GLOBAL EQUITIES RESEARCH
Consolidation session from the US digesting the previous day’s rise with a Consumer Confidence cooling off from 54 to 53 following its sharp last month rise from 47 to 54. Sectors up : Consumer Discretionary +0.5%, Consumer Staples +0.4%, Utilities +0.2%, Materials +0.1%. Sectors down : Tech -0.7%, Energy -0.6%, Financials -0.5%, Telecom -0.5%, Industrials -0.2%, Health Care -0.1%
Last day of the month, and last day of the quarter today. The score will be provided through the micro news coming out as soon as tomorrow with Accenture, but mostly next week with Alcoa on the 7th, Intel on the 13th and the financials with JP Morgan on the 14th October and Goldman on the 15th, GE and BOA the next day. The earnings level should not disappoint given the top down view and the strong macro data we did attend all quarter long. Even more, some business investment pick up should make the other coming quarters solid as well, and send some more doubts as to the non sustainability of the current economic recovery. Indeed, the Fed won’t drop it, and should remain supportive for quite some time, which sooner or later will boost employment, and increase households consumption.
The robust increase in US house prices on the Case-Shiller 20-City measure in July supports other evidence that housing has turned the corner. The 1.2% m/m rise on a seasonally adjusted basis built on a 0.8% gain in June. Prices are already 2% above the trough seen three months ago and are rising at an annualised rate of roughly 8-10%. This is not just a quirk of one measures either - the alternative FHFA measure has increased in each of the last three months. Prices are being supported by the homebuyer tax credit, which is boosting sales and reducing the inventory overhang. But perhaps more significant are the stabilisation in economic activity and the fall in mortgage rates back below 5%. This suggests that the recovery will continue even if the tax credit is not extended beyond November.
A recovery is truly talking place, whether it is sustainable or not it is too strong at this stage to be played the other way. Yes it might not be sustainable, but so far all the bad things that should have occurred did not (since Lehman collapse and its consequences), and the worldwide economic stimuli proved to be enormous and efficient as the landscape is moving and time is passing by. The big question will be the recovery speed once the Central bankers and politics let thing run on their own. It might be a slower recovery, but it surely won’t collapse so much they will be all taking care of the success of such an economic rebound which will reflect their own domestic political one (Obama, Sarkozy). We do not believe the recovery will be the same as in 2003 since the alternative energies should boost other sectors than the oil one. While emerging countries will refrain oil prices from falling. We should still be heading back quickly to the pre Lehman levels 1200 on the S&P and 3200 on the cash eurostoxx, and then move upward gradually in line with the slow economic recovery process.
Chinese data out overnight are till reflecting a nice growing speed. September PMI came in at 55 compared to 55.1 in August, indicating expansion for the sixth straight month, although conditions cooled slightly from August, suggesting the rebound in industrial activity remains intact but is beginning to level off. Economists are saying the rebound is driven by strong domestic demand obviously, but also by an improvement in external demand (which is healthy). The PMI's employment conditions index rose to 53 in September from 51.8 in August, its highest level in 25 months. Meanwhile, the forward-looking new orders component came in at 58, easing from 59.3. Separately, news reports cited mainland media Wednesday as saying Chinese banks may have extended between 600 billion yuan ($87.88 billion) and 700 billion yuan worth of new loans in September.
Window dressing should remain today and will be market supportive, same for tomorrow as a new day of a very promising month should trigger some inflow from pension funds that are gradually coming back into riskier yield assets. This will be a bumpy sessions though due to the employment ADP survey, a little appetizer ahead of the important employment report on Friday.
ECONOMIC DATA WITH IMPACT
Mortgage Applications (12h UK time) / the highest the better / previous was up 12.8% / minor short term
ADP Employment change (13h15 UK time) expected –200k from previous –298k / interesting as the weak labour sector is no longer a doubt, and it is the focus of the weak with the Non Farm payrolls coming on Friday / not so much correlated on a monthly basis with the ADP though / same as on Friday, any improvement will be very welcome
Chicago PMI (14h45 UK time) expected 52 from previous 50 / minor although might be seen as a leading indicator for the ISM tomorrow
ECB’s Trichet (17h45 UK) speaks on the financial crisis
POSITIVE IMPACTS
DANONE denied speculation that it is in discussions with Mead Johnson Nutrition or that it has hired any adviser or bank to advise the company on the topic / Separately, Danone reached an amical settlement with Wahaha & will sell its 51% stake in the JV
M&S : Q2 UK like for like sales -0.5% (-1.4% exp) / Q2 international sales +9.6% / As expected, raise its FY GM guidance = Now expects the FY GM to be 50 to 100bps lower than last year vs down 125-175 basis points before
THOMAS COOK : Trading finishing strongly + winter trading improved since the last update / Confident in reaching FY targets
ADIDAS : Nike reported better : Q1 revenue $4.8bn (4.9bn exp) / Q1 EPS $1.04 (0.97 exp) tks to deep cost cuts & lower taxes / Orders for goods to be delivered from now until January fell 6%, in line with expectations / Warned that retailers & consumers remained wary…
EDISON : S&P revised its outlook to negative from stable, affirming its BBB+
SANOFI : CEO in an interview : Sanofi is likely to exercise its option to create a massive animal health JV with Merck US & give birth to an enormous player in the $19 bn global animal health market / Separately, said that vaccine revenue are exp. to double in 5 years to €5 bn / Added that Multaq launch in U.S. in line with internal expectations…
HSBC is close to selling its London, NYand Paris offices for about $2bn (Reuters)
INTESA SANPAOLO will not take up Tremonti bondand will issue Tier 1 bond of up to €1.5 bn / Sees Core Tier 1 around 7% in next 12-18 months + can count on over 200 bp of core Tier 1 from capital ops on non-core assets / Able to maintain capital targets even resuming dividend payment
NOVARTIS said its FTY720 oral drug to treat multiple sclerosis reduced both relapses and disability progression.
GSK : British health officials said that GSK's cervical cancer vaccine was "most unlikely" to have caused the death of a 14-year-old girl who died after receiving it Monday.
NEGATIVE IMPACTS
ENSKILDA BANKEN (SEBa) said it would inject more capital into its operations in Lithuania and Latvia due to rising bad loan provisions
TELENOR : A Siberian court adjourned a hearing in Telenor's appeal against $1.7 bn in damages it had been ordered to pay to Russia's Vimpelcom / The hearing will resume on March 24, 2010
LLOYDS (not new) : EU Competition Commissioner has reiterated her demand that Lloyds sell off some activities to compensate for being propped up by state aid (The Daily Telegraph)
UNICREDIT approved a capital increase of up to €4 bn / Core Tier 1 ratio would be 7.65%, above the bank's goal of 7 to 7.5%
ENI : Gazprom is considering adding a 3rd partner to its South Stream gas pipeline consortium with Eni / EDF would be this 3rd partner with a 10% stake in the project, according to the WSJ
SAAB may not get the full SEK4.3 bn ($612m) loan it has asked for from the European Investment Bank (Dagens Industri)
TUI may have to support Hapag-Lloyd further to secure state aid for the ailing shipper / TUI could be asked to convert further €700m of loans into hybrid capital by 2014 if needed
CNP : S&P s lowered its LT ratings to AA- from AA / The outlook is stable.
TRADING IDEAS
Would still buy Dollarwhich seems (at last) to be resuming its upside trend
BUY AHOLD on reversal Head & Shoulder possibility + dollar / BUY RENAULT & PEUGEOT which could resume its upside trend
BUY SAP / VOLKSWAGEN / SUN MICRO / VERIZON / QUALCOMM on double bottom possibility
BUY OIL names such as TOTAL / ENI / TECHNIP to play upside trend
SELL REPSOL / ALLIANZ / PHILIPS / SCHNEIDER & ACCOR to play Head & Shoulder possibility
SELL ALCATEL / VIVENDI / SIEMENS / ALSTOM / ENEL / IBERDROLA / DANONE on double top
SELL AMAZON / JC PENNEY / RAYTHEON / YAHOOon double top
BUY AEGON or AXA / SELL ALLIANZ // BUY HOLCIM / SELL ST GOBAIN
BUY TOTAL / SELL REPSOL // BUY RENAULT / SELL PEUGEOT BUY BEST BUY / SELL TARGET
BROKER METEOROLOGY
NOVARTIS RAISED TO BUY FROM HOLD BY CITIGROUP
LEGAL & GENERAL RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
ADIDAS RAISED TO BUY FROM SELL BY RBS
PPR RAISED TO HOLD FROM SELL BY RBS
BURBERRY RAISED TO BUY FROM HOLD BY RBS
UNICREDIT RAISED TO BUY FROM NEUTRAL BY NOMURA
DSM RAISED TO BUY FROM REDUCE BY NOMURA
INFINEON RAISED TO OUTPERFORM FROM NEUTRAL BY EXANE
STERIA RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
SEVERSTAL RAISED TO BUY FROM NEURAL BY BANK OF AMERICA – ML
LONZA REMOVED FROM EUROPEAN CHEMICALS LEAST PREFERRED LIST BY UBS
UMICORE REMOVED FROM EUROPEAN CHEMICALS LEAST PREFERRED LIST BY UBS
BAYER CUT TO NEUTRAL FROM BUY BY UBS
BAYER REMOVED FROM EUROPEAN CHEMICALS MOST PREFERRED LIST BY UBS
LINDE REMOVED FROM EUROPEAN CHEMICALS MOST PREFERRED LIST BY UBS
DASSAULT SYSTEMES CUT TO UNDERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
HOCHTIEF CUT TO UNDERPERFORM FROM OUTPERFORM BY CREDIT SUISSE
DATA
WTI : 67,1 (0,39 %)
Eur/$ : 1,4623 (0,24 %)
$ /Yen : 89,71 (0,17 )
10 Yr US : 3,30 ( 1,28 bp)
10 Yr Euro : 3,23 ( -2,5 bp)
Indices : US close ; Europe close
SOX : -1,43 %;-0,92%
S&P :-0,22 %; -0,17 %
DOW: -0,48%; -0,25 %
NAS :-0,31%; -0,36%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,08 %; 0,17 %
ENERGY : -0,33 %; -0,63 %
FINANCIAL : -0,59 %; -0,16 %
HEALTHCARE : -0,07 %; -0,05 %
TECHNO : -0,70 %; -0,57 %
TELECOM : -0,40 %; -0,66 %
INDUSTRIAL : -0,08 %; 0,10 %
UTILITIES : 0,26 %; -0,34 %
TO BE COMING
Today
Results :Man Group trading update / Marks & Spencer trading update / Kaufman & Broad / Estee Lauder / NYSE Euronext
Dividend :International Power (GBp 4,722222) / Bristol-Myers Squibb ($ 0.31)
Events :BNP Paribas capital increase subscription / Eurofins investor day
Thursday
Results : Accenture / Constellation Brand / US car sales
Dividend :
Events: Semiconductor Association conference
Friday
Results : Dior sales
Dividend : JPMorgan ($0.05) /
Events :
Monday
Results : Air-France KLM traffic / British Airways traffic / EDF energies nouvelles
Dividend :Acerinox (€ 0.10) / Comcast ($ 0.0675)
Events:
Tuesday
Results :Tesco
Dividend :
Events:
ECONOMIC DATA PREVIEW
In the United-Stateswatch the final release of the Gross Domestic Product for the second quarter(13.30 GMT). As we already mentioned in our forecast the first quarter was the bottom for the American recession. Indeed, the publication of the final figure for the US GDP will confirmed the improvement during the second quarter which should retreat by “only” 1% (annualized).
In the Euro zonewatch the first estimation of the Consumer price index for September. As energy prices are slightly dropping we forecast that consumer price index will decline by 0.2% YoY as in August confirming a stabilization of the deflation in the Euro area. Indeed the inflation should reach 0.3% in 2009 in the Euro area.
In the Germany watch the Unemployment rate for September expected to rise from 8.3% to 8.4% despite the slight recovery in Germany. This is quite logical as unemployment is a lagging indicator of the economic activity.
ECONOMY
United-States: Conference Board consumer confidence unexpectedly dropped in September
Despite the recovery which is taking place in the United-States, despite the reduction of the jobs destructions and the rise of incomes the consumer confidence index from the Conference Board declined from 54.5 in August to 53.10 in September. Nevertheless the US consumer confidence remained widely above its lowest level of 25.30 in February 2009. In addition this modest fall was reversing the sharp increase of the previous month. Looking at the breakdown we see that the current condition balance fell from 25.4 to 22.7 and the expectation balance declined very slightly from 73.8 to 73.3. Moreover despite the improvement on the labour market the employment sub index remained very weak.
Euro area: The economic confidence reached its highest level in a year in September
After reaching an historical low of 64.6 in March, the economic confidence index progressed for a sixth consecutive month in September and reach 82.8 its highest level in a year. Indeed the recovery is taking place in the euro zone as showed by the sharp increase in the business climate INSEE survey in France and by the sixth consecutive rise in IFO September index in Germany. This improvement was led by the industrial service sector and by consumer confidence all I rising on the month. As the economic confidence index is sharply correlated with the GDP this rise suggest that the economy started to expand at the third quarter after felling by 0.1% at the second quarter
Wednesday, September 30, 2009
Monday, September 28, 2009
Dressing
GLOBAL EQUITIES RESEARCH
The virtuous circle is well on track, with the M&A deals now appearing every Mondays, which should not be ending anytime soon, as not only short term window dressing will keep on supporting the equity indices, same as for the inflows of a new month and new quarter starting on Thursday now that we attended a small but welcome consolidation. On a longer term view, the possibly strong rebound in business investment over the next quarters will be the one driving both the economies but also the indices on the upside, making the front running from equity indices the right move as it mostly happened in the past.
Investment is likely to be boosted by the release of pent up demand as uncertainty fades and firms gradually get their appetite for risk back. Firms that put investment projects on hold after the collapse of Lehman Brothers a year ago are finally giving those projects the green light. This could provide a strong boost to economic growth over the next few quarters, although some still consider it would be a temporary surge. We just once more recommend to be carefully about the temporary stuff, as what might and should come behind is purely and simply some strong households consumption surveys, in line with some improving employment sector. The rapid decline in corporate bond yields means that the cost of funding investment through external financing is now much lower than it has been for a while. Moreover, firms have never been in a better position to finance investment through their own internal funds. In Q2, non-financial corporate capital expenditures accounted for a record low of only 72% of internal funds. In other words, firms could increase their investment spending by more than 20% without needing to borrow a dime.
The 2.7% surge in retail sales in August demonstrates that consumption will provide a sizeable boost to Q3 GDP . Some say once the cash for clunkers scheme on motor vehicle sales has faded then households will remain focused on rebuilding their saving rate. However, not only we recommend to play the current flow as things might change quickly especially given the speed of the financial products recovery, fully part of the panel of economic indicators, but also higher savings means further financial vehicles investments. And last but not least when remembering this was all housing bubbles' faults, the outlook for residential investment is brighter . Housing starts have started to rise again over the past few months. More generally, residential construction spending started to increase in July. There is now a good chance that the quarterly national accounts measure of residential investment could record a gain in Q3 for the first time since the start of 2006. Residential investment isn't going to provide a big boost to overall economic growth for now, but at least it is no longer subtracting 1% per quarter like it used to.
A closer look to the current week will hardly stop this positive dynamic . We mentioned dressing, new month inflows the day after chasing higher yields assets, but also Thursday ISM will hardly disappoint you. Already last month release showed new orders and production balances were playing on the 60 level which is consistent with a very strong activity . Other positives are the decline in the manufacturing inventory-to-sales ratio and the strength of the six month ahead regional activity balances, which should be even stronger in the coming months... While the Pending home sales that same day will further point to a housing recovery, and will say that the dip in the existing home sales was a one off, as the trend is improving, rather than a sign of weakness. First time buyers are profiting from tax credit, mortgage rates having fallen below 5% and mortgage applications having maintained a steady upward trend . As to the employment report on Friday, whatever bad will not be punished, keeping in mind that we could well see some upward surprises given the elements above, but mostly because of the back to school effect. And the bumpy recovery which is a fact for both bull and bear palyers, seen once more through some lower data last week (durable orders, home sales), will prevent both the Fed and the market to read negatively a possible better employment survey, the Fed will not rise rates before long, deflation remains the main threat and not inflation at this stage. Enjoy the ride.
ECONOMIC DATA WITH IMPACT
UK BOE Mortgage Approvals (9h30 UK) will probably rise to about 52,000 in August, roughly in line with increases seen in other more timely surveys. Meanwhile, households, in aggregate, repaid both mortgage and unsecured debt in July. As the recent rise in mortgage approvals feeds through, net mortgage lending may not stay negative for long.
