Yes We Trend

GLOBAL EQUITIES RESEARCH

Interesting week in term of economic data with obviously the Employment report as a focus on Friday. Today’s Chicago PMI will set the tone for the important ISM manufacturing tomorrow, as well as the factory orders on Wednesday and the ISM non manufacturing on Thursday. Fed’s Minutes on Wednesday will be watched, as well as the G-20 Ministers meeting in London happening on Friday with Treasury’s Geithner attending. The ECB on Thursday will leave interest rates on hold at 1.0% at its September policy meeting and is very unlikely to announce any new unconventional policy measures. The Bank is likely to treat recent signs of improvement in the economy with caution, supporting the view that monetary policy will remain as supportive as it is now for some time to come
Employment report should improve, or not be as bad with a lot of uncertainty still. The rate might keep on deteriorating, but the destruction figure should not be as bad. The continued steady improvement in initial jobless claims and the ongoing rebound in the employment balances of the manufacturing and non-manufacturing ISM surveys are the main reasons why payrolls might have declined in August by marginally less than the 247,000 drop recorded in July. What's more, the recent easing in the rate at which temporary employment is falling points to smaller declines in payrolls in the months ahead. Might be some friendly surprises next month.
Hiring is the last chance for bear strategists to reappear, with unfortunately for them not much chances to win their battle anymore. Last week Consumer confidence soared above the consensus forecast of 47.9 by posting a strong rebound to 54.1 from 47.1, spending remained strong, which both together is indicating that the consumer could take part to a recovery which started with no doubts for everyone now on the manufacturing sector. Further signs of trouble in the job market could undermine the confidence of consumers, and by extension, put a damper on consumer spending, which is seen as the engine that drives the economy in normal time. Dell reported better-than-expected earnings and said it expects improvement in IT spending in 2010. Intel raised its third quarter revenue expectations, driven by stronger-than-expected demand for microprocessors and chipsets. This week, expect the ISM manufacturing index (Tuesday) to improve, moving above the 50 mark that is supposed to separate expansion from contraction in the industrial sector, with further improvements likely in the months ahead. There are several reasons for optimism, but above all the regional manufacturing surveys have improved. Indeed, the forward-looking balances in these surveys suggest that the ISM index could reach the high 50s soon. The ISM non-manufacturing index (Thursday) should rise too, to around 49.0 in August compared to 46.4 in July, on the back a further increase in new orders. Ford Motor, General Motors and other auto makers release their August sales tally tomorrow. After a bounce in auto sales in July, helped by the U.S. "cash-for-clunkers" rebate program, the pace of car-buying likely increased again in August, analysts say.
In Europe, the euro-zone CPI (10.00 BST) should reveal that inflation is beginning to pick up again. Data from the European Commission suggest that petrol prices rose by about 1.5% in August. This, coupled with strong base effects, probably boosted the headline rate by 0.3 percentage points or so, cancelling the big idea of deflation fear. In the UK too, tomorrow ’s Bank of England household borrowing figures for July should reveal a rise from 48,000 to 51,000 in mortgage approvals. Since the end of last year, approvals have risen at an average rate of around 3,000 per month. And a similar rise looks likely in July, given the increases seen in the two alternative measures of mortgage approvals – the British Bankers’ Association measure rose by 2,500 in July, while the Lending Panel measure rose by 3,000. Having forewarned of the severity of the slump in manufacturing output in H2, the CIPS/Markit report on manufacturing (Tomorrow) now points to a very robust recovery in the sector over the coming months.
And regarding employment, not only it is a lagging indicator, which doesn’t prevent a "jobless recovery" to start with, but the strength of the recovery may well reverse the employment trend sooner than later as firms clearly followed the press and economist’s paranoia and were prepared for a long lasting economic slump which in the end only lasted a few months (better explaining the big shock). They might promptly need to hire back again, which already is happening in the financial sector by the way when looking at the UK.
Quiet day ahead obviously with the UK Bank Holiday, and last day of the month too. The Japanese election should be seen as non event and mostly played. But the yen hit a seven-week high against the dollar to 92.54 from 93.29. Although the DPJ victory is a good news, more because of dissatisfaction with the LDP rather than any great enthusiasm for the alternative. However, talk that the DPJ would adopt a more stimulatory fiscal policy and boost consumer spending more than the LDP has done is always nice to hear and will keep some bullish biais on the Nikkei mid term.. Take opportunity for an y sharp drop to step in, as this week's positive newsflow in addition to the new month inflow will be supportive.

