V or W

GLOBAL EQUITIES RESEARCH

Whether V, W or X,Y,Z, one thing is gradually getting more certain, the US economy seems to back on a growing mode since the middle of Q2. last week overall indicators such as the ISM Manufacturing and the Pending home sales in addition to the better than expected earnings releases are pointing out some brighter days for the wordlwide economy. But the question remained of the lagging job sector, which might have prevent the economy from fully taking off. This weak point would be a last desperate reason for bear guys to stick to short positions. The answer to the question whether the employment will remain weak and so the economy pace would fall back, or whether the economy would recover enough to create jobs back again, seems now obvious.

July's Employment Report is the gift that keeps on giving. Nearly every element of it was positive. Most notably, non-farm payrolls fell by a more modest 247,000 last month, the smallest decline since August 2008 . Admittedly, a decline in employment of that magnitude still seems hard to square with the growing speculation that the recession ended around mid-year. Looking back, however, the economy lost 265,000 jobs in the first month of the recovery in 2001 and 226,000 jobs in the first month of the recovery in 1991 . The improvement was most notable in manufacturing, which shed only 52,000 jobs, down from 131,000 in July. The 28,000 increase in motor vehicle assembly workers was spectacular. Services payrolls fell by 126,000, with the 44,000 loss in retail the obvious weak spot. Temporary employment fell by only 10,000, which is encouraging as this tends to be a leading indicator of trends in the wider labour market. The unemployment rate actually edged down to 9.4% , from 9.5%, as the labour force unexpectedly shrank by a massive 422,000 (the household survey also shows a more modest 155,000 decline in employment). Average hours worked rebounded to 33.1, from 33.0, driven by a big rebound in the hours worked of vehicle assembly workers. Finally, average hourly earnings increased by a solid 0.2% m/m in July, restricting the decline in the annual growth rate to 2.5% y/y, from 2.7%. September employment report will be even much better with no longer seasonal workers impacting negatively, although the increase in hiring from these workers is a positive leading indicators before long term job seekers are getting hired too.

A virtuous circle has well started and will last for a while. The 50% rally is some cold comfort for most people given that the S&P 500 is still down 37% from its all-time high, and Eurostoxx down 50% from its March 2000 highs. This means there is another 100% rise possibility before we reach new highs in Europe, still a long and profitable process to go. Again, we have just been falling more than the economy was picturing due to selling flows from hedge funds and a need of liquidity at a time when cash was supposed to be king, with a revival from the Great Depression striking us. We have now started a new bullish lasting trend, with the bear market from March 2000 to March 2009 now over, opening door to a huge bull run.

Same as in business where the second million is easier to make than the first million, the next 50% will be a lot easier to make than the first 50%. We now entered a friendly base effect where firms will easily increase there sales from last year same time, with obviously fantastic margins that will come with it as we saw from Q2 how quickly corporates adjusted their capacity with the new economic pace. This will provide booming data for H2, and will also force firms to hire again. The open public opinion is now aware of a possible economic pick up and no longer believes the market rally was a bearish one, which will unfreeze all the money that was so far staying inside households pockets. The increase in spending and decrease in savings rates out last week was already an appetizer from what might happen following the already better and non falling that much employment data. M&A deals will be back on the scene thanks to very low yields levels, better credit conditions and attractive equity valorization which strategists firmly mis priced as they did not believe in the economic recovery, and though the mis price was the current economic speed.

The most closely watched event this week will be the two-day FOMC meeting that concludes on Wednesday. However, we do not expect anything new to be announced. Improving economic and financial conditions mean that there is now less pressure on the Fed to expand QE, particularly when it still needs to purchase almost $1,000bn of Treasury and mortgage-backed securities to fulfil its existing pledges. Similarly, it is too soon to consider tightening policy when unemployment has further to rise. The accompanying statement is bound to take a more upbeat tone, noting the improvement in most of the economic data, with the notable exception of the labour market. The statement might also include an acknowledgement that the Fed intends eventually to reverse quantitative easing (or at least nullify the inflationary impact) by raising the interest rate payable on excess reserves. But it will be some considerable time yet before interest rates begin to rise. Otherwise,t his week will not provide much more than some details on the retailing front. Indeed, Retailers will be in focus this week with quarterly earnings reports from Wal-Mart (WMT), as well as Macy's (M), Kohl's (KSS), Nordstrom (JWN) and JCPenney (JCP) on the earnings calendar. The Retail Sales figures for July will be released on Thursday. The latest reports on Trade Balance (Wednesday) and CPI (Friday) are sure to garner attention as well.