US Case Shiller index (14h UK time) / always interesting to get housing updates
US Consumer Confidence (15h UK time) / might be improving although the high employment rate might temper the data which might more stay around last month's 55 level
POSITIVE IMPACTS
IBERDROLA : ENEL has been buying shares in the Spanish group and a possible M&A deal could take place in October (La Gaceta) / Sovereign funds from Qatar and Libya may also be building positions according to the newspaper
RWE intends to acquire from October 1, 2009 through no later than November 6, 2009 up to a maximum of 550,000 of its own shares
FINMECCANICA got a contract worth $450 m to revamp the Los Angeles railway network + supply 100 light-rail cars (La Repubblica)
UBS has received offers for its U.S wealth management business Paine Webber but a sale wouldn't make sense at current valuations (CEO) / He also said the bank will be ready to reverse its bail-out deal with the Swiss government within a year (FT)
BOLIDEN said demand is improving & such is raising smelting production close to full capacity
COMPASS said it is performing well in the Q4, with margin growth of around 70 bp expected in the Q4 and 60 bp in the FY
DAILY MAIL sees trading in line with views despite difficult conditions within consumer media
NESTE OIL’s capital market day : Financial targets remain unchanged…
TELECOM ITALIA : The Italian government is looking to secure financing from China to revamp Telecom Italia's network in exchange for Italian technology (La Repubblica) / The revamp would initially require some €800 m
PORSCHE : Qatar plans to acquire additional voting rights in Porsche in a capital increase within the next 12 months + seeks to appoint its representatives to the supervisory board
BARCLAYS is in talks to buy the banking division of Standard Life (The Times) / The deal may be priced at between £200 to £300 m
FAURECIA is interested in buying the German assets of Swedish supplier Plastal
CREDIT SUISSE’sCEOsees good chances for the bank to increase its market share among wealthy private banking customers
NATIXIS plans to sell its credit-insurance unit Coface & may do so within 2010 / SCOR may be a candidate to bid (La Tribune)
INDEP. NEWS & MEDIA reached an agreement with bondholders over a €200m bond with a €94m rights issue + debt cut of €350m
NEGATIVE IMPACTS
BNP announced a €4.3 bn capital increase to reimburse the French state's €5.1 bn non-voting shares / Following the transaction, BNP will have a tier one ratio of over 9% (pro forma as at June 30) / If we face real bull market, such announcement should boost the stock
GSK : A 14-year-old girl died after taking a cervical cancer vaccine made by GSK, but the exact cause of death isn't known (BBC)
EADS : Airbus looks set to deliver 13 A380 superjumbos in 2009 compared with its latest target of 14 / CEO also said he was worried about the level of the euro = "At the current level we are close to the limit. Beyond that it will become difficult"… (Les Echos)
RENAULT plans to close its Sandouville factory for 2 weeks in Oct. & early Nov. as sales of bigger models such as Laguna, Espace & Vel Satis remain low / PEUGEOT will shut for 9 days its Rennes production lines for thw C6, Coupe 407 & 607 (La Tribune)
BANCO POPULAR : Ram Bhavnani cut his stake to 1.5% from 2.8% (Invertia)
UNICREDIT & INTESA SANPAOLO are holding board meetings to decide whether to raise capital by selling bonds to the government
PHILIPS issued worldwide recall of automated external defibrillators
TRADING IDEAS
Would still buy Dollarwhich resumed its upside trend
SELL VIVENDI / SIEMENS / ALSTOM / ENEL / IBERDROLA / BAYER / DANONE on double top
SELL AMAZON / JC PENNEY / RAYTHEON / YAHOOon double top
BUY AHOLD / MCDONALD’S on reversal Head & Shoulder possibility
BUY METRO / VOLKSWAGEN / SUN MICRO / VERIZON / QUALCOMM on double bottom possibility
BUY TOTAL / SELL REPSOL // BUY RENAULT / SELL PEUGEOT // BUY BOUYGUES / SELL VIVENDI // BUY NESTLE / SELL DANONE
BUY LOCKHEED MARTIN / SELL UNITED TECH // BUY MGM / SELL WYNN RESORT
BROKER METEOROLOGY
RAIFFEISEN ADDED TO EUROPE 1st LIST BY BANK OF AMERICA - ML
MAERSK RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
UMICORE RAISED TO BUY FROM HOLD BY CITIGROUP
MEDIAGROUP RAISED TO NEUTRAL FROM SELL BY UBS
ANGLOGOLD CUT TO NEUTRAL FROM BUY BY UBS
ANGLO AMERICAN CUT TO HOLD FROM BUY BY SOC GEN
XTRATA CUT TO HOLD FROM BUY BY SOCIETE GENERALE
GAS NATURAL RATED NEW UNDERWEIGHT BY BARCLAYS
AUSTRIAN POST CUT TO UNDERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
UK REAL ESTATE SHARES CUT TO BENCHMARK BY CREDIT SUISSE
DATA
WTI : 66,9 (1,96 %)
Eur/$ : 1,4633 (0,07 %)
$ /Yen : 89,88 (-0,35 )
10 Yr US : 3,30 ( 1,83 bp)
10 Yr Euro : 3,25 ( -0,2 bp)
Indices : US close ; Europe close
SOX : 2,06 %;2,50%
S&P :1,78 %; 1,73 %
DOW: 1,29%; 1,41 %
NAS :1,90%; 2,14%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 2,27 %; 2,41 %
ENERGY : 1,74 %; 1,66 %
FINANCIAL : 3,36 %; 1,71 %
HEALTHCARE : 1,49 %; 1,96 %
TECHNO : 1,73 %; 2,25 %
TELECOM : 1,53 %; 1,57 %
INDUSTRIAL : 1,81 %; 1,88 %
UTILITIES : 0,95 %; 1,37 %
TO BE COMING
Today
Results :Compass trading update / Nike / Micron Technology / Jabil Circuit
Dividend :
Events :Solvay analyst meeting / Nesté capital market
Wednesday
Results : Man Group trading update / Marks & Spencer trading update / Kaufman & Broad / Estee Lauder / NYSE Euronext
Dividend : International Power (GBp 4,722222) / Bristol-Myers Squibb ($ 0.31)
Events: Eurofins investor day
Thursday
Results : Accenture / Constellation Brand / US car sales
Dividend :
Events : Semiconductor Association conference
Friday
Results : Dior sales
Dividend :JPMorgan ($0.05) /
Events:
Monday
Results :Air-France KLM traffic / British Airways traffic / EDF energies nouvelles
Dividend : Acerinox (€ 0.10) / Comcast ($ 0.0675)
Events:
ECONOMIC DATA PREVIEW
In the United-Stateswatch the Conference Board consumer confidence for September(15.00 GMT). US consumer confidence is expected to rise for the fifth time in seven months and for a second consecutive month led by the recovery in the United-States and more specifically by the drop of jobs destructions.
In the Euro zonewatch the release of the economic confidence for September. After reaching an historical low of 64.6 in March, the economic confidence index should progress for a sixth consecutive month in September and reach 81.5. Indeed the recovery is taking place in the euro zone as showed by the sharp increase in the business climate INSEE survey in France and by the sixth consecutive rise in IFO September index in Germany .
ECONOMY
United-States: Dallas Fed manufacturing activity dropped at a slower pace in September
After reaching a low point in February at -56.5 the Dallas Fed manufacturing activity index is improving every month since then dropping by -6.4 in September the “best performance” since October 2007. The Fed Manufacturing index is progressively moving toward positive territory following the recovery taking place in the United-States and in particular on the economic field. As a consequence this index should turn positive by the end of the year.
Germany: Inflation falls more sharply than expected in September
After dropping by 0.5%YoY in July due to “negative base effects” as oil price was at his pick in July 2008 ($147 a barrel), German’s inflation stabilized at 0.0% in August. September release showed an unexpected fall of inflation at -0.3% YoY explained as well by temporary base effects in energy components. Meanwhile consumer price index dropped from 0.2% in August to -0.4% in September as oil and energy prices are in a down trend. Nevertheless as “negative base effects” will not last and as the recovery is progressively taking place, German’s inflation should step out of the deflation by the end of the year to get back into positive territory and reach 0.7% in 2009
The virtuous circle is well on track, with the M&A deals now appearing every Mondays, which should not be ending anytime soon, as not only short term window dressing will keep on supporting the equity indices, same as for the inflows of a new month and new quarter starting on Thursday now that we attended a small but welcome consolidation. On a longer term view, the possibly strong rebound in business investment over the next quarters will be the one driving both the economies but also the indices on the upside, making the front running from equity indices the right move as it mostly happened in the past.
Investment is likely to be boosted by the release of pent up demand as uncertainty fades and firms gradually get their appetite for risk back. Firms that put investment projects on hold after the collapse of Lehman Brothers a year ago are finally giving those projects the green light. This could provide a strong boost to economic growth over the next few quarters, although some still consider it would be a temporary surge. We just once more recommend to be carefully about the temporary stuff, as what might and should come behind is purely and simply some strong households consumption surveys, in line with some improving employment sector. The rapid decline in corporate bond yields means that the cost of funding investment through external financing is now much lower than it has been for a while. Moreover, firms have never been in a better position to finance investment through their own internal funds. In Q2, non-financial corporate capital expenditures accounted for a record low of only 72% of internal funds. In other words, firms could increase their investment spending by more than 20% without needing to borrow a dime.
The 2.7% surge in retail sales in August demonstrates that consumption will provide a sizeable boost to Q3 GDP . Some say once the cash for clunkers scheme on motor vehicle sales has faded then households will remain focused on rebuilding their saving rate. However, not only we recommend to play the current flow as things might change quickly especially given the speed of the financial products recovery, fully part of the panel of economic indicators, but also higher savings means further financial vehicles investments. And last but not least when remembering this was all housing bubbles' faults, the outlook for residential investment is brighter . Housing starts have started to rise again over the past few months. More generally, residential construction spending started to increase in July. There is now a good chance that the quarterly national accounts measure of residential investment could record a gain in Q3 for the first time since the start of 2006. Residential investment isn't going to provide a big boost to overall economic growth for now, but at least it is no longer subtracting 1% per quarter like it used to.
A closer look to the current week will hardly stop this positive dynamic . We mentioned dressing, new month inflows the day after chasing higher yields assets, but also Thursday ISM will hardly disappoint you. Already last month release showed new orders and production balances were playing on the 60 level which is consistent with a very strong activity . Other positives are the decline in the manufacturing inventory-to-sales ratio and the strength of the six month ahead regional activity balances, which should be even stronger in the coming months... While the Pending home sales that same day will further point to a housing recovery, and will say that the dip in the existing home sales was a one off, as the trend is improving, rather than a sign of weakness. First time buyers are profiting from tax credit, mortgage rates having fallen below 5% and mortgage applications having maintained a steady upward trend . As to the employment report on Friday, whatever bad will not be punished, keeping in mind that we could well see some upward surprises given the elements above, but mostly because of the back to school effect. And the bumpy recovery which is a fact for both bull and bear palyers, seen once more through some lower data last week (durable orders, home sales), will prevent both the Fed and the market to read negatively a possible better employment survey, the Fed will not rise rates before long, deflation remains the main threat and not inflation at this stage. Enjoy the ride.
ECONOMIC DATA WITH IMPACT
UK BOE Mortgage Approvals (9h30 UK) will probably rise to about 52,000 in August, roughly in line with increases seen in other more timely surveys. Meanwhile, households, in aggregate, repaid both mortgage and unsecured debt in July. As the recent rise in mortgage approvals feeds through, net mortgage lending may not stay negative for long.
US Case Shiller index (14h UK time) / always interesting to get housing updates
US Consumer Confidence (15h UK time) / might be improving although the high employment rate might temper the data which might more stay around last month's 55 level
POSITIVE IMPACTS
IBERDROLA : ENEL has been buying shares in the Spanish group and a possible M&A deal could take place in October (La Gaceta) / Sovereign funds from Qatar and Libya may also be building positions according to the newspaper
RWE intends to acquire from October 1, 2009 through no later than November 6, 2009 up to a maximum of 550,000 of its own shares
FINMECCANICA got a contract worth $450 m to revamp the Los Angeles railway network + supply 100 light-rail cars (La Repubblica)
UBS has received offers for its U.S wealth management business Paine Webber but a sale wouldn't make sense at current valuations (CEO) / He also said the bank will be ready to reverse its bail-out deal with the Swiss government within a year (FT)
BOLIDEN said demand is improving & such is raising smelting production close to full capacity
COMPASS said it is performing well in the Q4, with margin growth of around 70 bp expected in the Q4 and 60 bp in the FY
DAILY MAIL sees trading in line with views despite difficult conditions within consumer media
NESTE OIL’s capital market day : Financial targets remain unchanged…
TELECOM ITALIA : The Italian government is looking to secure financing from China to revamp Telecom Italia's network in exchange for Italian technology (La Repubblica) / The revamp would initially require some €800 m
PORSCHE : Qatar plans to acquire additional voting rights in Porsche in a capital increase within the next 12 months + seeks to appoint its representatives to the supervisory board
BARCLAYS is in talks to buy the banking division of Standard Life (The Times) / The deal may be priced at between £200 to £300 m
FAURECIA is interested in buying the German assets of Swedish supplier Plastal
CREDIT SUISSE’sCEOsees good chances for the bank to increase its market share among wealthy private banking customers
NATIXIS plans to sell its credit-insurance unit Coface & may do so within 2010 / SCOR may be a candidate to bid (La Tribune)
INDEP. NEWS & MEDIA reached an agreement with bondholders over a €200m bond with a €94m rights issue + debt cut of €350m
NEGATIVE IMPACTS
BNP announced a €4.3 bn capital increase to reimburse the French state's €5.1 bn non-voting shares / Following the transaction, BNP will have a tier one ratio of over 9% (pro forma as at June 30) / If we face real bull market, such announcement should boost the stock
GSK : A 14-year-old girl died after taking a cervical cancer vaccine made by GSK, but the exact cause of death isn't known (BBC)
EADS : Airbus looks set to deliver 13 A380 superjumbos in 2009 compared with its latest target of 14 / CEO also said he was worried about the level of the euro = "At the current level we are close to the limit. Beyond that it will become difficult"… (Les Echos)
RENAULT plans to close its Sandouville factory for 2 weeks in Oct. & early Nov. as sales of bigger models such as Laguna, Espace & Vel Satis remain low / PEUGEOT will shut for 9 days its Rennes production lines for thw C6, Coupe 407 & 607 (La Tribune)
BANCO POPULAR : Ram Bhavnani cut his stake to 1.5% from 2.8% (Invertia)
UNICREDIT & INTESA SANPAOLO are holding board meetings to decide whether to raise capital by selling bonds to the government
PHILIPS issued worldwide recall of automated external defibrillators
TRADING IDEAS
Would still buy Dollarwhich resumed its upside trend
SELL VIVENDI / SIEMENS / ALSTOM / ENEL / IBERDROLA / BAYER / DANONE on double top
SELL AMAZON / JC PENNEY / RAYTHEON / YAHOOon double top
BUY AHOLD / MCDONALD’S on reversal Head & Shoulder possibility
BUY METRO / VOLKSWAGEN / SUN MICRO / VERIZON / QUALCOMM on double bottom possibility
BUY TOTAL / SELL REPSOL // BUY RENAULT / SELL PEUGEOT // BUY BOUYGUES / SELL VIVENDI // BUY NESTLE / SELL DANONE
BUY LOCKHEED MARTIN / SELL UNITED TECH // BUY MGM / SELL WYNN RESORT
BROKER METEOROLOGY
RAIFFEISEN ADDED TO EUROPE 1st LIST BY BANK OF AMERICA - ML
MAERSK RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
UMICORE RAISED TO BUY FROM HOLD BY CITIGROUP
MEDIAGROUP RAISED TO NEUTRAL FROM SELL BY UBS
ANGLOGOLD CUT TO NEUTRAL FROM BUY BY UBS
ANGLO AMERICAN CUT TO HOLD FROM BUY BY SOC GEN
XTRATA CUT TO HOLD FROM BUY BY SOCIETE GENERALE
GAS NATURAL RATED NEW UNDERWEIGHT BY BARCLAYS
AUSTRIAN POST CUT TO UNDERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
UK REAL ESTATE SHARES CUT TO BENCHMARK BY CREDIT SUISSE
DATA
WTI : 66,9 (1,96 %)
Eur/$ : 1,4633 (0,07 %)
$ /Yen : 89,88 (-0,35 )
10 Yr US : 3,30 ( 1,83 bp)
10 Yr Euro : 3,25 ( -0,2 bp)
Indices : US close ; Europe close
SOX : 2,06 %;2,50%
S&P :1,78 %; 1,73 %
DOW: 1,29%; 1,41 %
NAS :1,90%; 2,14%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 2,27 %; 2,41 %
ENERGY : 1,74 %; 1,66 %
FINANCIAL : 3,36 %; 1,71 %
HEALTHCARE : 1,49 %; 1,96 %
TECHNO : 1,73 %; 2,25 %
TELECOM : 1,53 %; 1,57 %
INDUSTRIAL : 1,81 %; 1,88 %
UTILITIES : 0,95 %; 1,37 %
TO BE COMING
Today
Results :Compass trading update / Nike / Micron Technology / Jabil Circuit
Dividend :
Events :Solvay analyst meeting / Nesté capital market
Wednesday
Results : Man Group trading update / Marks & Spencer trading update / Kaufman & Broad / Estee Lauder / NYSE Euronext
Dividend : International Power (GBp 4,722222) / Bristol-Myers Squibb ($ 0.31)
Events: Eurofins investor day
Thursday
Results : Accenture / Constellation Brand / US car sales
Dividend :
Events : Semiconductor Association conference
Friday
Results : Dior sales
Dividend :JPMorgan ($0.05) /
Events:
Monday
Results :Air-France KLM traffic / British Airways traffic / EDF energies nouvelles
Dividend : Acerinox (€ 0.10) / Comcast ($ 0.0675)
Events:
ECONOMIC DATA PREVIEW
In the United-Stateswatch the Conference Board consumer confidence for September(15.00 GMT). US consumer confidence is expected to rise for the fifth time in seven months and for a second consecutive month led by the recovery in the United-States and more specifically by the drop of jobs destructions.
In the Euro zonewatch the release of the economic confidence for September. After reaching an historical low of 64.6 in March, the economic confidence index should progress for a sixth consecutive month in September and reach 81.5. Indeed the recovery is taking place in the euro zone as showed by the sharp increase in the business climate INSEE survey in France and by the sixth consecutive rise in IFO September index in Germany .
ECONOMY
United-States: Dallas Fed manufacturing activity dropped at a slower pace in September
After reaching a low point in February at -56.5 the Dallas Fed manufacturing activity index is improving every month since then dropping by -6.4 in September the “best performance” since October 2007. The Fed Manufacturing index is progressively moving toward positive territory following the recovery taking place in the United-States and in particular on the economic field. As a consequence this index should turn positive by the end of the year.
Germany: Inflation falls more sharply than expected in September
After dropping by 0.5%YoY in July due to “negative base effects” as oil price was at his pick in July 2008 ($147 a barrel), German’s inflation stabilized at 0.0% in August. September release showed an unexpected fall of inflation at -0.3% YoY explained as well by temporary base effects in energy components. Meanwhile consumer price index dropped from 0.2% in August to -0.4% in September as oil and energy prices are in a down trend. Nevertheless as “negative base effects” will not last and as the recovery is progressively taking place, German’s inflation should step out of the deflation by the end of the year to get back into positive territory and reach 0.7% in 2009
Thursday, September 24, 2009
Pittsburger
GLOBAL EQUITIES RESEARCH
Yesterday’s FOMC statement suggests that “economic activity has picked up following its severe downturn” while it suggested on August 12th meeting that “economic activity is levelling out”. As for the current situation, conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be 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, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
Despite acknowledging that "economic activity has picked up" and that it expects to see a further "strengthening of economic growth", the Fed today maintained its commitment to keep the fed funds rate at "exceptionally low levels" for "an extended period" and offered not the slightest hint that it would be considering reversing quantitative easing any time soon. The only real news in today's statement is that the Fed will take an extra three months to buy the $1.45trn in mortgage-backed securities and $200bn agency debt that it has already pledged to purchase. It originally planned to have those purchases completed by the end of this year, but will now take until the end of the first quarter of 2010. As of last week, the Fed had only bought about half of the mortgage-backed securities and about two-thirds of the agency debt. It would be difficult to buy the same amount again in little more than three months. With economic conditions improving and 30-year fixed mortgage rates dipping back below 5% last week, the Fed can afford to take its time. Stretching out the purchases will also minimise the disruption to the markets when the Fed brings its quantitative easing operations to an end. With the unemployment rate still headed higher and considerable resource slack putting downward pressure on prices there are plenty of reasons for the Fed to hold off tightening policy.
