Turning Point

GLOBAL EQUITIES RESEARCH

One of this week’s key data release might be Today's Conference Board measure of consumer confidence for August. The recent fall back in consumer confidence supports bear view that households are in no state to drive the economic recovery. Given that it has come at a time of a rising stock market, the drop appears to reflect the impact on households' finances of rising unemployment and slowing wage growth. Some bear economists will tell you that with unemployment yet to peak and wage growth yet to trough, confidence might fall back again.

S&P Caseshiller index will be interesting too. Apart from the direct effect on the economy and its possible boost to the GDP to be expected, a recovery in the housing market will have a significant effect on the financial market, which once more helps turning the previous vicious circle into a virtuous one. An important factor being the housing prices. Today's publication of the S&P Case Shiller for June may provide some insides. Some higher prices will sooner or later rescue banks's exposures to mortgages. There is a strong relationship between house building activity and the performance of banks within the stock market. A housing recovery would then be a huge boost to the economic background, and so even bigger one for the stock market thanks to the banking sector stock upside potential.

Friday’s July personal income and spending figures might still underscore the weakness of the consumer sector. Incomes probably rose around 0.2%, and the retail sales figures for July suggest spending probably rose a similar amount. But the improving housing data, in addition to the market rise might turn the bear consumer mood into a brighter one, which the stimuli will keep on increasing even more in August. The recovery is happening on the manufacturing front, which sooner or later should spread to consumers and make what is a "fake" rally fit more worth fundamentals.

However, other suggest we might be starting the top of all V-shaped recoveries. According to top economists, referring to the past, the recovery looks like the largest "V" they have seen since records began 1968. Taken at face value it is pointing towards an acceleration in US GDP growth from -3.9% in 2Q09 to somewhere between +4% and +7.5% on a year-on-year basis and from -6.4% in 1Q09 to somewhere between +7% and +14% on quarter-on-quarter basis The emerging markets growth will be helping. A ‘decoupling’ of real GDP growth between the advanced economies and the newly industrialized ones is very evident in economists projections. World GDP growth is projected to stand at 4% next year – above the 1998-2007 average of 3.7%. For the G-7 economies, they forecast around 1.8%, below the 10-yr average of 2.3%, with the expansion held back primarily by a modest recovery in US final domestic demand. Meanwhile, the BRIC economies should be expanding at 8.7% in 2010 , compared to a 1998-2007 average of 7.4%.

The end of destocking will have a big impact on economic activity. GM will add 60,000 vehicles to its production schedule, 3Q production will be 35% higher q/q and 4Q is planned to be 20% higher than that. While most of the street is telling you we should not buy this market only driven by stimuli, fact is that these stimuli started a long time ago with the fed setting rates close to zero while the inflation threat was still one ('at the very beginning), and there seemed to be so far no limited budget in order to get the economy back on track once they understood the Lehman bankruptcy mistake, although Obama was not elected yet. The "clash for clunkers" is just one of the latest ideas, which might well be continued if needed by the way so much its impact proves to be positive while the economic background remains fragile. As such, Q3 GDP will be strong with now the ratio inventories/sales back to lower levels as sales are picking up, and firms had to deal with low inventories stance in order to fit with tough sudden economic conditions which might have last. Not only the car sector, but others peripheral sectors will be boosted by the output increase, and the virtuous circle is back, including the equity market rise which makes it even more safe that the governments will succeed.

Again, portfolio managers are not positioned as bullishly as sentiment surveys over the past couple of weeks have suggested. The most recent Bank of America-Merrill Lynch global fund managers survey showed average cash balances rose to 4.7 per cent in August from 4.2 per cent in July. While an additional 30% of the fund managers switched to bull, 30% of them remain underweight equity. Their positions did not follow their feelings, which will be very supportive, especially as we attend Q3 data to profit from the full speed of stimulus working in August, and Q3 as well as Q4 being a very friendly base effect. It is very brave at this stage to bet on the fact the stimuli will not help, and that once "the clash for clunkers" is over next Monday "we'll now get to see what the natural supply and demand dynamic is in the auto industry," as well as the other major program, the 'cash for shelter' plan providing tax credits for home purchases, which runs to Nov. 31, although there is already talk of enlarging its size and making it available to all home buyers, not just first time. Fact is that Obama and Bernanke are not stupid, and once again, from the recovery pace depends now the political one. Do not expect them to fail, and those predicting the Q4 Armagedon, might be the same ones predicting the Q2 Great Depression and the fake bear market rally, which might be fake but real on P&L.