ECONOMIC DATA WITH IMPACT

Chicago PMI (14h45 UK) expected 47.2 from previous 43.4 / minor, but might be moving due to lack of activity, and should be seen as leading indicator ahead fo the national ISM manufacturing tomorrow

POSITIVE IMPACTS

EADS : The EU signaled govts will proceed with subsidies for EADS’s Airbus SAS A350 even if a pending World Trade Organization decision finds previous aid to the planemaker violated global trade rules/ Sepratly CEO does not expect to see a longer lasting decline in demand in the aviation industry
L’OREAL plans to expand in emerging markets such as the Middle East & Africa (Investir)
VOLKSWAGEN will export enough vehicles to offset an expected sales drop in its home market (Sueddeutsche Zeitung) / Separatly, the 370k employees of VOW & Porsche plan to take a stake of up to 5% in the automotive group,
NOVARTIS plan to start a clinical trial on a swine flu vaccine in Japan as early as September (Nikkei)/ Separately, Novartis will deliver its first swine-flu vaccinations in October (Basler Zeitung )
LONZA, ROCHE : Roche subsidiary Genentech Singapore will buy Lonza's cell culture biologic manufacturing facility in Singapore for $290M + $70 M in milestone payments
BOUYGUES attracted 55k high-speed Internet connection subscribers in the 2nd quarter (Les Echos)
CREDIT SUISSE & JULIUS BAER ‘s Executives expect to avoid a U.S. tax investigation into their private banking businesses on the same scale as their peer UBS (FT)
IRISH BANKS : Ireland’s govt is prepared to take majority stakes in the country’s banks as part of the creation of the National Asset Management Agency (Finance Minister)
LUFTHANSA plans to seek regulatory approval to form a "code-share" agreement with JetBlue Airways (FT)

NEGATIVE IMPACTS

SANOFI :An experimental heart drug being developed by AstraZeneca significantly outperformed the blockbuster pill Plavix in a big clinical trial (Study)
BAYER : German pharma Boehringer Ingelheim said Sunday that its anti-clotting drug Pradaxa significantly reduced strokes and bleeding in patients with irregular heartbeats compared to the industry standard warfarin./ The drug competes with Bayer’s Xarelto. (already played last week)
UBS : Switzerland may provide the U.S. with details of UBS accounts held by American citizens, using criteria based on contraventions of U.S. law the bank admitted to in February (SonntagsBlick)
UBI : Q2 NII €654m (No Consensus but looks weak) / Net Profit €101.6m (€117m exp) / Core tier1 ratio 7.24% End-June
BANCO POPOLARE : Q2 NII €504.7m (€525m exp) / Net Loss €14.4m (€-50m exp) / Tier1 5.2% End June
FRENCH BANKS : France has secured the names and details of some 3k suspected tax evaders with Swiss bank accounts in what the budget minister described as a first in its battle against banking secrecy.
E.ON is refusing to supply electricity to new corporate clients with more than 50 sites because credit insurance is becoming increasing scarce (Sunday Telegraph) / Separatly environmentalists campaigning against climate change said they would attempt to shut down German utility E.ON's power station at Ratcliffe in central England in a mass action planned for October.
ACCIONA is bidding for four concessions in Canada worth a total of $3.3Bn (Spanish press)
DEUTSCHE POST :The mail unit of Deutsche Post DHL needs to cut costs to avoid posting losses over the long run (Executive)

TRADING IDEAS

BUY PERNOD / VIVENDI & VINCI ahead of results this week & BUY AHOLD to play island possibility still
BUY Energy names such as EDF / ENEL / ROYAL DUTCH / BP / TOTAL / ENI on eco recovery
BUY ERICSSON on double bottom possibility & BUY PEUGEOT on reversal Head & Shoulder possibility

BUY UNILEVER / SELL DANONE // BUY PHILIPS / SELL SAP // BUY NOVARTIS / SELL ROCHE // BUY EDF / SELL EON // BUY CONOCOPHILLIPS / SELL CHEVRON