As for “exit strategy”, the Fed’s purchase of $300bn of Treasury securities will be completed by the end of October 2009 (the Fed has just $11bn left for such purchases), and there should not be any extension of this program. Some investors are still convinced that quantitative easing will necessarily lead to high inflation, but the bottom line is that for the past few months the broad money and credit aggregates have been shrinking. Market interest rate expectations for next year have been dropping back recently and today's statement from the Fed may drive them even lower.
Analysts have paid more attention to the government’s debt sales in the past several months in search of signals of whether investors, particularly foreign central banks, remain willing to buy U.S debt and the dollar.
Tuesday’s $43bn 2-year note auction sold at a yield of of 1.034 %, with investors bidding for 3.23 times the amount the amount of debt available, the highest bid-to-cover ratio since September 2007. Yesterday, the Treasury sold $40bn in 5-year notes at a yield of 2.47%. Investors bid for 2.40 times the amount of debt available compared to 2.34 times on average at the last three auctions of the notes. Indirect bidders, a class of investors that includes foreign central banks, purchased 44.8% of the sale. On average, they bought 52% in the last three auctions since June.
The G20 meeting is the second major event of the week, even if it may be regarded as a non-event. Bankers’ pay is under intense scrutiny from governments and is sure to be a central topic of today’s and tomorrow’s meeting of the G20 in Pittsburgh. As for bonuses, U.S. regulators, led by the Fed, are intensifying efforts to gather data on banks’ trading positions in a move that could herald a drive to ensure traders’ bonuses are based on real profits rather than unrealised gains that might never materialise. In recent weeks, important banks have been asked to provide a detailed breakdown of their balance sheets, with particular attention to their trading books. The authorities wanted to know what proportion of a bank’s balance sheet was held in more liquid positions and how much was held in derivatives and other trading positions whose profitability might not be known for years. The aim is to overhaul Wall Street’s tradition of paying traders yearly bonuses based on paper gains on their positions at the end of each year before it is known whether they they have made a loss or a profit in cash terms. By determining extent of realised and unrealised gains, regulators would be able to judge whether the size and composition of traders’ bonuses was in line with the profitability and risk profile of their institutions. Several banks have introduced provisions to “claw back” a portion of traders’ bonuses if their bets end up losing money. But the Fed proposal goes further, as it would give authorities the power to tell banks to change compensation structures for certain employees. More generally, the US and Europe want to push on the issue of global rebalancing, and quickly establish a credible process for monitoring the efforts of the surplus countries to boost domestic demand. China meanwhile will try to shift the focus on to measures to avoid protectionism and will likely stress what they are actually doing to lift domestic demand. Given the fragility of the economic recovery we expect policy makers to remain cautious about withdrawing economic stimulus, though political momentum for tighter regulation of the financial sector is building. Policymakers have advocated measures to reduce leverage and increase the quantity and quality of capital that must be held by banks, including a substantial cyclical element whereby banks have to put aside more reserves in better times. The G20’s Financial Stability Board is expected to make specific proposals in Pittsburgh.
Yesterday, U.S. equities retreated while Treasuries rose (10-year rate at 3.41 % vs. 3.45 %) as the Fed acknowledged recovery but reiterated commitment to keep rates low for extended period. The dollar strengthened (1.4719 EUR/USD vs. yesterday’s intraday high of 1.4844), dragging down metal and oil prices (the WTI price plunged to $68.67 /bbl vs. $71.55 after stockpiles rose sharply). This morning the Nikkei was up (+1.16 % at 05.35 GMT) while U.S. index futures were down: DJIA -0.40 %, S&P 500 -0.40 %, Nasdaq -0.40 %. Consolidation should prevail at the opening of European markets.
ECONOMIC DATA WITH IMPACT
Jobless Claims (13h30 UK) expected 550k from previous 545k / minor as weekly data and although improving remains an low level
Existing Home sales (15h UK) expected 5.35m from previous 5.24m / the rise in Pending home sales index in July and the recent strength of the housing news indicates some upside possibility / interesting
German IFO business survey (09.00 UK) should rise from 90.5 to about 93.0, given further evidence of a recovery in global demand and clear signs from the monthly hard data that German exports are responding / interesting
POSITIVE IMPACTS
SANOFI : An HIV vaccine has for the first time been proven effective against the virus responsible for AIDS (US research) = A combination effort that includes Alvac, made by Sanofi, and Aidsvax (Vaxgen) prevented infections in 31.2% of the cases
INBEV : Blackstone is looking into a possible deal to buy InBev 's theme parks as it would fold nicely into its London-based Merlin Entertainments Group / Analysts have estimated a sale could fetch between $2 bn and $5 bn…
H&M : Q3 sales SK23.5bn (24.4bn exp) / GM 61.6% (60% exp) / PTP SK4.8bn (4.7bn exp) / But August sales disappointing : -3% vs +5% expected… / August like-for-like sales -11% vs –4.9% exp …
HOCHTIEF is making progress in its plans to float its airport concessions unit on the stock market (FTD) / DBk, GS and Citigroup are leading the transaction & a presentation to analysts is set of early October / Hochtief plans to retain a majority stake in the unit.
JULIUS BAER's U.S. AM unit priced shares at the top of the estimated price range in its IPO + boosted the size of the share issue
ABB : Fitch has changed ABB's outlook to positive from stable as the financial profile is likely to remain resilient in the medium-term despite possible further slowdown in demand for its products and services / BBB+ rating confirmed
SOLVAY : Abbott Laboratories would have made an offer to buy the drug unit of Solvay (WSJ) but details of Abbott's offer could not be learned / Nycomed, would have recently made a fully financed €4 to 4.5 bn offer to buy the unit / UCB is also considering a bid
TUI's major shareholder John Fredriksen confirmed that he has hiked his stake in the company to about 19% from 18%
EADS : Airbus hopes to get funding from France’s planned public loan to help pay for the development of a new generation of civil aircraft (COO in Le Figaro) / The project needs additional investment of between €800 m and €1 bn by 2015
E.ON is discussing the sale of its German high-voltage power lines to Dutch electricity-grid operator TENNET
VIDEO GAMES (Ubisoft…) : Shares of Electronic Arts surged yesterday in WS on speculation that Microsoft was considering buying the videogame maker (Nonsense as MSFT has its own videogame console & its own developping plans…) / Microsoft denied
NEGATIVE IMPACTS
ALCATEL’s CEO said his company is not in merger talks with any of its rivals, dismissing speculation a deal might be in the works.
VEOLIA : France's ecology minister M. Borloo could run Veolia if Veolia's current head got the top job at EDF (L'Express)
UNICREDIT : Foundation shareholders appeared to be supporting a capital increase but depending on the "dividend prospects"
INTESA SANPAOLO has decided to resume plans to list Banca Fideuram, rather than sell it, after a sale to Exor waned (MF-DJ)
DSM said that Q3 operating profit before one-offs is expected to be about €120m (130m exp) / No more outlook for FY09 / Said that base chemicals & materials cluster is still expected to be loss-making in 2009, in spite of a strong improvement in Q3…
DEXIA's sale of its French life insurance unit Dexia Epargne Pension now has 2 candidates after Credit Mutuel pulled out (Les Echos)
BG Group’s CEO sold 1.6m shares at £11.13 a share
TRADING IDEAS
SELL SIEMENS / ALSTOM / DBK / CAP GEMINI / STM / ENEL / IBERDROLA / BAYER / DANONE / RAYTHEON / YAHOOon double top
SELL EDF / LAFARGE / UPS with island possibility still / SELL AIR LIQUIDE & LINDE seems toppish for now
Would still buy Dollarwhich should resume its upside trend as soon as the Fed is happy with the employment as carry trades will unwind
BUY DEUTSCHE TELEKOM / VOLKSWAGEN / VERIZON / QUALCOMM / TEXAS on double bottom possibility
BUY SODEXO / SELL ACCOR // BUY PEUGEOT / SELL BMW // BUY DEUTSCHE TEL / SELL FRANCE TEL // BUY TECHNIP / SELL VALLOUREC // BUY ENI or BP / SELL REPSOL // BUY NESTLE / SELL DANONE // BUY QUALCOMM / SELL JUNIPER
BROKER METEOROLOGY
GAZPROM RATED NEW BUY BY NOMURA
PORSCHE PREF RAISED TO BUY FROM NEUTRAL BY NOMURA
BUREAU VERITAS RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY MORGAN STANLEY
SGS RAISED TO EQUALWEIGHT FROM UNDERWEIGHT BY MORGAN STANLEY
FRESENIUS SE RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
NOBEL BIOCARE RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
ACTELION RAISED TO BUY BY BANK OF AMERICA - ML
PETROPLUS ADDED TO EUROPE 1 LIST BY BANK OF AMERICA – ML
TELEKOM AUSTRIA RATED NEW BUY BY ING
RENEWABLE ENERGY STARTED AT BUY BY HSBC
IBERIA STARTED AT BUY BY UBS
LUFTHANSA STARTED AT BUY BY UBS
SAFRAN RAISED TO BUY FROM HOLD BY RBS
SIEMENS INVESTORS URGED TO TAKE PROFIT ON THEIR LONG POSITIONS BY MORGAN STANLEY
BRITISH AIRWAYS CUT TO HOLD FROM BUY BY CITIGROUP
SAS CUT TO SELL BY CITIGROUP
AIRFRANCE-KLM STARTED AT SELL BY UBS
ASTRAZENECA CUT TO SELL FROM NEUTRAL BY GOLDMAN SACHS
AUDIKA CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
NOVATEK CUT TO REDUCE FROM BUY BY NOMURA
EVRAZ CUT TO NEUTRAL FROM BUY BY UBS
TNT CUT TO UNDERWEIGHT FROM NEUTRAL BY HSBC
DATA
WTI : 68,3 (-4,93 %)
Eur/$ : 1,4723 (-0,08 %)
$ /Yen : 90,83 (0,59 )
10 Yr US : 3,40 ( -1,49 bp)
10 Yr Euro : 3,37 ( -2,2 bp)
Indices : US close ; Europe close
SOX : 0,52 %;1,21%
S&P :-1,01 %; -0,15 %
DOW: -0,83%; -0,06 %
NAS :-0,69%; 0,01%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -2,38 %; -1,28 %
ENERGY : -1,91 %; -1,41 %
FINANCIAL : -2,05 %; -0,40 %
HEALTHCARE : -1,08 %; -0,44 %
TECHNO : -0,30 %; 0,32 %
TELECOM : 1,50 %; 1,93 %
INDUSTRIAL : -0,99 %; -0,21 %
UTILITIES : -0,57 %; 0,16 %
TO BE COMING
Today
Results :LSE trading updtae /Hennes & Mauritz / RIM
Dividend :Philip Morris ($ 0.58)
Events :Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results : KB home
Dividend :
Events: DSM analyst day
Monday
Results : TUI trading update / Prudential / Wolseley / Beneteau sales
Dividend : Colruyt ( GBp 4,722222) / Dow Chemical ($ 0,15) / Kraft Foods ($ 0.29) / US Bancorp ( $ 0,05) / Xerox Corp ( $ 0,0425)
Events : FedEx AGM
Tuesday
Results : Compass trading update / Nike
Dividend :
Events: Solvay analyst meeting / Nesté capital market
Wednesday
Results : Man Group trading update / Marks & Spencer trading update / Kaufman & Broad
Dividend : International Power (GBp 4,722222) / Bristol-Myers Squibb ($ 0.31)
Events:Eurofins investor day
ECONOMIC DATA PREVIEW
In the United-Stateswatch the weekly release of the initial jobless claims and continuing claims (13.30 GMT), both statistics are expected to decrease as the labour market which has reached a bottom is progressively recovering. Nevertheless there will not be any substantial improvement of unemployment before spring 2010.
In Germanywatch the IFO business confidence (9.00 GMT)for September. After reaching an historical low at 82.2 in March, the IFO index measuring the German’s industrial confidence recorded its fifth consecutive monthly rise, reaching 90.5 in August, the highest since September 2008. Indeed, after reducing stocks and investments drastically, the German industry is now putting itself together. However, taking into account the end of the car incentives and the approaching of German’s elections, we now forecast stabilization of the IFO index at 90.5 in September.
ECONOMY
United-States: Status quo for the Fed Funds
Conscious of the gravity of the situation, the Fed has been very reactive in maintaining its leading rates at between 0 and 0.25% since December 2008. The maximum has been done in order to save the economy of Uncle Sam, consequently: cutting further the Fed funds rates will be useless. Nevertheless, after being very accommodative, the Fed will have to lead the recovery to compose with the return of higher consumer prices. Consequently the Fed will be forced to increase its fund rates. On this point, Ben Bernanke confirmed that the Fed will not adopt such a policy as long as unemployment does not drop significantly, and will not commit itself into a phase of tough monetary tightening in order not to penalize the recovery. This is why we anticipate Fed fund rates to rise to 0.5% in spring 2010 and reach 1.75% in a year from now.
Euro area: PMI manufacturing and services rose in September
Improving every month since last March and after reaching the level of 48.2 in August, the PMI manufacturing index in the euro zone should rose again in September to reach 49.0. Following the slight economic recovery in the euro zone, this index is progressively getting closer to 50, marking the border between contraction expansion of economic activity. On the other hand, PMI services index which has been improving every month since March and which reached 49.9 in August, rose to 50.6 (prior49.9) in September confirming the recovery in the services sector.
Nevertheless if the euro zone did reached a bottom floor, the effects of the revival plan are fading and the recovery remains fragile at the manufacturing level as well as services.
France: household consumption dropped in July-August and sharp rise of the business climate indicator
French household consumption dropped in July (-1.2%) and in August(-1.0%) confirming that household situation remained fragile. Nevertheless July-August drop is a logical technical correction. Indeed from a year ago at -1.3% YoY the household consumption is resisting. Meanwhile French business climate rose to 85 the highest level since October 2008 showing that the recovery is indeed taking place. Of course the household consumption good resistance is widely explained by the “car incentive” and consumers spending should resist till next winter. In such conditions the French GDP should reach +0.3% at the third and at the fourth quarter 2009 and should decrease by “only”2.1% in 2009./
Yesterday’s FOMC statement suggests that “economic activity has picked up following its severe downturn” while it suggested on August 12th meeting that “economic activity is levelling out”. As for the current situation, conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be 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, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability. With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
Despite acknowledging that "economic activity has picked up" and that it expects to see a further "strengthening of economic growth", the Fed today maintained its commitment to keep the fed funds rate at "exceptionally low levels" for "an extended period" and offered not the slightest hint that it would be considering reversing quantitative easing any time soon. The only real news in today's statement is that the Fed will take an extra three months to buy the $1.45trn in mortgage-backed securities and $200bn agency debt that it has already pledged to purchase. It originally planned to have those purchases completed by the end of this year, but will now take until the end of the first quarter of 2010. As of last week, the Fed had only bought about half of the mortgage-backed securities and about two-thirds of the agency debt. It would be difficult to buy the same amount again in little more than three months. With economic conditions improving and 30-year fixed mortgage rates dipping back below 5% last week, the Fed can afford to take its time. Stretching out the purchases will also minimise the disruption to the markets when the Fed brings its quantitative easing operations to an end. With the unemployment rate still headed higher and considerable resource slack putting downward pressure on prices there are plenty of reasons for the Fed to hold off tightening policy.
As for “exit strategy”, the Fed’s purchase of $300bn of Treasury securities will be completed by the end of October 2009 (the Fed has just $11bn left for such purchases), and there should not be any extension of this program. Some investors are still convinced that quantitative easing will necessarily lead to high inflation, but the bottom line is that for the past few months the broad money and credit aggregates have been shrinking. Market interest rate expectations for next year have been dropping back recently and today's statement from the Fed may drive them even lower.
Analysts have paid more attention to the government’s debt sales in the past several months in search of signals of whether investors, particularly foreign central banks, remain willing to buy U.S debt and the dollar.
Tuesday’s $43bn 2-year note auction sold at a yield of of 1.034 %, with investors bidding for 3.23 times the amount the amount of debt available, the highest bid-to-cover ratio since September 2007. Yesterday, the Treasury sold $40bn in 5-year notes at a yield of 2.47%. Investors bid for 2.40 times the amount of debt available compared to 2.34 times on average at the last three auctions of the notes. Indirect bidders, a class of investors that includes foreign central banks, purchased 44.8% of the sale. On average, they bought 52% in the last three auctions since June.
The G20 meeting is the second major event of the week, even if it may be regarded as a non-event. Bankers’ pay is under intense scrutiny from governments and is sure to be a central topic of today’s and tomorrow’s meeting of the G20 in Pittsburgh. As for bonuses, U.S. regulators, led by the Fed, are intensifying efforts to gather data on banks’ trading positions in a move that could herald a drive to ensure traders’ bonuses are based on real profits rather than unrealised gains that might never materialise. In recent weeks, important banks have been asked to provide a detailed breakdown of their balance sheets, with particular attention to their trading books. The authorities wanted to know what proportion of a bank’s balance sheet was held in more liquid positions and how much was held in derivatives and other trading positions whose profitability might not be known for years. The aim is to overhaul Wall Street’s tradition of paying traders yearly bonuses based on paper gains on their positions at the end of each year before it is known whether they they have made a loss or a profit in cash terms. By determining extent of realised and unrealised gains, regulators would be able to judge whether the size and composition of traders’ bonuses was in line with the profitability and risk profile of their institutions. Several banks have introduced provisions to “claw back” a portion of traders’ bonuses if their bets end up losing money. But the Fed proposal goes further, as it would give authorities the power to tell banks to change compensation structures for certain employees. More generally, the US and Europe want to push on the issue of global rebalancing, and quickly establish a credible process for monitoring the efforts of the surplus countries to boost domestic demand. China meanwhile will try to shift the focus on to measures to avoid protectionism and will likely stress what they are actually doing to lift domestic demand. Given the fragility of the economic recovery we expect policy makers to remain cautious about withdrawing economic stimulus, though political momentum for tighter regulation of the financial sector is building. Policymakers have advocated measures to reduce leverage and increase the quantity and quality of capital that must be held by banks, including a substantial cyclical element whereby banks have to put aside more reserves in better times. The G20’s Financial Stability Board is expected to make specific proposals in Pittsburgh.
Yesterday, U.S. equities retreated while Treasuries rose (10-year rate at 3.41 % vs. 3.45 %) as the Fed acknowledged recovery but reiterated commitment to keep rates low for extended period. The dollar strengthened (1.4719 EUR/USD vs. yesterday’s intraday high of 1.4844), dragging down metal and oil prices (the WTI price plunged to $68.67 /bbl vs. $71.55 after stockpiles rose sharply). This morning the Nikkei was up (+1.16 % at 05.35 GMT) while U.S. index futures were down: DJIA -0.40 %, S&P 500 -0.40 %, Nasdaq -0.40 %. Consolidation should prevail at the opening of European markets.