We might though be getting today the little expected consolidation we were waiting for yesterday, which we did not get thanks to the buying inflow from the good weekend press. No worry though, just a buying opportunity if it was too sharp



ECONOMIC DATA WITH IMPACT


US Case-Shiller National House Price Index (Q2) / interesting as a possible housing activity rebound is an important to the economic activity (see intro) / as such higher prices would be welcome although doubtful for now

Consumer Confidence (15h UK time) expected 45 from previous 16 / such a fall would be more or less in line with the decline already recorded by the alternative University of Michigan measure / interesting, see intro


POSITIVE IMPACTS



AIR BERLIN : Q2 Rev €836.2 M (837 e) /Q2 Op pft €17.6M (16 e) / Q2 Net €7.1M (4.4 e) / Confirms guidance

NORDEX :Q2 rev €279.2M (274 e) / Q2 EBIT €9.2M ( 8 e) / Anticipates an increase in its own sales, but profitability is likely to be weaker

VOLKSWAGEN : Qatar has acquired “financial instruments” that give them rights to purchase 17% of VW .

CENTRICA : Venture Production Plc may end its opposition to the takeover by CNA as early as this morning and recommend remaining shareholders sell their stock to the U.K.’s utility company (FT)

ARCELOR-MITTAL : Resumes production in Germany and Spain

CAIRN ENERGY begins to pump oil from under western India. Cairn aims to draw 175k barrels/day (25% of India's current output)

TECHNIP has been awarded a lump sum contract by Marathon Oil Company for the Ozona field development in the Gulf of Mexico

GAMESA has won a contract to supply Vancouver-based Western Wind with over $160M on of wind turbines

NESTLE : Nestle Waters North Am. receives preliminary approval to produce arrowhead Spring Water in Chaffee County, Colorado

NATIXIS : BPCE will guarantee billions of toxic assets at Co. so the government will not have to back it (Les Echos)

CARS : Toyota plans to raise its production in Japan for the 1st time in 16 months in November thanks to a recovery in auto sales



NEGATIVE IMPACTS


CRH : H1 rev €8.29Bn (8.19 e) / H1 EBITDA €651M (724 e) / H1 Pre Tax pft €108M (132.2 e) / H1 Div 12.2C

RESOLUTION : London-Times reported that Co may be interested in buying Scottish Widows from LLOYDS although the bank is not believed to be a willing seller

RBS may sell its units in India & China to STANDARD CHARTERED as soon as next month (Bloomberg) / However, people familiar with the matter said the chances of STAN buying the China assets had fallen to “around 3 out of 10” (FT)

HENKEL : German consumer prices will start rising again soon, propelled by a rebound in the price of oil & other commodities (Henkel’s CEO) / The economic crisis ``isn't over yet,'' ``I think that the situation isn't looking as good as some people are suggesting,''

UK RETAIL : More than one-in-ten shops on an avg high street in Britain are now standing vacant, as the recession continues to force struggling retailers out of business (property agency Cushman & Wakefield)



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 ERICSSON / PERNOD on double bottom possibility


BUY AHOLD / SELL UNILEVER // BUY NOVARTIS / SELL ROCHE // BUY VINCI / SELL LAFARGE // BUY CARREFOUR / SELL METRO // BUY EDF / SELL EON // BUY GENERAL ELECTRIC / SELL 3M


