ZZZ...ZZZ...ZZZ

GLOBAL EQUITIES RESEARCH

Very slow activity once more yesterday. The major indices got off to a solid start as many buyers looked to capitalize on lower prices following the previous session's loss, which was the worst in six weeks for the S&P 500. That favoured financial stocks, which suffered the worst losses in the previous session by dropping more than 4%. Financials led gains by climbing 1.9% this session. Other buyers were enticed by better-than-expected earnings and an increased outlook from Dow component Home Depot(HD 26.93, +0.82). Target(TGT 44.32, +3.11) also supported a positive bias by unveiling upbeat results, which drove the stock to its best single-session percentage gain since April and led retailers to a 1.8% gain. Stocks were able to finish just a few points shy of session highs. Gains were broad with nine of the 10 major sectors closing in positive territory. Health care (-0.1%) logged the only loss after outperforming in the previous session. Despite the seemingly strong performance, the S&P 500 struggled to sustain any move above the 990 mark, which marks a near-term point of resistance. Instead, the broad-market index spent the entire afternoon dancing along the line.

The sharper-than-expected rise yesterday in German ZEW investor sentiment in August was another pretty encouraging sign, but the forthcoming business surveys will give a much clearer steer on the state of the economy. The increase in the headline index, from +39.5 to +56.1, far more than reversed last month’s fall and left the index at its highest level since April 2006. The rise further into positive territory means that an increasing majority of investors expect economic conditions to improve in the next six months than expect them to worsen. On the face of it, this suggests that the increase in economic activity in Q2 might become a sustained recovery. But note that the ZEW has not been a great predictor of actual economic activity in the past and the PMI and IFO business surveys later this week and next will provide a better guide to the state of the economy. Positive news overall, then, but with global demand remaining fragile, making too soon the call of a strong recovery in Germany, although it goes the right way.

Elsewhere, the housing starts were not concerning and even promising. The decline was all due to another dip in the already depressed multi-family starts category to 91,000, from 100,500, which are notoriously volatile and it wouldn't be surprising to see a big rebound in August. Starts in that category dropped to exactly this level back in April, only to rebound by more than 50% m/m in May. Single family starts, much more significant as a market indicator, climbed to 490,000, from 482,000, and are now well above the 350,000 level that appears to mark the bottom, reached at the start of this year. Nevertheless, to put the housing recovery into its wider context, starts are still less than a quarter of what they were at the peak of the housing boom. The good news is that residential construction will probably add to GDP growth in the second half of the year.

Things are improving, but they are definitely not crystal clear, which, given the latest advance, triggers a waiting mood from investors for now. Manufacturing activity is growing back in the US, while consumers are still not too keen on spending, although some Retailers yesterday reported better tan expected earnings, the volume is missing. On every front, business, financial products, air traffic, banks commercial and industrial loans (although the mortgage lending are expanding), the activity has been shrinking and its rebound is soft, with obviously the summer time not helping. But once again, Q3 will be much better, and on the weak business side you can count on some further stimuli if the activity was to take time to resume. Would not buy the story of an economic collapse in Q4 from bear guys who also found obvious the Great Depression outcome and forecasted further falls in Q2. Everyone needs to know where we are, and how things are moving ahead, and this is what the markets are focusing on for now with no longer selling pressure, but instead some push from US pension funds which might well step in by September once the consolidation is over, with no further bad news to attend.

So, another day today with not much going on, which should make the activity very slow once more, until tomorrow’s Jobless Claims and Leading indicators, but mostly Friday’s Bernanke comments and Existing homes sales. 2550 area (ex top) would be a very attractive buying level on the Eurostoxx which everyone is focusing on. New low reached on the Shanghai index might help pushing European indices on the downside further this morning, which once more presents a buy opportunity as we approach 2550 on the cash index.



ECONOMIC DATA WITH IMPACT


Mortgage Applications (12h UK time) / the highest the better / previous was down 3.5% / minor as weekly data

Oil inventories (15h35 UK)


POSITIVE IMPACTS



DBK: Stockbridge Real Estate Funds is considering a takeover bid for the management of the $2.6Bn real-estate fund run by DBK (WSJ)

HSBC and China-based Industrial Securities are in discussion to form a brokerage and investment banking JV in the country (Apple daily) / Discussion is already in an “advanced stage” and may conclude as earlier as the end of this year.