Quiet day ahead with some usual consolidation to b expected tomorrow, but same as last week, don't count on a sharp drop, last few weeks data in addition to the employment report combined to the market rise made fund managers not even short but rather naked... as to traders, not many of you did play that scenario, and will be even less now in these levels. However, not much reasons for a drop more than a technical one, while inflows might be very supportive as well as coming data once more



ECONOMIC DATA WITH IMPACT

No Economic Data Today


POSITIVE IMPACTS

PUBLICIS struck a $530 m deal with Microsoft to buy the Razorfish ad agency and boost its position in digital communications / Microsoft will get a 3% stake in Publicis

NOVARTIS is poised to rise as its pipeline of new drugs is one of the most promising in the industry (Barron's)

ACTELION said its Tracleer drug had been granted approval for mildly symptomatic pulmonary arterial hypertension in a label extension.

MEDIASET : Prisa could be interested in merging its audio-visual ops with those of Mediaset's Spanish unit Telecinco after breaking off talks with Mediapro unit Imagina on Friday (El Economista)

FRIENDS PROVIDENT confirms revised RESOLUTION proposal received / Exchange ratio of 0.9 new Resolution shares for each FP share / FRIENDS PROVIDENT interim results tomorrow

E.ON said it has reached agreement with unions on an efficiency plan that will generate savings of €1.5bn by 2011 without redundancies

XSTRATA said it was in talks to possibly sell a major stake in a South America mining project

PRUDENTIAL is poised to increase its dividend this week (Sunday Times)

JULIUS BAER : ING may finalise the sale of its private banking in Asia & Switzerland by Sept., with Julius seen as a strong contender

NEGATIVE IMPACTS

RIO TINTO : China's state secrets agency said on its Web site that Rio Tinto had spied on steel mills for 6 years which led to them overpaying $102 bn for iron ore, Rio Tinto's biggest earner

ENIsaid it could not exclude an "adverse" outcome from investigations into a bribery scheme related to construction of natural gas facilities in Nigeria, adding such an outcome could have a "significant" impact on results / Separately, Eni has received offers worth around €1.1 bn for the Italian hydrocarbon assets it has put up for sale, short of the €1.5 bn-2 bn it wants to raise (Il Sole 24 Ore)

LLOYDS is seeking to raise £15-£25bn in shares as a part of a plan to reduce its exposure to the U.K.’s asset protection plan (Times)

UBS : A new conference will be held on Aug. 12. with the US govt / Newspaper reported that the talks to settle the tax evasion row vs UBS had stalled as the 2 states had yet to agree legal details on how to allow the transfer of bank client data to Washington (reuters)

ALLIANZ may still see some setbacks ahead as the financial crisis has not yet ended (CFO)

SAP is considering bidding for U.S. software firm Tibco ( WirtschaftsWoche) / Tibco has$1.5bn capitalization

BANCO POP. will see 25.98 m of new shares issued to finance the share swap for the intergration of Banco Andalucia



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 DBK / GSZ / NEW MONT MINING on reversal head & shoulder / BUY YAHOO on double bottom possibility

BUY AHOLD to play closure above soon




BUY EDF / SELL RWE // BUY TOTAL / SELL BP // BUY GENERALI / SELL ALLIANZ // BUY BASF / SELL LINDE // BUY CARREFOUR / SELL L OREAL

BUY INTEL / SELL TEXAS // BUY VISA / SELL MASTERCARD // BUY EXXON / SELL CHEVRON


BROKER METEOROLOGY


STANDARD CHARTERED............................... RAISED TO HOLD FROM SELL............................... BY CITI

LOGICA............................... RAISED TO HOLD FROM SELL............................... BY CITI

BT............................... RAISED TO OVERWEIGHT FROM NEUTRAL............................... BY JPM

HEIDELBERGCEMENT............................... RAISED TO NEUTRAL FROM SELL............................... BY BofA

INFINEON............................... RESTARTED AT BUY............................... BY BofA

Q-CELLS............................... RAISED TO NEUTRAL FROM UNDERWEIGHT............................... BY JPM

AKZO NOBEL............................... RAISED TO NEUTRAL FROM UNDERWEIGHT............................... BY CREDIT SUISSE