ECONOMIC DATA WITH IMPACT
Jobless Claims (13h30 UK) expected 550k from previous 545k / minor as weekly data and although improving remains an low level
Existing Home sales (15h UK) expected 5.35m from previous 5.24m / the rise in Pending home sales index in July and the recent strength of the housing news indicates some upside possibility / interesting
German IFO business survey (09.00 UK) should rise from 90.5 to about 93.0, given further evidence of a recovery in global demand and clear signs from the monthly hard data that German exports are responding / interesting
POSITIVE IMPACTS
SANOFI : An HIV vaccine has for the first time been proven effective against the virus responsible for AIDS (US research) = A combination effort that includes Alvac, made by Sanofi, and Aidsvax (Vaxgen) prevented infections in 31.2% of the cases
INBEV : Blackstone is looking into a possible deal to buy InBev 's theme parks as it would fold nicely into its London-based Merlin Entertainments Group / Analysts have estimated a sale could fetch between $2 bn and $5 bn…
H&M : Q3 sales SK23.5bn (24.4bn exp) / GM 61.6% (60% exp) / PTP SK4.8bn (4.7bn exp) / But August sales disappointing : -3% vs +5% expected… / August like-for-like sales -11% vs –4.9% exp …
HOCHTIEF is making progress in its plans to float its airport concessions unit on the stock market (FTD) / DBk, GS and Citigroup are leading the transaction & a presentation to analysts is set of early October / Hochtief plans to retain a majority stake in the unit.
JULIUS BAER's U.S. AM unit priced shares at the top of the estimated price range in its IPO + boosted the size of the share issue
ABB : Fitch has changed ABB's outlook to positive from stable as the financial profile is likely to remain resilient in the medium-term despite possible further slowdown in demand for its products and services / BBB+ rating confirmed
SOLVAY : Abbott Laboratories would have made an offer to buy the drug unit of Solvay (WSJ) but details of Abbott's offer could not be learned / Nycomed, would have recently made a fully financed €4 to 4.5 bn offer to buy the unit / UCB is also considering a bid
TUI's major shareholder John Fredriksen confirmed that he has hiked his stake in the company to about 19% from 18%
EADS : Airbus hopes to get funding from France’s planned public loan to help pay for the development of a new generation of civil aircraft (COO in Le Figaro) / The project needs additional investment of between €800 m and €1 bn by 2015
E.ON is discussing the sale of its German high-voltage power lines to Dutch electricity-grid operator TENNET
VIDEO GAMES (Ubisoft…) : Shares of Electronic Arts surged yesterday in WS on speculation that Microsoft was considering buying the videogame maker (Nonsense as MSFT has its own videogame console & its own developping plans…) / Microsoft denied
NEGATIVE IMPACTS
ALCATEL’s CEO said his company is not in merger talks with any of its rivals, dismissing speculation a deal might be in the works.
VEOLIA : France's ecology minister M. Borloo could run Veolia if Veolia's current head got the top job at EDF (L'Express)
UNICREDIT : Foundation shareholders appeared to be supporting a capital increase but depending on the "dividend prospects"
INTESA SANPAOLO has decided to resume plans to list Banca Fideuram, rather than sell it, after a sale to Exor waned (MF-DJ)
DSM said that Q3 operating profit before one-offs is expected to be about €120m (130m exp) / No more outlook for FY09 / Said that base chemicals & materials cluster is still expected to be loss-making in 2009, in spite of a strong improvement in Q3…
DEXIA's sale of its French life insurance unit Dexia Epargne Pension now has 2 candidates after Credit Mutuel pulled out (Les Echos)
BG Group’s CEO sold 1.6m shares at £11.13 a share
TRADING IDEAS
SELL SIEMENS / ALSTOM / DBK / CAP GEMINI / STM / ENEL / IBERDROLA / BAYER / DANONE / RAYTHEON / YAHOOon double top
SELL EDF / LAFARGE / UPS with island possibility still / SELL AIR LIQUIDE & LINDE seems toppish for now
Would still buy Dollarwhich should resume its upside trend as soon as the Fed is happy with the employment as carry trades will unwind
BUY DEUTSCHE TELEKOM / VOLKSWAGEN / VERIZON / QUALCOMM / TEXAS on double bottom possibility
BUY SODEXO / SELL ACCOR // BUY PEUGEOT / SELL BMW // BUY DEUTSCHE TEL / SELL FRANCE TEL // BUY TECHNIP / SELL VALLOUREC // BUY ENI or BP / SELL REPSOL // BUY NESTLE / SELL DANONE // BUY QUALCOMM / SELL JUNIPER
BROKER METEOROLOGY
GAZPROM RATED NEW BUY BY NOMURA
PORSCHE PREF RAISED TO BUY FROM NEUTRAL BY NOMURA
BUREAU VERITAS RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY MORGAN STANLEY
SGS RAISED TO EQUALWEIGHT FROM UNDERWEIGHT BY MORGAN STANLEY
FRESENIUS SE RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
NOBEL BIOCARE RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
ACTELION RAISED TO BUY BY BANK OF AMERICA - ML
PETROPLUS ADDED TO EUROPE 1 LIST BY BANK OF AMERICA – ML
TELEKOM AUSTRIA RATED NEW BUY BY ING
RENEWABLE ENERGY STARTED AT BUY BY HSBC
IBERIA STARTED AT BUY BY UBS
LUFTHANSA STARTED AT BUY BY UBS
SAFRAN RAISED TO BUY FROM HOLD BY RBS
SIEMENS INVESTORS URGED TO TAKE PROFIT ON THEIR LONG POSITIONS BY MORGAN STANLEY
BRITISH AIRWAYS CUT TO HOLD FROM BUY BY CITIGROUP
SAS CUT TO SELL BY CITIGROUP
AIRFRANCE-KLM STARTED AT SELL BY UBS
ASTRAZENECA CUT TO SELL FROM NEUTRAL BY GOLDMAN SACHS
AUDIKA CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
NOVATEK CUT TO REDUCE FROM BUY BY NOMURA
EVRAZ CUT TO NEUTRAL FROM BUY BY UBS
TNT CUT TO UNDERWEIGHT FROM NEUTRAL BY HSBC
DATA
WTI : 68,3 (-4,93 %)
Eur/$ : 1,4723 (-0,08 %)
$ /Yen : 90,83 (0,59 )
10 Yr US : 3,40 ( -1,49 bp)
10 Yr Euro : 3,37 ( -2,2 bp)
Indices : US close ; Europe close
SOX : 0,52 %;1,21%
S&P :-1,01 %; -0,15 %
DOW: -0,83%; -0,06 %
NAS :-0,69%; 0,01%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -2,38 %; -1,28 %
ENERGY : -1,91 %; -1,41 %
FINANCIAL : -2,05 %; -0,40 %
HEALTHCARE : -1,08 %; -0,44 %
TECHNO : -0,30 %; 0,32 %
TELECOM : 1,50 %; 1,93 %
INDUSTRIAL : -0,99 %; -0,21 %
UTILITIES : -0,57 %; 0,16 %
TO BE COMING
Today
Results :LSE trading updtae /Hennes & Mauritz / RIM
Dividend :Philip Morris ($ 0.58)
Events :Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results : KB home
Dividend :
Events: DSM analyst day
Monday
Results : TUI trading update / Prudential / Wolseley / Beneteau sales
Dividend : Colruyt ( GBp 4,722222) / Dow Chemical ($ 0,15) / Kraft Foods ($ 0.29) / US Bancorp ( $ 0,05) / Xerox Corp ( $ 0,0425)
Events : FedEx AGM
Tuesday
Results : Compass trading update / Nike
Dividend :
Events: Solvay analyst meeting / Nesté capital market
Wednesday
Results : Man Group trading update / Marks & Spencer trading update / Kaufman & Broad
Dividend : International Power (GBp 4,722222) / Bristol-Myers Squibb ($ 0.31)
Events:Eurofins investor day
ECONOMIC DATA PREVIEW
In the United-Stateswatch the weekly release of the initial jobless claims and continuing claims (13.30 GMT), both statistics are expected to decrease as the labour market which has reached a bottom is progressively recovering. Nevertheless there will not be any substantial improvement of unemployment before spring 2010.
In Germanywatch the IFO business confidence (9.00 GMT)for September. After reaching an historical low at 82.2 in March, the IFO index measuring the German’s industrial confidence recorded its fifth consecutive monthly rise, reaching 90.5 in August, the highest since September 2008. Indeed, after reducing stocks and investments drastically, the German industry is now putting itself together. However, taking into account the end of the car incentives and the approaching of German’s elections, we now forecast stabilization of the IFO index at 90.5 in September.
ECONOMY
United-States: Status quo for the Fed Funds
Conscious of the gravity of the situation, the Fed has been very reactive in maintaining its leading rates at between 0 and 0.25% since December 2008. The maximum has been done in order to save the economy of Uncle Sam, consequently: cutting further the Fed funds rates will be useless. Nevertheless, after being very accommodative, the Fed will have to lead the recovery to compose with the return of higher consumer prices. Consequently the Fed will be forced to increase its fund rates. On this point, Ben Bernanke confirmed that the Fed will not adopt such a policy as long as unemployment does not drop significantly, and will not commit itself into a phase of tough monetary tightening in order not to penalize the recovery. This is why we anticipate Fed fund rates to rise to 0.5% in spring 2010 and reach 1.75% in a year from now.
Euro area: PMI manufacturing and services rose in September
Improving every month since last March and after reaching the level of 48.2 in August, the PMI manufacturing index in the euro zone should rose again in September to reach 49.0. Following the slight economic recovery in the euro zone, this index is progressively getting closer to 50, marking the border between contraction expansion of economic activity. On the other hand, PMI services index which has been improving every month since March and which reached 49.9 in August, rose to 50.6 (prior49.9) in September confirming the recovery in the services sector.
Nevertheless if the euro zone did reached a bottom floor, the effects of the revival plan are fading and the recovery remains fragile at the manufacturing level as well as services.
France: household consumption dropped in July-August and sharp rise of the business climate indicator
French household consumption dropped in July (-1.2%) and in August(-1.0%) confirming that household situation remained fragile. Nevertheless July-August drop is a logical technical correction. Indeed from a year ago at -1.3% YoY the household consumption is resisting. Meanwhile French business climate rose to 85 the highest level since October 2008 showing that the recovery is indeed taking place. Of course the household consumption good resistance is widely explained by the “car incentive” and consumers spending should resist till next winter. In such conditions the French GDP should reach +0.3% at the third and at the fourth quarter 2009 and should decrease by “only”2.1% in 2009./
Wednesday, September 23, 2009
Fedy Tales
GLOBAL EQUITIES RESEARCH
A falling dollar drove buying in commodities and commodity-related stocks to help the US market start the session on positive footing, but it was the financial sector that emerged to provide the most leadership. Early gains were led by the energy sector (+1.4%), materials sector (+1.2%), and financial sector (+2.3%) after the trio had lagged in the previous session.
What a disappointing consolidation. There a few reasons for the downside to be limited a bit more everyday, in addition to the improving economic background. They are a result from the so called virtuous circle. House holds wealth increase and M&A are among them. One positive side effect of the stock market rise has been the boost to household balance sheets. The market value of corporate equities held directly by US consumers rose by more than $1.1trn (at an annualised rate) during the second quarter according to the Federal Reserve’s latest Flow of Funds accounts. What’s more, the rally is likely to have provided a boost of around half as much again during the summer. Most of the increase in household wealth has come about as a result of rising stock prices rather than as a result of increased exposure to the equity market. Indeed, of the $1.1trn increase in the value of corporate equity during Q2, more than $1trn resulted from holding gains. Net direct purchases of equities hit a record $501bn annualised during the first quarter and remained strong during Q2 ($288bn). Retail investors also hold equities indirectly, via their exposure to life insurance companies, pension funds and mutual funds. In total, the market value of corporate equities held indirectly increased more than $1trn in Q2. Again, this was not entirely due to rising prices. Just under two thirds of mutual fund assets are held by households, and mutual funds’ holdings of equities increased around $226bn during the second quarter. Anecdotal evidence suggests that net inflows into equity mutual funds also remained strong in July and August. Admittedly, the negative wealth effects of the past collapse in stock prices have still only partially been unwound. But the rally has still been good news for households struggling with too much debt and an uncertain economic future.
In general, the recent round of mergers is a good sign for the market. Dell's deal announcement followed Kraft's unsolicited $16.7 billion takeover offer for Cadbury and Baker Hughes' $5.5 billion offer to BJ Services. When there's a lot of mergers"companies are saying they have increased faith, like a vote of confidence in the economy, they're doing what they can to ensure they have a solid position in the industry. Also, it's a positive sign of companies' outlook on their own stock". One driver for more merger activity is easier and cheaper access to corporate credit. Corporate credit spreads having dropped to below their levels before Lehman failed about a year ago, indicating investors are demanding less yield for corporate bonds relative to Treasuries. Debt issuance has rebounded sharply. "As confidence in a sustainable economic recovery increases, companies are likely to turn their attention back toward strategic M&A".
S&P analysts anticipate several sectors are getting ready to see a surge in merger activity, with stronger companies seeking economies of scale or strategic expansions, and financial distress forcing some sellers to go on the block. Entertainment companies, auto-parts suppliers and manufacturers, retailers, energy shale companies, pharmaceutical and biotech companies, construction-related businesses and wireless telecommunications companies are likely to ink more deals in the coming months, they said. In technology, larger software companies are probably on the prowl for fast-growing, smaller firms, the analysts said.
One reason for optimism is that even good-quality companies are struggling to generate organic growth against a tough background of consumer deleveraging. "Taking over rivals and stripping out costs is a good way of boosting earnings and reducing competition". Conditions are improving to help companies raise capital quicker and cheaper to fund "opportunistic deals," which could also spur activity. "Once a wave of M&A starts, it tends to gather momentum as companies fear that they may be left behind in the quest for growth". Kraft Foods' surprising $16.7 billion cash-and-stock bid for U.K. confectioner Cadbury's just over a week ago could be the icing on the cake for European mergers and acquisitions, as conditions for capital raising perk up and the global recession eases
The FOMC meeting will be the focus today. The stronger tone of incoming economic news has further decreased the chances that the Fed will boost the size of its asset-purchase programme. But the concerns over the sustainability will mean the Fed will not start tightening before a while. The FOMC should adopt a more upbeat tone in the statement and an announcement that the Fed will extend the duration of its mortgage-backed securities purchase programme beyond the end of the year to limit market disruptions. The tone of the statements released alongside the last three FOMC meetings has become gradually more upbeat in line with the incoming economic news. Back in April, the Fed noted that “the economy continues to contract”. In June it said that “the pace of contraction is slowing”. Last month, it concluded that “activity is levelling out”. With the ISM Manufacturing index having shot above 50 in August, to a level consistent with annual GDP growth of around 3%, it is very possible that the Fed will conclude that the economy is growing again, such as Bernanke stated when saying “the recession is very likely over at this point” .
However, some Fed officials have suggested that near-term rate increases are not likely (the markets still expect the Fed to start increasing rates early next year). Atlanta Fed President Lockhart recently said "it's too early to be contemplating a rise in the fed funds target rates". NY Fed President William Dudley added "I think it's a little premature to be so confident that you want to pull all these things back right now". Meanwhile, Charles Evans Chicago Fed president suggested that the timeframe for the first rate rise was "towards the end of 2010 to 1011". And once more, we hardly see the Obama-Bernanke team do such an easy mistake when the recovery success will be rewarded at the same level on a political view… Growth will sometimes soon depend on the household sector, and it is important to get it well back on track same as the manufacturing sector to make sure the recovery is solid. The Fed is perfectly aware of that, and won’t raise rates until the employment rebounds.
Another day of consolidation ahead of the FOMC meeting tonight / Japan reopening tonight
ECONOMIC DATA WITH IMPACT
Mortgage Applications (12h UK time) / the higher the better / previous was down 8.6% / minor as weekly and volatile data
Oil inventories (15h30 UK)
FOMC (19h15 UK) / no rate change expected / might impact slightly as some operators might be looking for some sign of unwinding of the quantitative easing now that the tone about economic conditions might be upbeat
POSITIVE IMPACTS
AIR FRANCE expects a slight improvement in revenue by the end of 2009 + expects to halt its deterioration in cash by next spring & wants to reach a balance at the start of the fiscal year of 2010-2011, excluding the impact of old fuel hedges.