AIR FRANCE withdraws from bidding for Eeskeaerolinie (Csech Republic)

OIL NAMES might profit from the 5% rise on the WTI from 66 to 69, probably welcoming the comment from IMF saying recession is over

ALLIANZ : The Brazilian govt authorized Co to operate in Brazil's re-insurance market

CONTINENTAL : Schaeffler will transfer €5Bn of its €12Bn of debt into a holding company to overcome the last hurdle to its

takeover of Continental (Die Welt) / Fitch downgraded Conti Long-term Issuer Default Rating & senior unsecured ratings to 'B+' from 'BB'

SBM OFFSHORE : H1 sales $1.4Bn (1.42 e) / H1 EBIT $128.3M (123.6 e) / H1 Net pft $95.5M (98 e) / Confirms outlook

HPQ : Q3 Revenue $27.45bn ($27.25 e) / EPS $0.91 ($0.90 e) / Sees Q4 EPS $1.12 ($1.07 e) & rev $29.6bn ($29.82 bn e)



NEGATIVE IMPACTS


TELEKOM AUSTRIA : Q2 Rev €1.192Bn (1.217 e) / Q2 EBITDA €450M (453 e) / Net pft €82M (89 e) / Plans to begin SBB in 2010 /

SANOFI : Patent on Plavix will be reconsidered by the U.S. Patent & Trademark Office to determine if it should have been issued. The patent, issued in 1989, prevents Canadian drugmaker Apotex from selling a copy of the drug until November 2011.

SWISS BANKS : More Banks In Europe Identified In Tax Probe. Wealthy U.S. citizens using a tax-evasion amnesty program have identified nearly 10 Swiss & Euro banks where their accounts are held, opening new fronts in the IRS's probe into potential tax crimes (Source). Among the banks named in the voluntary disclosures are CREDIT SUISSE, JULIUS BAER, Zurcher Kantonalbank & UBP.

UK BANKS are likely to see their battered retail arms slide to a loss in H2, as the cost of bad loans, tough competition and wholesale funding continues to weigh, according a survey by KPMG found

THOMAS COOK : Arcandor stake in Thomas Cook will probably be offered to institutional investors rather than sold as a block to another travel company

DAIMLER : Creditors of Chrysler are suing Daimler, accusing it of fraudulently stripping the Co of "billions of $ in assets" prior to its 2007 sale of the U.S. carmaker to Cerberus

SODEXO had acquired 100% of Comfort Keepers in North America (€800M sales last year)



TRADING IDEAS


BUY SANOFI / VOLKSWAGEN / ENI / PERNOD on double bottom possibility

BUY Cyclicals such as TOTAL / ST GOBAIN / ARCELORMITTAL / ALSTOM etc… as recovery is a fact for now, whatever the speed, which coming indicators should tell us even more

BUY CARREFOUR / AEGON / MUNICH RE / ALLIANZ / FRANCE TEL / TELEFONICA which consolidated seriously, should resume their upside trend

BUY the Dollar & (Dollar names) such as STM the biggest European dollar related stock


BUY EDF / SELL EON // BUY DANONE / SELL UNILEVER // BUY ENI / SELL ROYAL DUTCH // BUY BOEING / SELL UNITED TECH // BUY GENERAL ELECTRIC / SELL 3M


BROKER METEOROLOGY


SWEDBANK RAISED TO HOLD FROM SELL BY CITIGROUP

ASM INTERNATIONAL RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS

LLOYDS RAISED TO BUY FROM HOLD BY RBS


DEXIA CUT TO HOLD FROM BUY BY DEUTSCHE BANK

SHIRE CUT TO NEURAL FROM OVERWEIGHT BY JP MORGAN

SOLVAY CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN

PREMIERE CUT TO NEUTRAL FROM OUTPERFORM BY CREDIT SUISSE

CLARIANT CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE

RHODIA CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE

EUROPEAN BUILING MATERIAL STOCKS CUT TO NEUTRAL BY NOMURA


DATA


WTI : 69,8 (4,13 %)