BROKER METEOROLOGY

L’OREAL DOWNGRADED TO SELL FROM HOLD BY ING

DATA

WTI : 72,3 (-0,40 %)
Eur/$ : 1,4283 (-0,14 %)
$ /Yen : 92,73 (1,05 )
10 Yr US : 3,43 ( -1,85 bp)
10 Yr Euro : 3,25 ( 0,5 bp)

Indices : US close ; Europe close
SOX : 2,44 %;2,29%
S&P :-0,20 %; -0,08 %
DOW: -0,38%; -0,32 %
NAS :0,05%; 0,41%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 0,94 %; 0,71 %
ENERGY : -0,22 %; -0,24 %
FINANCIAL : 0,18 %; 0,14 %
HEALTHCARE : -0,87 %; -0,81 %
TECHNO : 0,37 %; 0,96 %
TELECOM : -0,43 %; -0,44 %
INDUSTRIAL : -0,34 %; -0,17 %
UTILITIES : -0,04 %; -0,35 %

TO BE COMING

Today
Results :Vinci (AMC) / Eiffage / Wendel / Sun Microsystems
Dividend :Halliburton ($ 0,09) / Schlumberger ($0.21)
Events :

Tuesday
Results : Vivendi (BMO) / US car sales
Dividend : Banco de Sabadell (€ 0,07)
Events: Global Industrials Conference at Morgan Stanley

Wednesday
Results : Bombardier
Dividend : BHP Billiton ( $ 0,455556) / Legal & General (GBp 1,233333) / CRH (€0.185) / Friends Provident ( GBp 1,444444)
Events :

Thursday
Results : Pernod Ricard
Dividend :Bank of America -ML ($0.01) / Merck & Co ($0.38)
Events: HMV AGM

Friday
Results :
Dividend : Nike ($0.25) / Sara Lee ($0.11)
Events:

ECONOMIC DATA PREVIEW

In the United States, watch the Chicago purchasing manager index (14.45 GMT) for August expected to improve from 43.4 to 47.2 as domestic and foreign demand are rebounding boosting companies investment.

In the Euro area, watch the estimation of the consumer price index for August expected to drop at a slower pace –0.4% YoY(previous –0.6%) confirming that the deflation situation is not over in the Euro area.

ECONOMY

United States: Personal income and personal spending remained weak in July
After dropping by 1.1% in June personal income were flat in July (expected ‘+0.1%). This weakness of personal income is not surprising as the unemployment remained high cutting household purchase power. In addition the fiscal stimulus which boosted incomes in spring is now less efficient and if we exclude the fiscal incentive incomes are in a low trend for the last seven months. As a consequence of the weak income , personal spending rose at a slower pace from +0.6% in July to +0.2% in August. Meanwhile personal spending core (excluding food and energy) remained weak as well and dropped from +0.2%QoQ,+1.5% YoY in July to +0.1% QoQ,+1.4% YoY in August. To put these figure into perspective it is important to bear in mind that household consumption account for 70% of the US GDP.

Euro area: European confidence rise more than foracast in August
After reaching a bottom level at 64.6 in March European economic sentiment rise for a fifth consecutive month at 80.6 in August. This jump was stronger than the consensus forecast (78.0) and represent the highest level since October 2008. Sentiment improve in all major Euro zone economies and reflect rises in consumer, industrial and more specifically service sector sentiment. Nevertheless if unemployment continue to contract, if energy prices pursued their rise trend and if the European Central Bank increase its leading rate the European economic sentiment (the best correlated statistic of the GDP) could stop is rising trend.

United Kingdom: GDP second estimation for the second quarter: slightly better than expected
United Kingdom’s GDP second estimation revealed to be slightly better than the advanced at -0.7% QoQ,-5.5%YoY (-0.8%QoQ,-5.6% YoY). The improvement since the first quarter –2.4% QoQ,-4.9% YoY was mainly due to an easing in the pace of destocking, meanwhile the boost on net trade was essentially due to a drop of imports rather that a rise of exports and the rise in government spending could be seen as a temporary improvement. More globally all improvement since the first quarter remained very fragile