CADBURY’s shareholders want 850p a share from Kraft (Instead of 745p offered in the initial approach)
ALCATEL indicated to analysts that it may report better-than-expected Q3 operating profit (Wansquare)
GSK would have hired Lazard to evaluate potential acquisitions in India / The company has narrowed its search down to Piramal Healthcare and Dr Reddy's Laboratories (Livemint.com)
LUFTHANSA is sufficiently financed & does not need to approach the capital markets in the short term for reasons of liquidity (CFO)
EDF will hold a board meeting at 1900 UKT on Sunday to decide whether CEO should stay on or to choose his successor (Reuters)
BNP plans to start repaying its €5.1bn of hybrid capital to the government before next summer (CEO in the FT)
NATIXIS will post a profit for the Q3 (La Tribune citing CEO to analysts)
STANDARD CHARTERED plans to apply to list its shares on an Indian stock exchange as soon as this week (WSJ)
UNITED UTILITIES : H1 trading in line with views
ALSTOM-SCHNEIDER : Areva received 3 offers of less than €4bn for its T&D unit, falling short of the €4.25bn exp. by analysts…
ANTOFAGASTA’s mining unit in Chile sees higher-than-expected earnings for the Q3 on recovering copper and molybdenum prices
NEGATIVE IMPACTS
UNICREDIT most likely will carry out a capital increase of €4bn instead of turning to government-backed Tremonti bonds (Il Sole 24 Ore) / Shares offered in a capital increase could carry a discount of 20 to 30% to current market prices (La Stampa)
REDROW capital increase : Will issue 148m new shares at a price of 105p each / 13 for 14 right issue
BARRATT DEV. capital increase : Will issue 72.9m at a price of 240p each / 1.3 for 1 right issue / 100p per new ordinary share
SSE : Moody's downgraded SSE's ratings (Stable outlook) due to a combination of a large capex programme + a weak operating environment / In addition, the group's dividend growth policy leaves limited flexibility to retain cash within the business
TRADING IDEAS
Would still buy Dollar which should resume its upside trend as soon as the Fed is happy with the employment as carry trades will unwind
SELL SIEMENS / CAP GEMINI / STM / AXA / ENEL / GSZ / IBERDROLA / BAYER / DANONE / RAYTHEON / YAHOOon double top
SELL ALSTOM to play Head & Shoulder possibility
SELL CARS such as DAIMLER / BMW (H&S poss) / FIAT (H&S poss) toppish for now in consolidation process
SELL EDF / LAFARGE / ST GOBAIN / UPS with island possibility still / SELL AIR LIQUIDE & LINDE seems toppish for now
BUY DOLLAR / YEN ahead of FOMC meeting
BUY VOLKSWAGEN / VERIZON / QUALCOMM / TEXAS on double bottom possibility
BUY DEUTSCHE TEL / SELL FRANCE TEL // BUY TECHNIP / SELL VALLOUREC // BUY ENI or BP / SELL REPSOL
BUY HOLCIM / SELL LAFARGE // BUY NESTLE / SELL DANONE // BUY LVMH / SELL PINAULT
BUY MOTOROLA or QUALCOMM / SELL JUNIPER // BUY DUPONT / SELL DOW CHEMICAL // BUY VERIZON / SELL AT&T
BROKER METEOROLOGY
ALPHA BANK RAISED TO NEUTRAL FROM UNDERPERFORM BY BANK OF AMERICA - ML
ALPHA LAVAL REMOVED FROM PAN EUROP SELL LIST // RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
EADS CUT TO UNDERWEIGHT FROM OVERWEIGHT BY NATIXIS
RHEINMITALL CUT O NEUTRAL FROM BUY BY UBS
FRESENIUS CUT TO SELL FROM BUY BY CITIGROUP
CARNIVAL REMOVDED FROM EUROPE FOCUS LIST // CUT TO NEUTRAL FROM OUTPERFORM ....................... BY CITIGROUP
DATA
WTI : 71,7 (0,08 %)
Eur/$ : 1,4817 (0,18 %)
$ /Yen : 90,71 (0,27 )
10 Yr US : 3,45 ( 0,55 bp)
10 Yr Euro : 3,40 ( 1,6 bp)
Indices : US close ; Europe close
SOX : 0,90 %;123,00%
S&P :0,66 %; 0,40 %
DOW: 0,52%; 0,26 %
NAS :0,39%; 0,23%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 1,92 %; 1,73 %
ENERGY : 1,43 %; 1,35 %
FINANCIAL : 2,15 %; 1,29 %
HEALTHCARE : -0,33 %; -0,65 %
TECHNO : 0,33 %; 0,34 %
TELECOM : -0,60 %; -0,32 %
INDUSTRIAL : 0,83 %; 0,81 %
UTILITIES : -0,10 %; -0,15 %
TO BE COMING
Today
Results :United Utilities trading statement / BB&B / General Mills
Dividend :Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights / Centrica (GBp 4,066667) / Petrofac (GBp 0,107)
Events :Steel and Mining conf at Credit Suisse
Thursday
Results : LSE trading updtae /Hennes & Mauritz / RIM
Dividend : Philip Morris ($ 0.58)
Events: Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results :
Dividend :
Events : DSM analyst day
Monday
Results : Prudential / Wolseley
Dividend :Colruyt ( GBp 4,722222) / Dow Chemical ($ 0,15) / Kraft Foods ($ 0.29) / US Bancorp ( $ 0,05) / Xerox Corp ( $ 0,0425)
Events:
Tuesday
Results :Compass trading update /
Dividend :
Events:Solvay analyst meeting / Nesté capital market
ECONOMIC DATA PREVIEW
Inthe United-Stateswatch the FOMC Meeting(19.15 GMT), Conscious of the gravity of the situation, the Fed has been very reactive in maintaining its leading rates at between 0 and 0.25% since December 2008. The maximum has been done in order to save the economy of Uncle Sam, consequently: cutting further the Fed funds rates will be useless.
In Francewatch the Business confidence indicator (7.50 GMT) for September, expected to rise for a fifth consecutive month reaching 80 a highest since October 2008 as France’s economy is progressively recovering.
In the Euro areawatch the advanced release of the PMI manufacturing and services (9.00 GMT) for September. Improving every month since last March and after reaching the level of 48.2 in August, the PMI manufacturing index in the euro zone should rise again in September to reach 48.5. Following the slight economic recovery in the euro zone, this index should progressively get closer to 50, marking the border between contraction expansion of economic activity. On the other hand, PMI services index which has been improving every month since March and which reached 49.9 in August, should slightly decrease to 49.5 in September.
ECONOMY
United-States: Richmond Fed manufacturing index expand for a fifth consecutive month in September
Manufacturing activity in the central Atlantic region expanded for a fifth straight month in September reaching 14 according to the Richmond Fed’s latest survey. All broad indicators shipment, new orders and employment are in positive territory and manufacturers posted their first increase in workers numbers since December 2007. Meanwhile other indicators were mixed. It is important to notice that manufacturers reported slower growth in inventories. This new rise of the Richmond Fed’s manufacturing index is confirming the rebound of the US industrial production showing a “growth gain” of 0.7% at the third quarter. Slowly but surely the virtuous circle investment-employment-consumption is back in the United-States.
United-States: House price index rose for a third consecutive month in July
House price index rose for a third consecutive month in July by 0.3% (prior +0.1%) confirming that the three year long decline in prices stopped. Activity and prices have been boosted by the tax credit for first time buyers (expiring at the end of November) as well as mortgage rates and valuations. Consequently the housing recovery will most likely continue once the tax credit will expire.
A falling dollar drove buying in commodities and commodity-related stocks to help the US market start the session on positive footing, but it was the financial sector that emerged to provide the most leadership. Early gains were led by the energy sector (+1.4%), materials sector (+1.2%), and financial sector (+2.3%) after the trio had lagged in the previous session.
What a disappointing consolidation. There a few reasons for the downside to be limited a bit more everyday, in addition to the improving economic background. They are a result from the so called virtuous circle. House holds wealth increase and M&A are among them. One positive side effect of the stock market rise has been the boost to household balance sheets. The market value of corporate equities held directly by US consumers rose by more than $1.1trn (at an annualised rate) during the second quarter according to the Federal Reserve’s latest Flow of Funds accounts. What’s more, the rally is likely to have provided a boost of around half as much again during the summer. Most of the increase in household wealth has come about as a result of rising stock prices rather than as a result of increased exposure to the equity market. Indeed, of the $1.1trn increase in the value of corporate equity during Q2, more than $1trn resulted from holding gains. Net direct purchases of equities hit a record $501bn annualised during the first quarter and remained strong during Q2 ($288bn). Retail investors also hold equities indirectly, via their exposure to life insurance companies, pension funds and mutual funds. In total, the market value of corporate equities held indirectly increased more than $1trn in Q2. Again, this was not entirely due to rising prices. Just under two thirds of mutual fund assets are held by households, and mutual funds’ holdings of equities increased around $226bn during the second quarter. Anecdotal evidence suggests that net inflows into equity mutual funds also remained strong in July and August. Admittedly, the negative wealth effects of the past collapse in stock prices have still only partially been unwound. But the rally has still been good news for households struggling with too much debt and an uncertain economic future.
In general, the recent round of mergers is a good sign for the market. Dell's deal announcement followed Kraft's unsolicited $16.7 billion takeover offer for Cadbury and Baker Hughes' $5.5 billion offer to BJ Services. When there's a lot of mergers"companies are saying they have increased faith, like a vote of confidence in the economy, they're doing what they can to ensure they have a solid position in the industry. Also, it's a positive sign of companies' outlook on their own stock". One driver for more merger activity is easier and cheaper access to corporate credit. Corporate credit spreads having dropped to below their levels before Lehman failed about a year ago, indicating investors are demanding less yield for corporate bonds relative to Treasuries. Debt issuance has rebounded sharply. "As confidence in a sustainable economic recovery increases, companies are likely to turn their attention back toward strategic M&A".
S&P analysts anticipate several sectors are getting ready to see a surge in merger activity, with stronger companies seeking economies of scale or strategic expansions, and financial distress forcing some sellers to go on the block. Entertainment companies, auto-parts suppliers and manufacturers, retailers, energy shale companies, pharmaceutical and biotech companies, construction-related businesses and wireless telecommunications companies are likely to ink more deals in the coming months, they said. In technology, larger software companies are probably on the prowl for fast-growing, smaller firms, the analysts said.
One reason for optimism is that even good-quality companies are struggling to generate organic growth against a tough background of consumer deleveraging. "Taking over rivals and stripping out costs is a good way of boosting earnings and reducing competition". Conditions are improving to help companies raise capital quicker and cheaper to fund "opportunistic deals," which could also spur activity. "Once a wave of M&A starts, it tends to gather momentum as companies fear that they may be left behind in the quest for growth". Kraft Foods' surprising $16.7 billion cash-and-stock bid for U.K. confectioner Cadbury's just over a week ago could be the icing on the cake for European mergers and acquisitions, as conditions for capital raising perk up and the global recession eases
The FOMC meeting will be the focus today. The stronger tone of incoming economic news has further decreased the chances that the Fed will boost the size of its asset-purchase programme. But the concerns over the sustainability will mean the Fed will not start tightening before a while. The FOMC should adopt a more upbeat tone in the statement and an announcement that the Fed will extend the duration of its mortgage-backed securities purchase programme beyond the end of the year to limit market disruptions. The tone of the statements released alongside the last three FOMC meetings has become gradually more upbeat in line with the incoming economic news. Back in April, the Fed noted that “the economy continues to contract”. In June it said that “the pace of contraction is slowing”. Last month, it concluded that “activity is levelling out”. With the ISM Manufacturing index having shot above 50 in August, to a level consistent with annual GDP growth of around 3%, it is very possible that the Fed will conclude that the economy is growing again, such as Bernanke stated when saying “the recession is very likely over at this point” .
However, some Fed officials have suggested that near-term rate increases are not likely (the markets still expect the Fed to start increasing rates early next year). Atlanta Fed President Lockhart recently said "it's too early to be contemplating a rise in the fed funds target rates". NY Fed President William Dudley added "I think it's a little premature to be so confident that you want to pull all these things back right now". Meanwhile, Charles Evans Chicago Fed president suggested that the timeframe for the first rate rise was "towards the end of 2010 to 1011". And once more, we hardly see the Obama-Bernanke team do such an easy mistake when the recovery success will be rewarded at the same level on a political view… Growth will sometimes soon depend on the household sector, and it is important to get it well back on track same as the manufacturing sector to make sure the recovery is solid. The Fed is perfectly aware of that, and won’t raise rates until the employment rebounds.
Another day of consolidation ahead of the FOMC meeting tonight / Japan reopening tonight
ECONOMIC DATA WITH IMPACT
Mortgage Applications (12h UK time) / the higher the better / previous was down 8.6% / minor as weekly and volatile data
Oil inventories (15h30 UK)
FOMC (19h15 UK) / no rate change expected / might impact slightly as some operators might be looking for some sign of unwinding of the quantitative easing now that the tone about economic conditions might be upbeat
POSITIVE IMPACTS
AIR FRANCE expects a slight improvement in revenue by the end of 2009 + expects to halt its deterioration in cash by next spring & wants to reach a balance at the start of the fiscal year of 2010-2011, excluding the impact of old fuel hedges.
CADBURY’s shareholders want 850p a share from Kraft (Instead of 745p offered in the initial approach)
ALCATEL indicated to analysts that it may report better-than-expected Q3 operating profit (Wansquare)
GSK would have hired Lazard to evaluate potential acquisitions in India / The company has narrowed its search down to Piramal Healthcare and Dr Reddy's Laboratories (Livemint.com)
LUFTHANSA is sufficiently financed & does not need to approach the capital markets in the short term for reasons of liquidity (CFO)
EDF will hold a board meeting at 1900 UKT on Sunday to decide whether CEO should stay on or to choose his successor (Reuters)
BNP plans to start repaying its €5.1bn of hybrid capital to the government before next summer (CEO in the FT)
NATIXIS will post a profit for the Q3 (La Tribune citing CEO to analysts)
STANDARD CHARTERED plans to apply to list its shares on an Indian stock exchange as soon as this week (WSJ)
UNITED UTILITIES : H1 trading in line with views
ALSTOM-SCHNEIDER : Areva received 3 offers of less than €4bn for its T&D unit, falling short of the €4.25bn exp. by analysts…
ANTOFAGASTA’s mining unit in Chile sees higher-than-expected earnings for the Q3 on recovering copper and molybdenum prices
NEGATIVE IMPACTS
UNICREDIT most likely will carry out a capital increase of €4bn instead of turning to government-backed Tremonti bonds (Il Sole 24 Ore) / Shares offered in a capital increase could carry a discount of 20 to 30% to current market prices (La Stampa)
REDROW capital increase : Will issue 148m new shares at a price of 105p each / 13 for 14 right issue
BARRATT DEV. capital increase : Will issue 72.9m at a price of 240p each / 1.3 for 1 right issue / 100p per new ordinary share
SSE : Moody's downgraded SSE's ratings (Stable outlook) due to a combination of a large capex programme + a weak operating environment / In addition, the group's dividend growth policy leaves limited flexibility to retain cash within the business
TRADING IDEAS
Would still buy Dollar which should resume its upside trend as soon as the Fed is happy with the employment as carry trades will unwind
SELL SIEMENS / CAP GEMINI / STM / AXA / ENEL / GSZ / IBERDROLA / BAYER / DANONE / RAYTHEON / YAHOOon double top
SELL ALSTOM to play Head & Shoulder possibility
SELL CARS such as DAIMLER / BMW (H&S poss) / FIAT (H&S poss) toppish for now in consolidation process
SELL EDF / LAFARGE / ST GOBAIN / UPS with island possibility still / SELL AIR LIQUIDE & LINDE seems toppish for now
BUY DOLLAR / YEN ahead of FOMC meeting
BUY VOLKSWAGEN / VERIZON / QUALCOMM / TEXAS on double bottom possibility
BUY DEUTSCHE TEL / SELL FRANCE TEL // BUY TECHNIP / SELL VALLOUREC // BUY ENI or BP / SELL REPSOL
BUY HOLCIM / SELL LAFARGE // BUY NESTLE / SELL DANONE // BUY LVMH / SELL PINAULT
BUY MOTOROLA or QUALCOMM / SELL JUNIPER // BUY DUPONT / SELL DOW CHEMICAL // BUY VERIZON / SELL AT&T
BROKER METEOROLOGY
ALPHA BANK RAISED TO NEUTRAL FROM UNDERPERFORM BY BANK OF AMERICA - ML
ALPHA LAVAL REMOVED FROM PAN EUROP SELL LIST // RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
EADS CUT TO UNDERWEIGHT FROM OVERWEIGHT BY NATIXIS
RHEINMITALL CUT O NEUTRAL FROM BUY BY UBS
FRESENIUS CUT TO SELL FROM BUY BY CITIGROUP
CARNIVAL REMOVDED FROM EUROPE FOCUS LIST // CUT TO NEUTRAL FROM OUTPERFORM ....................... BY CITIGROUP
DATA
WTI : 71,7 (0,08 %)
Eur/$ : 1,4817 (0,18 %)
$ /Yen : 90,71 (0,27 )
10 Yr US : 3,45 ( 0,55 bp)
10 Yr Euro : 3,40 ( 1,6 bp)
Indices : US close ; Europe close
SOX : 0,90 %;123,00%
S&P :0,66 %; 0,40 %
DOW: 0,52%; 0,26 %
NAS :0,39%; 0,23%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 1,92 %; 1,73 %
ENERGY : 1,43 %; 1,35 %
FINANCIAL : 2,15 %; 1,29 %
HEALTHCARE : -0,33 %; -0,65 %
TECHNO : 0,33 %; 0,34 %
TELECOM : -0,60 %; -0,32 %
INDUSTRIAL : 0,83 %; 0,81 %
UTILITIES : -0,10 %; -0,15 %
TO BE COMING
Today
Results :United Utilities trading statement / BB&B / General Mills
Dividend :Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights / Centrica (GBp 4,066667) / Petrofac (GBp 0,107)
Events :Steel and Mining conf at Credit Suisse
Thursday
Results : LSE trading updtae /Hennes & Mauritz / RIM
Dividend : Philip Morris ($ 0.58)
Events: Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results :
Dividend :
Events : DSM analyst day
Monday
Results : Prudential / Wolseley
Dividend :Colruyt ( GBp 4,722222) / Dow Chemical ($ 0,15) / Kraft Foods ($ 0.29) / US Bancorp ( $ 0,05) / Xerox Corp ( $ 0,0425)
Events:
Tuesday
Results :Compass trading update /
Dividend :
Events:Solvay analyst meeting / Nesté capital market
ECONOMIC DATA PREVIEW
Inthe United-Stateswatch the FOMC Meeting(19.15 GMT), Conscious of the gravity of the situation, the Fed has been very reactive in maintaining its leading rates at between 0 and 0.25% since December 2008. The maximum has been done in order to save the economy of Uncle Sam, consequently: cutting further the Fed funds rates will be useless.
In Francewatch the Business confidence indicator (7.50 GMT) for September, expected to rise for a fifth consecutive month reaching 80 a highest since October 2008 as France’s economy is progressively recovering.
In the Euro areawatch the advanced release of the PMI manufacturing and services (9.00 GMT) for September. Improving every month since last March and after reaching the level of 48.2 in August, the PMI manufacturing index in the euro zone should rise again in September to reach 48.5. Following the slight economic recovery in the euro zone, this index should progressively get closer to 50, marking the border between contraction expansion of economic activity. On the other hand, PMI services index which has been improving every month since March and which reached 49.9 in August, should slightly decrease to 49.5 in September.
ECONOMY
United-States: Richmond Fed manufacturing index expand for a fifth consecutive month in September
Manufacturing activity in the central Atlantic region expanded for a fifth straight month in September reaching 14 according to the Richmond Fed’s latest survey. All broad indicators shipment, new orders and employment are in positive territory and manufacturers posted their first increase in workers numbers since December 2007. Meanwhile other indicators were mixed. It is important to notice that manufacturers reported slower growth in inventories. This new rise of the Richmond Fed’s manufacturing index is confirming the rebound of the US industrial production showing a “growth gain” of 0.7% at the third quarter. Slowly but surely the virtuous circle investment-employment-consumption is back in the United-States.
United-States: House price index rose for a third consecutive month in July
House price index rose for a third consecutive month in July by 0.3% (prior +0.1%) confirming that the three year long decline in prices stopped. Activity and prices have been boosted by the tax credit for first time buyers (expiring at the end of November) as well as mortgage rates and valuations. Consequently the housing recovery will most likely continue once the tax credit will expire.