DAIMLER............................... CUT TO UNDERWEIGHT FROM OVERWEIGHT............................... BY MS

NORDEA............................... CUT TO EQUALWEIGHT FROM OVERWEIGHT............................... BY MS

VOLKSWAGEN............................... CUT TO UNDERWEIGHT FROM NEUTRAL............................... BY HSBC



DATA


WTI : 71,2 (-0,65 %)

Eur/$ : 1,4208 (0,17 %)

$ /Yen : 97,16 (0,27 )

10 Yr US : 3,87 ( 1,82 bp)

10 Yr Euro : 3,51 ( 13,6 bp)


Indices : US close ; Europe close

SOX : -0,44 %;-0,30%

S&P :1,34 %; 1,45 %

DOW: 1,23%; 1,32 %

NAS :1,37%; 1,44%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 0,94 %; 0,85 %

ENERGY : -0,06 %; 0,37 %

FINANCIAL : 2,78 %; 3,18 %

HEALTHCARE : 0,85 %; 1,05 %

TECHNO : 0,94 %; 1,14 %

TELECOM : 0,08 %; 0,38 %

INDUSTRIAL : 2,52 %; 2,21 %

UTILITIES : 0,96 %; 0,75 %





TO BE COMING



Today

Results :Clear Channel

Dividend :

Events :



Tuesday

Results : Adecco / Friends Provident / Geberit / Intercontinental Hotels / Renewable Energy / International Power / Applied Materials

Dividend : Applied Materials ($0.06) / Wyeth ($0,3)

Events:



Wednesday

Results : BHP Bilitton / E.On / ING / TUI Travel trading statement / Lanxess / Sara Lee

Dividend : BT Group (GBp 1,222222) / Northumbrian Water (GBp 9,444444) / Wal-Mart Stores($0,2725)

Events : Heinz AGM / Xilinx AGM



Thursday

Results : Aegon / RWE / Premiere AG / SalzfitterTUI AG / Estee Lauder

Dividend :

Events: Prudential analyst meeting



Friday

Results :Hochtief / Thyssenkrupp

Dividend :

Events:



ECONOMIC DATA PREVIEW



No major data released in the United States



In France, have a look at the Industrial Production (7.45 GMT) for June expected to decline slightly by 0.2 % after a 2.6 % rise the previous month.



ECONOMY



United States:

The US Labor Department unexpectedly reported “quite good figures” The pace of US job losses slowed more than expected in July and the unemployment rate dropped for the first time since April 2008. The non-farm payrolls fell by a modest 247 000 in July or the smallest decline August 2008, following the 443 000 loss in June (revised from 467 00) and while the consensus expected –325 000. Remember that jobs peaked at 741 000 in January or the most since 1949. The manufacturing sector only shed 52 000 jobs (following 131 000 the previous month). Services industries cut 119 000 jobs after losing 220 000 the previous month. Payrolls at builders fell 76 000 from 86 000 in June, the financial firms decreased payrolls by 13 000. The car industry even created 28 200 jobs.

The unemployment rate edge down to 9.4 % (+9.6 % expected) from 9.5 % in June.



United gdom: producer prices rose in July

The UK producer prices unexpectedly rose in July by 0.3 % (0% expected) from 0% in June. But from a year ago the output prices declined by 1.3 %, the lowest rate since November 2001. Ex food and energy, the producer prices rose 0.5 % after a 0.6 % decline in June and from a year ago the producer price rose 0.2 % after advance the previous month. The input prices decreased by 1.4 % in July from +0.5 % in June and –0.8 % expected, while the annual rate dropped by 12.2 %. These figures that are mixed, confirm that cost pressure in the industrial sector remain very weak.



Germany: industrial production contracted in June

The German industrial production unexpectedly declined in June by 0.1 % (+0.5 %) after a 4.3 % increase. The annual rate is still very weak at –18.1 % (-17.5 % expected) following a 17.6 % decline. But exports and factory orders surged in June. The German exports climbed by 7 %, the biggest gain in almost three years. In a quarterly basis, the production fell by 0.8 % in Q2 while in Q1 production fell around 12 %.