn exp) / IFRS Operating £688m (£574m exp) / H1 div. increased by 5% to 6.29 p per share / Expects Business environment to remain difficult by the end of the year

KLOECKNER : Q2 sales €959m (1.06bn exp) / Ebitda loss €31m (-45m exp) / Expects significant improvement in the H2 assuming stabilization of demand following the nearly completed destocking along the value chain, bottoming of prices and cost savings…

ADP : H1sales +5.9% to €1.29 bn (1.25bn exp) / Confirmed mild revenue growth for the FY

PREMIERE : Q2 sales €230.6 m, in line / Ebitda loss 63.4m, in line / Confirms outlook for 2009



NEGATIVE IMPACTS


K+S : Q2 revenues €739m (747m exp) / Operating €18m (33m exp) / Sees difficult market in H2 / Demand for fertilizers remains low

SALZGITTER : Q2 sales €1.93bn (2.05bn exp) / PT loss €96.9m (84m exp) / Said there no signs yet of turnaround in steel market

TUI : Q2 sales €4.18bn, in line / Ebita €95m (87m exp) but net loss €537m, as TUI took a unexpected €371m charge related to interest rate effect… / Plans asset streamlining programme through 2012 to refinance assets

RWE : H1 revenue €24.39bn (€25.9bn exp) / Ebitda €5.04bn (€5bn exp) / Expects to close takeover of Essent in Q3 / Reiterates plans to pay out 50% to 60% of 2009 recurrent net income as div & Repeats 2009 earnings target / Press conf 9:00 UKT

AEGON : Q2 underlying profit €404m (459m e) / New biz €181 m (€ 197 m e) / Impairments €393 m (€73 m e) leading to net loss of €161m (-66m e) / As exp, no interim div. / Will launch equity issue of €1bn to partially repay Dutch state (had received €3bn) …

NOVOZYMES : Q2 sales DK2.04bn (2.17bn exp) / Operating DK399m (406m exp) / Raised FY guidance for FCF but due to low investment level / Maintained FY operating & net profit outlook

JULIUS BAER has hired UBS to advise it on a possible bid for ING private banking units in Asia and Europe (Reuter)

DANSKE BANK - SYDBANK… (Minor) : Denmark's Social Democrats will propose creating a new state bank with DKK 50 bn in capital to help rescue jobs at small-& mid-sized firms to boost competition in the banking sector + push interest rates down (press)

VOLKSWAGEN's supervisory board meets to discuss details of a deal to acquire parts of Porsche

MEDIOBANCA has held informal talks with Sal. Oppenheim about buying parts of its investment bank (Reuters) / Mediobanca sold in July 25.4 m shares, or about 1.8%, in the capital of GENERALI for a value of about €365 m

LUNDBECK : Q2 revenue DK3.43bn (3.37bn exp) but Ebit DK719m (748m exp) / Keep FY guidance unchanged



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 ENI / SELL ROYAL DUTCH // BUY LVMH / SELL PPR // BUY VISA / SELL AMER EXPRESS // BUY EXXON / SELL CHEVRON


BROKER METEOROLOGY


XTRATA RAISED TO BUY FROM HOLD BY ING

GREEN KING ADDED TO CONVICTION BUY LIST BY GOLDMAN SACHS



NOKIA CUT TO NEUTRAL FROM BUY // REMOVED FROM PAN EUROPEAN BUY LIST BY GOLDMAN SACHS

CORIO CUT TO NEUTRAL FROM BUY BY UBS

SWISSCOM CUT TO UNDERWEIGHT FROM NEUTRAL BY JP MORGAN

EON CUT TO HOLD FROM BUY BY DEUTSCHE BANK


ING US CUT TO A FROM AA ON PROFITABILITY AND CAPITAL CONCERN BY FITCH


DATA


WTI : 70,7 (%)

Eur/$ : 1,4219 (0,22 %)

$ /Yen : 95,96 (-0,10 )

10 Yr US : 3,71 ( -0,36 bp)

10 Yr Euro : 3,46 ( -1,7 bp)


Indices : US close ; Europe close

SOX : 1,77 %;2,15%

S&P :1,15 %; 1,36 %

DOW: 1,30%; 1,43 %

NAS :1,47%; 1,73%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 1,27 %; 1,13 %

ENERGY : 1,30 %; 1,51 %

FINANCIAL : 1,83 %; 2,27 %

HEALTHCARE : 0,40 %; 0,54 %

TECHNO : 1,68 %; 1,93 %

TELECOM : 1,51 %; 1,72 %

INDUSTRIAL : 1,79 %; 1,64 %

UTILITIES : 0,38 %; 0,47 %



TO BE COMING



Today

Results :Aegon / RWE / Premiere AG / SalzfitterTUI AG / Estee Lauder / Wal Mart (1200 BST)

Dividend :

Events :Prudential analyst meeting



Friday

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:



ECONOMIC DATA PREVIEW



In United States watch the release of the Retail sales for July due at 13.30 GMT expected up for the third consecutive month.

The consensus forecast a 0.8 % rise following a 0.6 % advance in June.



In Europe, look at the preliminary figures of the GDP for the second quarter due at 10.00 GMT. GDP is expected down 0.5 % QoQ and –5 % YoY from –2.5 % QoQ and –4.9 % YoY in the first quarter.

Have a look also at the GDP figures for the second quarter in Germany due at (7.00 GMT) (-0.2 % and –6.6 % YoY expected) and in France (7.45 GMT) (-0.3 % QoQ and –3.2 % YoY expected).



ECONOMY



United States: FOMC statement

In his Committee, the fed keep its key interest rates unchanged. The Fed said that :” economic activity is levelling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. The Committee expects that inflation will remain subdued for some time. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve is in the process of buying $300 billion of Treasury securities. To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October”.





United States: trade balance of payments widened in June

US trade deficit widened in June less than expected. The overall trade deficit increase from $26.0 bn in May to $27.0 bn in June (-$28.7 bn expected). The 4 % gap increase was driven by the increase in the price imported energy and a higher cost for oil. The exports gained 2 % while imports increased by 2.3 %. The non-oil imports fell by 1.0 %



United Kingdom: unemployement rose in June

The UK’s unemployment rose to its highest level in 14 years. The ILO figures showed that the number of people seeking work in three month through June rose 220 000 to 2.44 million or the most since 1995. The ILO unemployment rate climbed to 7.8 %. Otherwise, the claimant counts rose less than expected by 24 900 in July from 21 500 in June. The Claimant unemployment rose 4.9 % for 17 consecutive months. The average earnings grew 2.5 % in the three months through June from a year earlier that is a consequence of the rising unemployment.



France: the consumer prices fell in June

The French consumer prices dropped in July for the third month by 0.7 % from a year earlier to a new historical low and following a 0.5 % decline in June. On a monthly basis, the prices fell 0.4 % in July driven by energy costs that eased and the summer discounts. Ex food and Energy, the prices rose 0.8 % in July and advanced 2.2 % from a year earlier. With all these figures we can say without any doubt that France fell in deflation.