Tuesday, September 22, 2009
Short, But Not For Long
GLOBAL EQUITIES RESEARCH
The short positions are still worth playing in a week empty of data news , meaning no good news, but just some FOMC meeting which some might fear if talking about a possible timing of the unwinding from the easy quantitative policy, and a G20 starting on Thursday which should not bring much. However we could not head too far down . Not only the macro backgroubd will keep on improving in October whith the happy earnings festival, but also there is too much cash out there starving for riskier investment vehicles, and equity being precisely one of them. It's no secret that a large driver behind the outperformance of financial assets (both stocks and bonds) has been the extraordinary outflow from money market assets looking for higher yields . From a peak of almost $4trn in Jan 2009, money market funds have declined by $440bn over the past 8 months . In fact last week alone Money Market funds saw a $54bn outflow. With Central banks set to remain on hold for the foreseeable future, this trend is set to remain. The outflows from money market funds have largely found their way into the credit market. Credit leads Equities which supports another 10% upside for both the Eurostoxx and the S&P. The missing piece of the puzzle remains the developed market consumer but with US household wealth rising in Q2 by $2trn, the first improvement since 3Q07, stability appears to be coming back to the consumption side of the equation as well . US households might still need to cut their debts further. However, the combination of an increasing wealth and a continued need to deleverage means higher savings, and so greater demand for financial assets at a time when the supply of assets with some sort of yield is declining. After our little pause, don't forget to buy back and jump in still agressively
"Most of the growth data in the coming week are likely to have a positive tone" wrote an economist, who sees consumer and business spending gaining steam. Economists agree on the short term forecast. This week's data "will continue to portray an economic recovery that is gathering momentum". But they caution that the burst of growth this quarter isn't sustainable. "The temporary boosts to spending and real growth connected with the 'cash-for-clunkers' program and the first-time home buyers credit will dissipate by the end of the year", and some same economists consider the growth will declien right after that early 2010, which we heaviky desagree. However, t hat's why they expect "FOMC to maintain an aggressive stance on monetary policy" in Wednesday's announcement .
No one expects the FOMC to raise rates any time soon, but there is abundant speculation that the committee could take another baby step toward a more-normal policy. The Fed has been buying most of the mortgage-backed securities now being underwritten. The FOMC will probably announce that it will slow the pace of purchases of MBS and extend them through the first quarter of 2010, according to some economists. The Fed has purchased about $850 billion of MBS, about two-thirds of the $1.25 trillion it committed to buying. Mortgages rates might be rising slightly once it is over, but should remain on very attractive levels.
The slowdown in the Fed's support for mortgages is only one reason to believe the current boomlet in housing could fade next year. The other big reason: The $8,000 government subsidy for first-time home buyers expires on Nov. 30. Buyers may be rushing now to complete sales before the deadline, and that flurry could be goosing home sales now. As many as 40% of home buyers this year have qualified for the credit, and the National Association of Realtors calculates that the credit boosted sales by about 350,000 this year (the other sales would have taken place anyway). Sales of existing homes are expected to rise 3% in August, the fifth straight increase, to hit a two-year high of 5.40 seasonally adjusted annual units. Sales of new homes are expected to increase about 2% to a seasonally adjusted annual rate of 433,000 in August, which would also be the fifth straight increase and the highest in a year. "The housing market is picking up steam from a very depressed level". "Foreclosures and the $8,000 tax credit are juicing the overall level of sales. The big question is what happens after Nov. 30. Congress may extend or even expand the tax credit. Some economists say it won't matter. "There has been a fundamental shift in home buying owing to greater affordability and confidence, which is likely to be sustained even after the tax credit expires".
The other big number of the week will be the August durable-goods orders. The improvement in the Institute for Supply Management index above 50%, and the jump in the ISM new orders index to a five-year high of 64.9% bodes well for the manufacturing sector. Sales are rising faster than expected. After soaring 5.1% in July on a surge in orders at Boeing, new orders are likely to come back down to earth in August, economists say. The median forecast looks for orders to rise about 0.7%, led by autos, machinery, and tech. Orders for core capital equipment goods are expected to increase, and business investment in equipment could contribute to growth for the first time since late 2007
Take opportunity to buy defensive names. After their initial strong performance from March to Sept ’03, Cyclicals lost ground relative to Defensives over the next 12 months. The current recovery trade, where its sustainability is not a done deal, could at least show a similar “pause” and experience a sector rotation. Would be careful about Metals and Mining names following the run of 75%, the sector is not as attractive anymore, trading at 52% P/E premium to broad market vs historical averages. Telecoms might be worth it as the European Telecoms are trading at a 50% relative P/E discount.
A switch from whatever cyclicals you bought so far, into M&A possible targets, and dividend yield names such as defensive telecom and pharma ones is worth playing.
ECONOMIC DATA WITH IMPACT
The FHFA house price index (15.00 UK time) increased in three of the last four months to June and it wouldn’t be surprising to see another small gain in July.The combination of the tax credit for first-time buyers and historically low mortgage rates appears to have brought an end to the three-year long decline in house prices
POSITIVE IMPACTS
CADBURY’s CEO softened his rhetoric about a possible deal with Kraft, acknowledging that there is some merit in a combination of the 2 companies (WSJ) / Cadbury approched the UK Takeover Panel to ask Kraft to either make formal proposal or walk away for 6 months
ACCOR raised €272 m from the sale of 158 of its hotelF1 brand low-budget hotels in France / Accor said the deal will enable it to reduce its adjusted net debt by approximately €187 m in 2009, of which €130 m will be added to the group's cash reserves.
EDF is close to agreeing a big asset swap with E.ON / Separately, it played down reports that it was also considering the sale of a 20% stake in British Energy (The Times)
IMPERIAL TOBACCO said trading remains in line with management's expectations / Altadis integration is progressing well
VEOLIA’s CEO is the only remaining candidate for the top job at EDF as he has won the backing of Nicolas Sarkozy (Les Echos)
SANTANDER (not new) said that it could raise up to $7.3 bn by listing 16.2% of its Brazil unit Banco Santander
OERLIKON is looking for buyers for any of its business units and its main shareholder said it would be willing to help with cash
SANOFI-AVENTIS has received an additional order from the US to produce vaccine to help protect against the Influenza A virus.
NOVARTIS said it is “very confident” about its drugs pipeline, which is “delivering nicely” (CEO)
VIVENDI may decide to sell its 20% stake in NBC Universal at a board meeting on Oct. 14 (Bloomberg)
RIO TINTO sold its Alcan Composites business to Swiss machinery firm Schweiter Technologies for $349 m.
NEGATIVE IMPACTS
VINCI’s CEO said that Europe's construction market is likely to shrink further in 2010, despite multi-billion euro government stimulus packages and some signs of recovery in the region (FT)
WPP’s CEO described the recession as L-shaped : “The forecast for levels of increase in ad spending, both traditional & nontraditional, are pretty anemic for the next 2 or 3 years” (Interview in the WSJ)
HERMES’s CEO said he isn’t optimistic about the next 6 months because of a delayed economic recovery in Japan
HEIDELBERGCEMENT : 2nd part of the capital raising : Subscription period from Sept.24 to October 7 included / Price €37
AIR FRANCE plans to reduce seating capacity on its flights by 2% during the winter season to lessen the impact of falling demand
ABB has yet to see demand for its products pick up and it is difficult to tell when the recovery will come (Chairman)
ASTRAZENECA lost a bid to dismiss an Ontario suit claiming it was negligent in the development & sale of Seroquel
TESCO predicted that the market will be “flat at best” for UK retailers in Xmas…
TRADING IDEAS
BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL GSZ / IBERDROLA /EDF / BAYER / TOTAL / DANONEon double top
SELL CARS such as DAIMLER / RENAULT / BMW / FIAT toppish for now in consolidation process
SELL BNP run too fast // SELLST GOBAIN with island possibility still / SELL AIR LIQUIDE & LINDE seems toppish for now
BUY TELECOM such as FRANCE TELECOM / DEUTSCHE TELEKOM to play defensive underperform and good yield return
BUY CARREFOUR to play defensive
BUY ENI or BP / SELL REPSOL // BUY HOLCIM or ST GOBAIN / SELL LAFARGE // BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL LINDE // BUY AXA / SELL ALLIANZ // BUY LVMH / SELL PINAULT // BUY VERIZON / SELL AT&T
BROKER METEOROLOGY
CREDIT AGRICOLE ............................... RAISED TO NEUTRAL FROM SELL............................... BY UBS
VOLKSWAGEN............................... RAISED TO HOLD FROM SELL............................... BY CITI
SARAS ............................... RAISED TO OUTPERFORM FROM NEUTRAL............................... BY CSGN
AIR LIQUIDE............................... CUT TO UNDERPERFORM FROM NEUTRAL............................... BY ML
K+S............................... CUT TO UNDERPERFORM FROM NEUTRAL............................... BY ML
UNITED BUSINESS MEDIA............................... CUT TO UNDERPERFORM FROM HOLD............................... BY JEFFERIES
NESTE OIL + OMV............................... CUT TO NEUTRAL FROM BUY ............................... BY NOMURA
TECHNIP ............................... CUT TO NEUTRAL FROM OUTPERFORM............................... BY EXANE
SAIPEM............................... CUT TO UNDERPERFORM FROM NEUTRAL ............................... BY EXANE
DATA
WTI : 70,0 (-33,20 %)
Eur/$ : 1,4716 (0,03 %)
$ /Yen : 91,65 (0,31 )
10 Yr US : 3,49 ( 0,56 bp)
10 Yr Euro : 3,38 ( 0,3 bp)
Indices : US close ; Europe close
SOX : -0,03 %;2,47%
S&P :-0,34 %; 2,49 %
DOW: -0,42%; 1,83 %
NAS :0,24%; 2,87%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,73 %; 4,80 %
ENERGY : -0,86 %; 4,76 %
FINANCIAL : -0,89 %; 3,04 %
HEALTHCARE : 0,63 %; 1,20 %
TECHNO : 0,13 %; 3,21 %
TELECOM : -0,50 %; 1,53 %
INDUSTRIAL : -0,59 %; 2,48 %
UTILITIES : -0,44 %; 1,52 %
TO BE COMING
Today
Results :Imperial Tobacco trading statement / Severn Trent trading Carnival
Dividend :
Events :Power & Gas Leaders Conference at BoA - ML / Global Consumer & Retail Conference at BoA - ML / Commodities Conference at Credit Suisse / Swiss Equities Conference at Credit Suisse / Intel Developer Forum
Wednesday
Results : United Utilities trading statement / BB&B / General Mills
Dividend : Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights / Centrica (GBp 4,066667) / Petrofac (GBp 0,107)
Events: Steel and Mining conf at Credit Suisse
Thursday
Results : LSE trading updtae /Hennes & Mauritz / RIM
Dividend : Philip Morris ($ 0.58)
Events : Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results :
Dividend :
Events: DSM analyst day
Monday
Results :Prudential / Wolseley
Dividend : Colruyt ( GBp 4,722222) / Dow Chemical ($ 0,15) / Kraft Foods ($ 0.29) / US Bancorp ( $ 0,05) / Xerox Corp ( $ 0,0425)
Events:
ECONOMIC DATA PREVIEW
Inthe United-Stateswatch the Richmond Fed Manufacturing index(15.00 GMT) for September, expected to rise from 14 to 16 following the industrial rebound in the Unite-States.
ECONOMY
United-States: Conference Board leading index rose again in ugust
The United States economy is recovering as shown by the sharp increase in the PMI manufacturing and services for more than three months, but also by the rise in retail sales in August (with and excluding cars). Not to mention the rebound in industrial production as well as the reduction in jobs destructions (216 000 in August the “best performance” since August 2008). In such conditions, the advanced indicator of the Conference Board, which has rebounded since last April, reaching 0.9% in July rose by 0.6% in August.
The short positions are still worth playing in a week empty of data news , meaning no good news, but just some FOMC meeting which some might fear if talking about a possible timing of the unwinding from the easy quantitative policy, and a G20 starting on Thursday which should not bring much. However we could not head too far down . Not only the macro backgroubd will keep on improving in October whith the happy earnings festival, but also there is too much cash out there starving for riskier investment vehicles, and equity being precisely one of them. It's no secret that a large driver behind the outperformance of financial assets (both stocks and bonds) has been the extraordinary outflow from money market assets looking for higher yields . From a peak of almost $4trn in Jan 2009, money market funds have declined by $440bn over the past 8 months . In fact last week alone Money Market funds saw a $54bn outflow. With Central banks set to remain on hold for the foreseeable future, this trend is set to remain. The outflows from money market funds have largely found their way into the credit market. Credit leads Equities which supports another 10% upside for both the Eurostoxx and the S&P. The missing piece of the puzzle remains the developed market consumer but with US household wealth rising in Q2 by $2trn, the first improvement since 3Q07, stability appears to be coming back to the consumption side of the equation as well . US households might still need to cut their debts further. However, the combination of an increasing wealth and a continued need to deleverage means higher savings, and so greater demand for financial assets at a time when the supply of assets with some sort of yield is declining. After our little pause, don't forget to buy back and jump in still agressively
"Most of the growth data in the coming week are likely to have a positive tone" wrote an economist, who sees consumer and business spending gaining steam. Economists agree on the short term forecast. This week's data "will continue to portray an economic recovery that is gathering momentum". But they caution that the burst of growth this quarter isn't sustainable. "The temporary boosts to spending and real growth connected with the 'cash-for-clunkers' program and the first-time home buyers credit will dissipate by the end of the year", and some same economists consider the growth will declien right after that early 2010, which we heaviky desagree. However, t hat's why they expect "FOMC to maintain an aggressive stance on monetary policy" in Wednesday's announcement .
No one expects the FOMC to raise rates any time soon, but there is abundant speculation that the committee could take another baby step toward a more-normal policy. The Fed has been buying most of the mortgage-backed securities now being underwritten. The FOMC will probably announce that it will slow the pace of purchases of MBS and extend them through the first quarter of 2010, according to some economists. The Fed has purchased about $850 billion of MBS, about two-thirds of the $1.25 trillion it committed to buying. Mortgages rates might be rising slightly once it is over, but should remain on very attractive levels.
The slowdown in the Fed's support for mortgages is only one reason to believe the current boomlet in housing could fade next year. The other big reason: The $8,000 government subsidy for first-time home buyers expires on Nov. 30. Buyers may be rushing now to complete sales before the deadline, and that flurry could be goosing home sales now. As many as 40% of home buyers this year have qualified for the credit, and the National Association of Realtors calculates that the credit boosted sales by about 350,000 this year (the other sales would have taken place anyway). Sales of existing homes are expected to rise 3% in August, the fifth straight increase, to hit a two-year high of 5.40 seasonally adjusted annual units. Sales of new homes are expected to increase about 2% to a seasonally adjusted annual rate of 433,000 in August, which would also be the fifth straight increase and the highest in a year. "The housing market is picking up steam from a very depressed level". "Foreclosures and the $8,000 tax credit are juicing the overall level of sales. The big question is what happens after Nov. 30. Congress may extend or even expand the tax credit. Some economists say it won't matter. "There has been a fundamental shift in home buying owing to greater affordability and confidence, which is likely to be sustained even after the tax credit expires".
The other big number of the week will be the August durable-goods orders. The improvement in the Institute for Supply Management index above 50%, and the jump in the ISM new orders index to a five-year high of 64.9% bodes well for the manufacturing sector. Sales are rising faster than expected. After soaring 5.1% in July on a surge in orders at Boeing, new orders are likely to come back down to earth in August, economists say. The median forecast looks for orders to rise about 0.7%, led by autos, machinery, and tech. Orders for core capital equipment goods are expected to increase, and business investment in equipment could contribute to growth for the first time since late 2007
Take opportunity to buy defensive names. After their initial strong performance from March to Sept ’03, Cyclicals lost ground relative to Defensives over the next 12 months. The current recovery trade, where its sustainability is not a done deal, could at least show a similar “pause” and experience a sector rotation. Would be careful about Metals and Mining names following the run of 75%, the sector is not as attractive anymore, trading at 52% P/E premium to broad market vs historical averages. Telecoms might be worth it as the European Telecoms are trading at a 50% relative P/E discount.
A switch from whatever cyclicals you bought so far, into M&A possible targets, and dividend yield names such as defensive telecom and pharma ones is worth playing.
ECONOMIC DATA WITH IMPACT
The FHFA house price index (15.00 UK time) increased in three of the last four months to June and it wouldn’t be surprising to see another small gain in July.The combination of the tax credit for first-time buyers and historically low mortgage rates appears to have brought an end to the three-year long decline in house prices
POSITIVE IMPACTS
CADBURY’s CEO softened his rhetoric about a possible deal with Kraft, acknowledging that there is some merit in a combination of the 2 companies (WSJ) / Cadbury approched the UK Takeover Panel to ask Kraft to either make formal proposal or walk away for 6 months
ACCOR raised €272 m from the sale of 158 of its hotelF1 brand low-budget hotels in France / Accor said the deal will enable it to reduce its adjusted net debt by approximately €187 m in 2009, of which €130 m will be added to the group's cash reserves.
EDF is close to agreeing a big asset swap with E.ON / Separately, it played down reports that it was also considering the sale of a 20% stake in British Energy (The Times)
IMPERIAL TOBACCO said trading remains in line with management's expectations / Altadis integration is progressing well
VEOLIA’s CEO is the only remaining candidate for the top job at EDF as he has won the backing of Nicolas Sarkozy (Les Echos)
SANTANDER (not new) said that it could raise up to $7.3 bn by listing 16.2% of its Brazil unit Banco Santander
OERLIKON is looking for buyers for any of its business units and its main shareholder said it would be willing to help with cash
SANOFI-AVENTIS has received an additional order from the US to produce vaccine to help protect against the Influenza A virus.
NOVARTIS said it is “very confident” about its drugs pipeline, which is “delivering nicely” (CEO)
VIVENDI may decide to sell its 20% stake in NBC Universal at a board meeting on Oct. 14 (Bloomberg)
RIO TINTO sold its Alcan Composites business to Swiss machinery firm Schweiter Technologies for $349 m.