BROKER METEOROLOGY


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

EUROPEAN PHONE STOCKS RAISED TO OVERWEIGHT BY JP MORGAN

TUI RAISED TO OVERWEIGHT FROM NEUTRAL BY MORGAN STANLEY


VOLVO CUT TO NEUTRAL FROM BUY BY NOMURA

SCHNEIDER ELECTRIC CUT TO UNDERPERFORM FROM NEUTRAL BY BANK OF AMERICA - MERRILL LYNCH

ALSTOM CUT TO NEUTRAL FROM BUY BY BANK OF AMERICA - MERRILL LYNCH

EUROPEAN METAL & MINING STOCKS CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN

FORTIS CUT TO HOLD FROM BUY BY RBS

LOGICA CUT TO HOLD FROM BUY BY RBS

Q-CELLS CUT TO NEUTRAL FROM OUTPERFORM BY CREDIT SUISSE

SWATCH CUT TO SELL FROM HOLD BY RBS


DATA


WTI : 73,9 (2,31 %)

Eur/$ : 1,4297 (-0,05 %)

$ /Yen : 94,00 (0,67 )

10 Yr US : 3,46 ( -1,67 bp)

10 Yr Euro : 3,31 ( -0,7 bp)


Indices : US close ; Europe close

SOX : -0,78 %;0,43%

S&P :-0,06 %; 0,75 %

DOW: 0,04%; 0,67 %

NAS :-0,14%; 0,57%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -0,51 %; 1,13 %

ENERGY : 1,28 %; 1,68 %

FINANCIAL : -0,92 %; 1,46 %

HEALTHCARE : 0,34 %; 0,27 %

TECHNO : -0,14 %; 0,50 %

TELECOM : 0,19 %; 0,30 %

INDUSTRIAL : 0,00 %; 0,81 %

UTILITIES : 0,18 %; 0,07 %



TO BE COMING



Today

Results :Gemalto / Alpha Bank

Dividend :

Events :Tata Motors AGM



Wednesday

Results : Suez Env sales / WPP / Heineken / Corio / Dexia / Heineken / Antofagasta / Irish Life / Swiss Life / Abengoa

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 :Eiffage / Wendel / Sun Microsystems

Dividend : Halliburton ($ 0,09) / Schlumberger ($0.21)

Events:



ECONOMIC DATA PREVIEW



In United States, watch the Conference Board consumer confidence (15.00 GMT) for August expected to slightly increase from 46.6 to 48 as prices are in a down trend increasing consumer’s purchase power.



In Germany, watch the final figure of the GDP (7.00 GMT) expected to confirm the preliminary release at +0.3% QoQ, -5.9% YoY confirming that after reaching a bottom at the first quarter Germany is slowly recovering.


ECONOMY



United States: The Chicago Fed National activity remained in negative territory but improved in July

After reaching its lowest level at -4.03 in January 2009 the Chicago Fed National activity index improved significantly in July to reach

-0.74 the highest level since January 2008. All four broad categories of indicators improved in July but three of the four continued to make negative contribution to the index. The improvement in the index in July was mainly due to the production and income category of indicators. Indeed this category made a contribution of +0.26 to the index in July compared with -0.38 in June. Manufacturing production increasd + 1% in July the biggest increase since December 2006. Moreover the manufacturing capacity utilization increased to 65.4 in July from 64.7 in June. Meanwhile employment related indicators improved significantly in July making a contribution of -0.40 to the index versus -0.73 in June and the consumption and housing’s category’s contribution to the index improved as well to -0.49 after a contribution of -0.54 in June.



Euro zone: Industrial orders increase more than forecast in June

European industrial new orders increased from -0.5% in May to +3.1% in June (forecast +1.8%) the most in 19 months. This significant rise of orders to industrial companies is another sign of the fact that the worst of the recession is easing. Indeed after contracting for five straight quarter the euro area economy is slowly recovering and after shrinking by 0.1% at the second quarter the GDP could turn positive at the third quarter. Meanwhile from a year earlier June orders fell 25.1% (forecast -28.3% YoY) the best release since December 2008 ( -24.7% YoY) showing as well the progressive industrial recovery in the euro area after being hit by the credit crunch and by a high unemployment level. In any cases the economic recovery will be strongly linked to the level and to the efficiency of the stimulus plans in the main euro area countries like Germany or France.