Eur/$ : 1,4145 (0,06 %)

$ /Yen : 94,66 (-0,05 )

10 Yr US : 3,50 ( -1,31 bp)

10 Yr Euro : 3,30 ( 1,1 bp)


Indices : US close ; Europe close

SOX : 2,01 %;1,35%

S&P :1,02 %; 0,84 %

DOW: 0,90%; 0,80 %

NAS :1,30%; 1,04%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 1,79 %; 1,31 %

ENERGY : 1,02 %; 0,59 %

FINANCIAL : 1,73 %; 1,75 %

HEALTHCARE : -0,06 %; -0,04 %

TECHNO : 1,53 %; 0,98 %

TELECOM : 0,35 %; 0,69 %

INDUSTRIAL : 1,50 %; 1,19 %

UTILITIES : 0,18 %; -0,04 %



TO BE COMING



Today

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:



Friday

Results :

Dividend : ArcelorMittal ($0,1875) / Goldman Sachs ($ 0.35) / Johnson & Johnson ($ 0,49)

Events :



Monday

Results : Sulzer / Orascom Telecom

Dividend :STMicroelectronics ($ 0,03)

Events:



Tuesday

Results :Gemalto

Dividend :

Events:Tata Motors AGM



ECONOMIC DATA PREVIEW



No major economic data released today in the Unites States



In Germany, look at the Producer Prices for the economic sentiment (7.00 GMT) for July expected down 0.2 % after a 0.1 % decline in June. From a year ago, producer prices are expected to drop 6.5 % after –4.6 % the previous month


ECONOMY



United States: Housing starts fell 1 % in July, the first drop in 3 months, but single family starts rise again

Housing starts fell 1 % in July to 581k (599k expected) vs. 587k in June (revised up from 582k initially reported), pulled down by multifamily dwellings while single-family starts, which make up 75 % of the industry, rose to the highest level since October (+1.7 % to 490k). Single-family home construction has been rising since March, a sign that falling home prices and stimulus efforts such as a $ 8,000 tax credit for first-time buyers before December 1st are starting to reverse the housing meltdown. Building permits fell 1.8 % to 560k vs. 570k (revised up from 563k initially reported).


United States: Producer prices tumbled in July

The US Producer Prices Index fell to a new lowest level since 1948 at –6.8 % from a year earlier. In July, Producer prices dropped more than expected by 0.9 % from +1.8 % in June. Prices retreated due to a 10.2 % drop back in gasoline prices and a 1.5 % decline in food prices. Ex-Food and Energy, prices fell by 0.1 % after a 0.5 % rise the previous month as the big jumps in motor vehicle prices in June were partially reversed. Passenger car prices fell by 1.7% in July after increasing by 2.0% in June. From a year ago the core prices advanced 2.6 % from +3.3 % in June.


Germany : Zew survey of the economic sentiment rose in August

The ZEW Survey of the investor confidence climbed in August to its highest level in more than three years confirming the good figures of the 0.3 % increase of the GDP for the second quarter that could become a sustainable recovery. The investors and analyst expectations rose to 56.1 in August from 39.5 in July (vs 45 expected). A reading above 50 means that a majority of investors see economic conditions improving in the next six months rather than expecting them to worsen. The ZEW survey of the current situation climbed fom –89.3 in July to –77.2 in August.


United Kingdom : inflation was unchanged in July

UK’s inflation unexpectedly remained below its 2 % target at +1.8 % in July while consensus expected a slight decrease at +1.5 % from a year ago. This is still the lowest level since September 2007. From the previous month, inflation was unchanged at 0% after a 0.3 % rise in June. The Core inflation (ex-Food and Energy) was up by +1.8 % (vs +1.5 % expected) at the fastest pace in eight months and after +1.6 % in June.

The cost-of-living measure of the retail prices showed an annual drop of 1.4 % (-1.7 %) in July following a 1.6 % decline in June.