NEGATIVE IMPACTS
VINCI’s CEO said that Europe's construction market is likely to shrink further in 2010, despite multi-billion euro government stimulus packages and some signs of recovery in the region (FT)
WPP’s CEO described the recession as L-shaped : “The forecast for levels of increase in ad spending, both traditional & nontraditional, are pretty anemic for the next 2 or 3 years” (Interview in the WSJ)
HERMES’s CEO said he isn’t optimistic about the next 6 months because of a delayed economic recovery in Japan
HEIDELBERGCEMENT : 2nd part of the capital raising : Subscription period from Sept.24 to October 7 included / Price €37
AIR FRANCE plans to reduce seating capacity on its flights by 2% during the winter season to lessen the impact of falling demand
ABB has yet to see demand for its products pick up and it is difficult to tell when the recovery will come (Chairman)
ASTRAZENECA lost a bid to dismiss an Ontario suit claiming it was negligent in the development & sale of Seroquel
TESCO predicted that the market will be “flat at best” for UK retailers in Xmas…
TRADING IDEAS
BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL GSZ / IBERDROLA /EDF / BAYER / TOTAL / DANONEon double top
SELL CARS such as DAIMLER / RENAULT / BMW / FIAT toppish for now in consolidation process
SELL BNP run too fast // SELLST GOBAIN with island possibility still / SELL AIR LIQUIDE & LINDE seems toppish for now
BUY TELECOM such as FRANCE TELECOM / DEUTSCHE TELEKOM to play defensive underperform and good yield return
BUY CARREFOUR to play defensive
BUY ENI or BP / SELL REPSOL // BUY HOLCIM or ST GOBAIN / SELL LAFARGE // BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL LINDE // BUY AXA / SELL ALLIANZ // BUY LVMH / SELL PINAULT // BUY VERIZON / SELL AT&T
BROKER METEOROLOGY
CREDIT AGRICOLE ............................... RAISED TO NEUTRAL FROM SELL............................... BY UBS
VOLKSWAGEN............................... RAISED TO HOLD FROM SELL............................... BY CITI
SARAS ............................... RAISED TO OUTPERFORM FROM NEUTRAL............................... BY CSGN
AIR LIQUIDE............................... CUT TO UNDERPERFORM FROM NEUTRAL............................... BY ML
K+S............................... CUT TO UNDERPERFORM FROM NEUTRAL............................... BY ML
UNITED BUSINESS MEDIA............................... CUT TO UNDERPERFORM FROM HOLD............................... BY JEFFERIES
NESTE OIL + OMV............................... CUT TO NEUTRAL FROM BUY ............................... BY NOMURA
TECHNIP ............................... CUT TO NEUTRAL FROM OUTPERFORM............................... BY EXANE
SAIPEM............................... CUT TO UNDERPERFORM FROM NEUTRAL ............................... BY EXANE
DATA
WTI : 70,0 (-33,20 %)
Eur/$ : 1,4716 (0,03 %)
$ /Yen : 91,65 (0,31 )
10 Yr US : 3,49 ( 0,56 bp)
10 Yr Euro : 3,38 ( 0,3 bp)
Indices : US close ; Europe close
SOX : -0,03 %;2,47%
S&P :-0,34 %; 2,49 %
DOW: -0,42%; 1,83 %
NAS :0,24%; 2,87%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,73 %; 4,80 %
ENERGY : -0,86 %; 4,76 %
FINANCIAL : -0,89 %; 3,04 %
HEALTHCARE : 0,63 %; 1,20 %
TECHNO : 0,13 %; 3,21 %
TELECOM : -0,50 %; 1,53 %
INDUSTRIAL : -0,59 %; 2,48 %
UTILITIES : -0,44 %; 1,52 %
TO BE COMING
Today
Results :Imperial Tobacco trading statement / Severn Trent trading Carnival
Dividend :
Events :Power & Gas Leaders Conference at BoA - ML / Global Consumer & Retail Conference at BoA - ML / Commodities Conference at Credit Suisse / Swiss Equities Conference at Credit Suisse / Intel Developer Forum
Wednesday
Results : United Utilities trading statement / BB&B / General Mills
Dividend : Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights / Centrica (GBp 4,066667) / Petrofac (GBp 0,107)
Events: Steel and Mining conf at Credit Suisse
Thursday
Results : LSE trading updtae /Hennes & Mauritz / RIM
Dividend : Philip Morris ($ 0.58)
Events : Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results :
Dividend :
Events: DSM analyst day
Monday
Results :Prudential / Wolseley
Dividend : Colruyt ( GBp 4,722222) / Dow Chemical ($ 0,15) / Kraft Foods ($ 0.29) / US Bancorp ( $ 0,05) / Xerox Corp ( $ 0,0425)
Events:
ECONOMIC DATA PREVIEW
Inthe United-Stateswatch the Richmond Fed Manufacturing index(15.00 GMT) for September, expected to rise from 14 to 16 following the industrial rebound in the Unite-States.
ECONOMY
United-States: Conference Board leading index rose again in ugust
The United States economy is recovering as shown by the sharp increase in the PMI manufacturing and services for more than three months, but also by the rise in retail sales in August (with and excluding cars). Not to mention the rebound in industrial production as well as the reduction in jobs destructions (216 000 in August the “best performance” since August 2008). In such conditions, the advanced indicator of the Conference Board, which has rebounded since last April, reaching 0.9% in July rose by 0.6% in August.
Monday, September 21, 2009
Bermuda Shorts
GLOBAL EQUITIES RESEARCH
The FOMC meeting will be the focus this week on Wednesday , in addition to some home sales data on Thursday and Durable Orders the following day. The stronger tone of incoming economic news has further decreased the chances that the Fed will boost the size of its asset-purchase programme. But the concerns over the sustainability will mean the Fed will not start tightening before a while . The FOMC should adopt a more upbeat tone in the statement and an announcement that the Fed will extend the duration of its mortgage-backed securities purchase programme beyond the end of the year to limit market disruptions. The tone of the statements released alongside the last three FOMC meetings has become gradually more upbeat in line with the incoming economic news. Back in April, the Fed noted that “the economy continues to contract”. In June it said that “the pace of contraction is slowing”. Last month, it concluded that “activity is levelling out”. With the ISM Manufacturing index having shot above 50 in August, to a level consistent with annual GDP growth of around 3%, it is very possible that the Fed will conclude that the economy is growing again, such as Bernanke stated when saying “the recession is very likely over at this point” .
However, some Fed officials have suggested that near-term rate increases are not likely (the markets still expect the Fed to start increasing rates early next year). Atlanta Fed President Lockhart recently said "it's too early to be contemplating a rise in the fed funds target rates". NY Fed President William Dudley added "I think it's a little premature to be so confident that you want to pull all these things back right now". Meanwhile, Charles Evans Chicago Fed president suggested that the timeframe for the first rate rise was "towards the end of 2010 to 1011". And once more, we hardly see the Obama-Bernanke team do such an easy mistake when the recovery success will be rewarded at the same level on a political view… Growth will sometimes soon depend on the household sector, and it is important to get it well back on track same as the manufacturing sector to make sure the recovery is solid. The Fed is perfectly aware of that.
The Pittsburgh G20 Summit on Thursday and Friday is unlikely to contain many surprises. We already know that it will focus on the tricky issue of global re-balancing, while further discussions are likely on financial sector reform and the appropriateness of continued fiscal stimulus, building on the meeting of G20 finance ministers and central bankers earlier this month. The US and Europe want to push on the issue of global rebalancing, and quickly establish a credible process for monitoring the efforts of the surplus countries to boost domestic demand. China meanwhile will try to shift the focus on to measures to avoid protectionism and will likely stress what they are actually doing to lift domestic demand. Given the fragility of the economic recovery, expect policy makers to remain cautious about withdrawing economic stimulus, though political momentum for tighter regulation of the financial sector is building. Policymakers have advocated measures to reduce leverage and increase the quantity and quality of capital that must be held by banks, including a substantial cyclical element whereby banks have to put aside more reserves in better times. The G20’s Financial Stability Board is expected to make specific proposals in Pittsburgh, however, the pace of the economic recovery might cool-off their determination.
The lack of news flow and the latest sharp rise should lead to some consolidation which might last a few days for once. Indeed every economic news tends to reflect economic improvements, and the empty week ahead will prevent short covering from happening and be a good reason for a few sectors to cool off a bit. Even the Fed on Wednesday might be played negatively by bear players who will fear that it will talk about the unwinding of the easy quantitative policy, which obviously is absolutely not fitting with the latest comments from Fed officials. But, nothing could prevent the idea to think about the opposite until the meeting is over, especially in a quiet trading motion given the lack of important news flow. Activity and the upside trend should resume next week, or anytime at the end of this week when some home sales and Durable orders will remind you the strength if the current economic rebound, while outflow from monetary funds jumping into riskier assets with higher yields will keep on supporting equity indices.
Obama speech on the economy on Sunday morning should be seen as non event. Obama expects the U.S. labor market to create jobs through the end of this year, but not at a pace to keep up with the population growth or to recoup the sharp losses experienced at the start of this year. 'I want to be clear, that probably the jobs picture is not going to improve considerably -- and it could even get a little bit worse -- over the next couple of months," he told CNN's John King. To be honest, an improvement of the job sector by the end of the year would be a very good news and send the market very high for next year.
Some left-over flows from the option expiries should drive the market for the first two hours today / Japan closed until Thursday / time to favour high yield names and defensive ones such as the Telecoms as we should enter a consolidation process at least until Thursday's economic data.
ECONOMIC DATA WITH IMPACT
Leading indicators (15h UK) expected 0.7%from previous 0.6% / minor although being the only data it might be slightly mover
Japan closed until Thursday
POSITIVE IMPACTS
ANGLO-AMERICAN denied an article in the Observer saying that it was about to ask the Takeover Panel to issue Xstrata with a "put up or shut up" order, which will force XTA to bid for AAL within a set time frame or walk away for at least 6 months / Separately, AAL’s CEO would have ordered to speed up the sale of Tarmac to pave the way for a return to dividend payments (The Observer)
VIVENDI : The NY Times reported that executives at GE believe that Vivendi will exercise its right to sell its stake in NBC Universal
EDF may sell a 20% stake in British Energy (La Tribune)
SANTANDER has bought back €6bn of its own debt, booking €1 bn in capital gains to be used to beef up its provisions (Expansion)
GDF-SUEZ - SUEZ ENV. : China's sovereign wealth fund CIC is considering taking stakes in GDF-Suez & Suez Env. (Les Echos)
CADBURY : The head of Kraft Foods is flying to London this week to try to persuade investors to back its £10.2bn takeover offer (ST)
ROCHE will present data from nearly 150 studies investigating use of its major cancer medicines at the cancer conference, which opens in Berlin Today / Separately, CEO confirmed its dividend policy (Finanz und Wirtschaft)
THYSSENKRUPP plans to reduce the amount of shortened hours its staff work by nearly 30% this month (Euro am Sonntag)
L’OREAL, UNICREDITO should bounce back after their tough close on Friday…
BAYER : New Reuters code : BAYGn.DE / New Bloomberg ticker : BAYN GR
NEGATIVE IMPACTS
INBEV : Belgian shareholders grouped together as Patrinvest, sell some 2 m shares (Belgian markets regulator) / Stock should come back down Today after its brutal burst at the close on Friday…
TULLOW OIL : ENI has decided TULLOW is too expensive as a takeover target, after recently studying a possible buy (WSJ)
RBS is to consider a £3bn-£4bn share issue to reduce the stake it would hand to the govt for joining its toxic assets insurance scheme and has approached its biggest investors about the idea (FT)
UBS-CSGN : Switzerland’s bking regulator may introduce rules that would require UBS & CSGN to strengthen their capital (Sonntag)
JULIUS is still talking to ING about the private bking assets ING put up for sale the bk said, denying report it was no longer interested
UNICREDIT’s banking foundation investors are concerned about a possible plan to strengthen finances through a capital increase / CEO and main investors are scheduled to meet Sept. 22 to discuss “extraordinary measures to reinforce capital” (Il Messaggero)
INTESA SANPAOLO plans to launch a Tier 1 hybrid bond of up to €1.5 bn on Sept. 29 (Il Messaggero)
LLOYDS is likely to participate in the U.K. government’s asset protection plan (FT) / Lloyds has offered to sell Scottish Widows and Cheltenham & Gloucester as it attempts to hold on to its Halifax operations (London-Times)
KBC has put its London brokerage & corporate finance house up for sale, with the bank set for a huge loss (The Indep. on Sunday)
CREDIT SUISSE expects to increase its share of the private-banking market in Switzerland & may expand “organically” or through “carefully chosen” acquisitions (NZZ am Sonntag citing CEO)
ALLIED IRISH BANKS : Ireland’s govt expects ALBK to need more capital than its own €2bn estimate (Sunday Tribune)
CONTINENTAL won't sell any of its units, despite the auto industry crisis and its high debts level (CEO in Automobilwoche)
VOLKSWAGEN could become a shareholder of Suzuki Motor before the end of the year (Automobilwoche)
LANXESS CFO said the company will report flat earnings in the Q3 (+€14m exp) (FTD)
TRADING IDEAS
BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL CARS such as DAIMLER / RENAULT / BMW / FIAT toppish for now in consolidation process
SELL TOTAL / DANONE/EDF on double top / AIR LIQUIDE & LINDE seems toppish for now
SELL SAP to play island reversal possibility & SELL BNP run too fast + H&S possibility // SELLVALLOUREC & ST GOBAIN with island possibility
BUY TELECOM such as FRANCE TELECOM / DEUTSCHE TELEKOM to play defensive underperform and good yield return
BUY CARREFOUR to play defensive with some possible stormy time ahead + lagging for mysterious reasons + double bottom
BUY ST GOBAIN / SELL LAFARGE // BUY BP / SELL REPSOL // BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL LINDE // BUY AXA / SELL ALLIANZ // BUY LVMH / SELL PINAULT // BUY VERIZON / SELL AT&T // BUY WAL-MART / SELL HOME DEPOT
BROKER METEOROLOGY
ALLIANZ RAISED TO NEUTRAL FROM SELL BY JP MORGAN
REPSOL RAISED TO NEUTRAL FROM SELL BY BANK OF AMERICA – ML
ROYAL DUTCH SHELL RAISED TO BUY BY BANK OF AMERICA – ML
ANTOFAGASTA RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
BOLIDEN RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
NEXT RAISED TO HOLD FROM SELL BY ING
PAGES JAUNES RAISED TO OVERWEIGHT FROM NEUTRAL BY JP MORGAN
JC DECAUX NAMED TOP PICKS AMONGST GROWTH STORIES BY JP MORGAN
EURASIAN NATURAL RESSOURCES RAISED TO BUY FROM HOLD BY CITIGROUP
POPOLARE RAISED TO NEUTRAL FROM UNDERPERFORM BY EXANE
ALTRAN RAISED TO OUTPERFORM FROM UNDERPERFORM BY EXANE
ENDESA CUT TO SELL FROM NEUTRAL BY UBS
ENDESA CUT TO HOLD FROM BUY BY CITIGROUP
GAS NATURAL CUT TO HOLD FROM BUY BY CITIGROUP
IBERDROLA CUT TO HOLD FROM BUY BY CITIGROUP
ACCIONA CUT TO HOLD FROM BUY BY CITIGROUP
LUKOIL CUT TO NEUTRAL FROM OVERWEIGHT BY HSBC
SWISSCOM CUT TO NEUTRAL FROM OUTPERFORM BY CREDIT SUISSE
ITV CUT TO NEUTRAL BY JP MORGAN
M6 CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN
PROSIEBEN SAT CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN
MEDIASET CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN
NH HOTELES CUT TO NEUTRAL FROM BUY BY UBS
TULLOW OIL CUT TO HOLD FROM BUY BY CITIGROUP
CABLE & WIRELESS CUT TO HOLD FROM BUY BY ING
DATA
WTI : 71,6 (-0,99 %)
Eur/$ : 1,4686 (-0,18 %)
$ /Yen : 91,54 (-0,08 )
10 Yr US : 3,47 ( 0,93 bp)
10 Yr Euro : 3,38 ( 1 bp)
Indices : US close ; Europe close
SOX : 1,60 %;1,21%
S&P :0,26 %; 0,05 %
DOW: 0,37%; 0,25 %
NAS :0,29%; 0,07%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,14 %; -0,51 %
ENERGY : -0,04 %; -0,69 %
FINANCIAL : -0,07 %; -0,29 %
HEALTHCARE : -0,20 %; 0,00 %
TECHNO : 0,19 %; 0,13 %
TELECOM : 1,99 %; 0,66 %
INDUSTRIAL : -0,04 %; -0,21 %
UTILITIES : 0,25 %; 0,06 %
TO BE COMING
Today
Results :
Dividend :ENI (€0.50)
Events :Eicsson road show / General Mills AGM / Nike AGM
Tuesday
Results : Imperial Tobacco trading statement / Severn Trent trading Carnival
Dividend :
Events: Power & Gas Leaders Conference at BoA - ML / Global Consumer & Retail Conference at BoA - ML / Commodities Conference at Credit Suisse / Swiss Equities Conference at Credit Suisse / Intel Developer Forum
Wednesday
Results : United Utilities trading statement / BB&B / General Mills
Dividend : Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights / Centrica (GBp 4,066667) / Petrofac (GBp 0,107)
Events : Steel and Mining conf at Credit Suisse
Thursday
Results : LSE trading updtae /Hennes & Mauritz / RIM
Dividend :Philip Morris ($ 0.58)
Events: Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results :
Dividend :
Events:DSM analyst day
ECONOMIC DATA PREVIEW
Inthe United-Stateswatch the Conference Board leading indicators(15.00 GMT) for August. The United-States are recovering as showed by the rise of the ISM manufacturing and services index, the increase of retail sales (with and excluding cars), the rebound of industrial production and the reduction of job destruction (216 000 in August the “best score” since August 2008). In such conditions the Conference Board leading indicators which is progressing since April should rise by 0.7% in August.
ECONOMY
Germany: Producer prices rose for the first time in 11 months in August
German producer prices rose for the first time in eleven months at +0.5% (previous -1.5%) as energy cost increased. From a year ago producer prices passed from -7.8% YoY (the most since record began in 1949) in July to -6.9% in August as from a year ago energy prices dropped. The rise of producer prices is logically following the economic recovery boosting oil prices. Nevertheless if prices are in a rise trend we are far from an hyper inflation situation, indeed we forecast that German inflation will rise by 0.6% in 2009 and by 2.2% in 2010./
The FOMC meeting will be the focus this week on Wednesday , in addition to some home sales data on Thursday and Durable Orders the following day. The stronger tone of incoming economic news has further decreased the chances that the Fed will boost the size of its asset-purchase programme. But the concerns over the sustainability will mean the Fed will not start tightening before a while . The FOMC should adopt a more upbeat tone in the statement and an announcement that the Fed will extend the duration of its mortgage-backed securities purchase programme beyond the end of the year to limit market disruptions. The tone of the statements released alongside the last three FOMC meetings has become gradually more upbeat in line with the incoming economic news. Back in April, the Fed noted that “the economy continues to contract”. In June it said that “the pace of contraction is slowing”. Last month, it concluded that “activity is levelling out”. With the ISM Manufacturing index having shot above 50 in August, to a level consistent with annual GDP growth of around 3%, it is very possible that the Fed will conclude that the economy is growing again, such as Bernanke stated when saying “the recession is very likely over at this point” .
However, some Fed officials have suggested that near-term rate increases are not likely (the markets still expect the Fed to start increasing rates early next year). Atlanta Fed President Lockhart recently said "it's too early to be contemplating a rise in the fed funds target rates". NY Fed President William Dudley added "I think it's a little premature to be so confident that you want to pull all these things back right now". Meanwhile, Charles Evans Chicago Fed president suggested that the timeframe for the first rate rise was "towards the end of 2010 to 1011". And once more, we hardly see the Obama-Bernanke team do such an easy mistake when the recovery success will be rewarded at the same level on a political view… Growth will sometimes soon depend on the household sector, and it is important to get it well back on track same as the manufacturing sector to make sure the recovery is solid. The Fed is perfectly aware of that.
The Pittsburgh G20 Summit on Thursday and Friday is unlikely to contain many surprises. We already know that it will focus on the tricky issue of global re-balancing, while further discussions are likely on financial sector reform and the appropriateness of continued fiscal stimulus, building on the meeting of G20 finance ministers and central bankers earlier this month. The US and Europe want to push on the issue of global rebalancing, and quickly establish a credible process for monitoring the efforts of the surplus countries to boost domestic demand. China meanwhile will try to shift the focus on to measures to avoid protectionism and will likely stress what they are actually doing to lift domestic demand. Given the fragility of the economic recovery, expect policy makers to remain cautious about withdrawing economic stimulus, though political momentum for tighter regulation of the financial sector is building. Policymakers have advocated measures to reduce leverage and increase the quantity and quality of capital that must be held by banks, including a substantial cyclical element whereby banks have to put aside more reserves in better times. The G20’s Financial Stability Board is expected to make specific proposals in Pittsburgh, however, the pace of the economic recovery might cool-off their determination.
The lack of news flow and the latest sharp rise should lead to some consolidation which might last a few days for once. Indeed every economic news tends to reflect economic improvements, and the empty week ahead will prevent short covering from happening and be a good reason for a few sectors to cool off a bit. Even the Fed on Wednesday might be played negatively by bear players who will fear that it will talk about the unwinding of the easy quantitative policy, which obviously is absolutely not fitting with the latest comments from Fed officials. But, nothing could prevent the idea to think about the opposite until the meeting is over, especially in a quiet trading motion given the lack of important news flow. Activity and the upside trend should resume next week, or anytime at the end of this week when some home sales and Durable orders will remind you the strength if the current economic rebound, while outflow from monetary funds jumping into riskier assets with higher yields will keep on supporting equity indices.
Obama speech on the economy on Sunday morning should be seen as non event. Obama expects the U.S. labor market to create jobs through the end of this year, but not at a pace to keep up with the population growth or to recoup the sharp losses experienced at the start of this year. 'I want to be clear, that probably the jobs picture is not going to improve considerably -- and it could even get a little bit worse -- over the next couple of months," he told CNN's John King. To be honest, an improvement of the job sector by the end of the year would be a very good news and send the market very high for next year.
Some left-over flows from the option expiries should drive the market for the first two hours today / Japan closed until Thursday / time to favour high yield names and defensive ones such as the Telecoms as we should enter a consolidation process at least until Thursday's economic data.
ECONOMIC DATA WITH IMPACT
Leading indicators (15h UK) expected 0.7%from previous 0.6% / minor although being the only data it might be slightly mover
Japan closed until Thursday
POSITIVE IMPACTS
ANGLO-AMERICAN denied an article in the Observer saying that it was about to ask the Takeover Panel to issue Xstrata with a "put up or shut up" order, which will force XTA to bid for AAL within a set time frame or walk away for at least 6 months / Separately, AAL’s CEO would have ordered to speed up the sale of Tarmac to pave the way for a return to dividend payments (The Observer)
VIVENDI : The NY Times reported that executives at GE believe that Vivendi will exercise its right to sell its stake in NBC Universal
EDF may sell a 20% stake in British Energy (La Tribune)
SANTANDER has bought back €6bn of its own debt, booking €1 bn in capital gains to be used to beef up its provisions (Expansion)
GDF-SUEZ - SUEZ ENV. : China's sovereign wealth fund CIC is considering taking stakes in GDF-Suez & Suez Env. (Les Echos)
CADBURY : The head of Kraft Foods is flying to London this week to try to persuade investors to back its £10.2bn takeover offer (ST)
ROCHE will present data from nearly 150 studies investigating use of its major cancer medicines at the cancer conference, which opens in Berlin Today / Separately, CEO confirmed its dividend policy (Finanz und Wirtschaft)
THYSSENKRUPP plans to reduce the amount of shortened hours its staff work by nearly 30% this month (Euro am Sonntag)
L’OREAL, UNICREDITO should bounce back after their tough close on Friday…
BAYER : New Reuters code : BAYGn.DE / New Bloomberg ticker : BAYN GR
NEGATIVE IMPACTS
INBEV : Belgian shareholders grouped together as Patrinvest, sell some 2 m shares (Belgian markets regulator) / Stock should come back down Today after its brutal burst at the close on Friday…
TULLOW OIL : ENI has decided TULLOW is too expensive as a takeover target, after recently studying a possible buy (WSJ)
RBS is to consider a £3bn-£4bn share issue to reduce the stake it would hand to the govt for joining its toxic assets insurance scheme and has approached its biggest investors about the idea (FT)
UBS-CSGN : Switzerland’s bking regulator may introduce rules that would require UBS & CSGN to strengthen their capital (Sonntag)
JULIUS is still talking to ING about the private bking assets ING put up for sale the bk said, denying report it was no longer interested
UNICREDIT’s banking foundation investors are concerned about a possible plan to strengthen finances through a capital increase / CEO and main investors are scheduled to meet Sept. 22 to discuss “extraordinary measures to reinforce capital” (Il Messaggero)
INTESA SANPAOLO plans to launch a Tier 1 hybrid bond of up to €1.5 bn on Sept. 29 (Il Messaggero)
LLOYDS is likely to participate in the U.K. government’s asset protection plan (FT) / Lloyds has offered to sell Scottish Widows and Cheltenham & Gloucester as it attempts to hold on to its Halifax operations (London-Times)
KBC has put its London brokerage & corporate finance house up for sale, with the bank set for a huge loss (The Indep. on Sunday)
CREDIT SUISSE expects to increase its share of the private-banking market in Switzerland & may expand “organically” or through “carefully chosen” acquisitions (NZZ am Sonntag citing CEO)
ALLIED IRISH BANKS : Ireland’s govt expects ALBK to need more capital than its own €2bn estimate (Sunday Tribune)
CONTINENTAL won't sell any of its units, despite the auto industry crisis and its high debts level (CEO in Automobilwoche)
VOLKSWAGEN could become a shareholder of Suzuki Motor before the end of the year (Automobilwoche)
LANXESS CFO said the company will report flat earnings in the Q3 (+€14m exp) (FTD)
TRADING IDEAS
BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL CARS such as DAIMLER / RENAULT / BMW / FIAT toppish for now in consolidation process
SELL TOTAL / DANONE/EDF on double top / AIR LIQUIDE & LINDE seems toppish for now
SELL SAP to play island reversal possibility & SELL BNP run too fast + H&S possibility // SELLVALLOUREC & ST GOBAIN with island possibility
BUY TELECOM such as FRANCE TELECOM / DEUTSCHE TELEKOM to play defensive underperform and good yield return
BUY CARREFOUR to play defensive with some possible stormy time ahead + lagging for mysterious reasons + double bottom
BUY ST GOBAIN / SELL LAFARGE // BUY BP / SELL REPSOL // BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL LINDE // BUY AXA / SELL ALLIANZ // BUY LVMH / SELL PINAULT // BUY VERIZON / SELL AT&T // BUY WAL-MART / SELL HOME DEPOT
BROKER METEOROLOGY
ALLIANZ RAISED TO NEUTRAL FROM SELL BY JP MORGAN
REPSOL RAISED TO NEUTRAL FROM SELL BY BANK OF AMERICA – ML
ROYAL DUTCH SHELL RAISED TO BUY BY BANK OF AMERICA – ML
ANTOFAGASTA RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
BOLIDEN RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
NEXT RAISED TO HOLD FROM SELL BY ING
PAGES JAUNES RAISED TO OVERWEIGHT FROM NEUTRAL BY JP MORGAN
JC DECAUX NAMED TOP PICKS AMONGST GROWTH STORIES BY JP MORGAN
EURASIAN NATURAL RESSOURCES RAISED TO BUY FROM HOLD BY CITIGROUP
POPOLARE RAISED TO NEUTRAL FROM UNDERPERFORM BY EXANE
ALTRAN RAISED TO OUTPERFORM FROM UNDERPERFORM BY EXANE
ENDESA CUT TO SELL FROM NEUTRAL BY UBS
ENDESA CUT TO HOLD FROM BUY BY CITIGROUP
GAS NATURAL CUT TO HOLD FROM BUY BY CITIGROUP
IBERDROLA CUT TO HOLD FROM BUY BY CITIGROUP
ACCIONA CUT TO HOLD FROM BUY BY CITIGROUP
LUKOIL CUT TO NEUTRAL FROM OVERWEIGHT BY HSBC
SWISSCOM CUT TO NEUTRAL FROM OUTPERFORM BY CREDIT SUISSE
ITV CUT TO NEUTRAL BY JP MORGAN
M6 CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN
PROSIEBEN SAT CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN
MEDIASET CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN
NH HOTELES CUT TO NEUTRAL FROM BUY BY UBS
TULLOW OIL CUT TO HOLD FROM BUY BY CITIGROUP
CABLE & WIRELESS CUT TO HOLD FROM BUY BY ING
DATA
WTI : 71,6 (-0,99 %)
Eur/$ : 1,4686 (-0,18 %)
$ /Yen : 91,54 (-0,08 )
10 Yr US : 3,47 ( 0,93 bp)
10 Yr Euro : 3,38 ( 1 bp)
Indices : US close ; Europe close
SOX : 1,60 %;1,21%
S&P :0,26 %; 0,05 %
DOW: 0,37%; 0,25 %
NAS :0,29%; 0,07%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,14 %; -0,51 %
ENERGY : -0,04 %; -0,69 %
FINANCIAL : -0,07 %; -0,29 %
HEALTHCARE : -0,20 %; 0,00 %
TECHNO : 0,19 %; 0,13 %
TELECOM : 1,99 %; 0,66 %
INDUSTRIAL : -0,04 %; -0,21 %
UTILITIES : 0,25 %; 0,06 %
TO BE COMING
Today
Results :
Dividend :ENI (€0.50)
Events :Eicsson road show / General Mills AGM / Nike AGM
Tuesday
Results : Imperial Tobacco trading statement / Severn Trent trading Carnival
Dividend :
Events: Power & Gas Leaders Conference at BoA - ML / Global Consumer & Retail Conference at BoA - ML / Commodities Conference at Credit Suisse / Swiss Equities Conference at Credit Suisse / Intel Developer Forum
Wednesday
Results : United Utilities trading statement / BB&B / General Mills
Dividend : Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights / Centrica (GBp 4,066667) / Petrofac (GBp 0,107)
Events : Steel and Mining conf at Credit Suisse
Thursday
Results : LSE trading updtae /Hennes & Mauritz / RIM
Dividend :Philip Morris ($ 0.58)
Events: Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day
Friday
Results :
Dividend :
Events:DSM analyst day
ECONOMIC DATA PREVIEW
Inthe United-Stateswatch the Conference Board leading indicators(15.00 GMT) for August. The United-States are recovering as showed by the rise of the ISM manufacturing and services index, the increase of retail sales (with and excluding cars), the rebound of industrial production and the reduction of job destruction (216 000 in August the “best score” since August 2008). In such conditions the Conference Board leading indicators which is progressing since April should rise by 0.7% in August.
ECONOMY
Germany: Producer prices rose for the first time in 11 months in August
German producer prices rose for the first time in eleven months at +0.5% (previous -1.5%) as energy cost increased. From a year ago producer prices passed from -7.8% YoY (the most since record began in 1949) in July to -6.9% in August as from a year ago energy prices dropped. The rise of producer prices is logically following the economic recovery boosting oil prices. Nevertheless if prices are in a rise trend we are far from an hyper inflation situation, indeed we forecast that German inflation will rise by 0.6% in 2009 and by 2.2% in 2010./
Friday, September 18, 2009
Sell Rosh Hashanah
GLOBAL EQUITIES RESEARCH
Would we play “the Sell Rosh Hashanah buy Kippur” old saying ? why not, still believing there is a nice upside left (8 to 10%) without major changes from the current macro background as inflows are stepping out of monetary funds for riskier assets such as equity business. But once today’s M&A possible rumours before the weekend are over, we do thing we are on for a little pause until the Employment report in two weeks time, which will be the start of some further supportive news such as Alcoa October 7th, Intel Oct 13th, Goldman & JP Morgan Oct 14th earnings. We think the recovery is happening, and the process will require some flexibility from the Central Banks. Employment, which according to everyone is the required conditions to make the recovery sustainable, unlike the one or two years jobless recoveries which sometimes happened in the past, will need to recover and get some hiring back.
Inflation will be the next problem as we will enter a period where the base effect will not be friendly (prices were falling same time last year), and market players will fear that the unwinding of the quantitative policy happens too soon, spoiling the fragile recovery. However, the Fed already said they will focus on the economic recovery, and speaking with some customers, we do agree with the idea that the Fed will have no other choice than to let inflation go for a while (if any), until the hiring process is on track and the economic recovery more solid. It is always better to attend a solid growth with inflation rather than stagflation (no growth with inflation). The good point being here that any inflation would help cleaning the debts from households, and accelerate the deleverage process.
As a matter of fact, next week FOMC meeting will be the focus on Wednesday, in addition to some home sales data on Thursday and Durable Orders the following day. The stronger tone of incoming economic news has further decreased the chances that the Fed will boost the size of its asset-purchase programme. As to the concerns over the sustainability, Fed officials have suggested that near-term rate increases are not likely (the markets still expect the Fed to start increasing rates early next year), and once more, we hardly see the Obama-Bernanke team do such an easy mistake when the recovery success will be rewarded at the same level on a political front …
Yesterday’s Housing Starts and Philadelphia index reminded that the recovery will go through bumpy roads. The 1.5% m/m increase in US housing starts in August leaves the number of starts some 23% above January's trough. But all the increase in August came in the volatile multi-family starts component. Single family starts fell from 494,000 to 479,000, although they remain above January's low of 357,000. Some of the upward trend in recent months surely reflects the increase in demand driven by the homebuyer tax credit. With that due to expire at the end of November, some tends to think homebuilding may soon flatten off. However, demand for new homes is probably also being boosted by the stabilisation in prices and high affordability. Accordingly, homebuilding activity is likely to continue to recover, but the large degree of excess supply suggests that the pace of the recovery might be moderate to start with. As to the Philly Fed manufacturing index, it is not as strong as the jump in the headline index from 4.2 in August to 14.1 in September appears to suggest. The new orders balance slipped back from 4.2 to 3.3 while the employment balance dropped from -12.9 to -14.3.
Things are getting better and should remain so, but we enter a period where there will not be much more news but possible M&A deals to support equity indices until the fast and furious Q3 earnings and employment report out in two weeks.
Today will be bumpy, with not only the big quarterly option expiries, but also the reshuffle from equity indices due to new re weighting.
ECONOMIC DATA WITH IMPACT
Quarterly option expiry / LSE 10h15-30 UK/ Eurostoxx 11h UK / Dax 12h UK / CAC 15h UK / single stocks on the close + reshuffle
POSITIVE IMPACTS
GSK is in talks to buy a 5% stake in Dr. Reddy's (The Economic Times) / The deal may be priced around $150 m
AIR FRANCE-IBERIA-LUFTHANSA wouldhave hired Rothschild to study an IPO of Amadeus, the travel reservations giant / Amadeus is controlled by PE firms with 52.8%, Air France with 23.14% + Iberia and Lufthansa with 11.57% each / Amadeus would be worth €8bn
ALSTOM : The CEO of French national railway met M. Schwarzenegger to push the sale of French High-speed train TGV to California
SODEXO reaffirmed its mid-term targets to generate average annual revenue growth of 7% and to reach an operating margin of 6%
BNP & FORTIS agreed to take a majority stake in the non-life insurance unit of UBIBANCA for €120m in cash
VOLKSWAGEN confirmed it is planning to integrate its 3 different brands for light and heavy commercial vehicles under one roof
BRITISH LAND is poised to conclude the long-awaited £2.2bn sale of half of its Broadgate office complex to Blackstone (FT)
SYNGENTA : Brazil's biosecurity regulator approved 2 new varieties of genetically modified corn, developed by Monsanto and Syngenta
NOVARTIS received FDA approval for Valturna, a single-pill combination of valsartan and aliskiren, to treat high blood pressure.
RAUTARUUKKI said the industry faces a slow recovery from the recession
REWEIGHTING CAC40 (GE Est.) : Main winners are TECHNIP (from 0% to 0.656%) + BNP (from 7.04% to 7.483%) + SANOFI (from 7.095% to 7.48%) + PERNOD RICARD (from 1.447% to 1.628%) / Others gainers are DANONE, DEXIA, AIR LIQUIDE…
REWEIGHTING DAX30 (GE Est.) : Main winners are INFINEON (from 0% to 0.83%) + E.ON (from 9.32% to 10%) + BEIERSDORF (from 0.63% to 0.77%)
REWEIGHTING EUROSTX (GE Est.) : Main winners are INBEV (from 0% to 1.42%) + CRH (from 0% to 0.87%) + TOTAL (from 5.75% to 6.03%) + FRANCE TELECOM (from 2.32% to 2.43%) + IBERDROLA (from 1.50% to 1.68%) …
REWEIGHTING FTSE100 (GE Est.) : Main winners are SEGRO (from 0% to 0.20%) + WHITBREAD (from 0% to 0.17%) + RENTOKIL (from 0% to 0.155%)
NEGATIVE IMPACTS
EDF (Minor) : A board meeting at EDF on who will replace CEO will be delayed by several days from Sept. 23 (Reuters) / Anne-Marie Idrac, junior minister for trade, is being mentioned as a possible candidate to replace M. Gadonneix…
LLOYDS (Yest.) : British regulators set tougher than expected terms on Lloyd's exit from the govt scheme to insure it against credit losses (Daily Telegraph + FT) / FSA concluded after stress tests that it needed more than £20 bn to operate without the insurance…
CONTINENTAL mandated Credit Suisse to evaluate options for future sustainable financing and capital structures = Conti has a August 2010 deadline to repay €3.5 bn of a syndicated loan + net total debt of €9.75 bn, almost twice the size of its shareholder equity
RENAULT is "still deep in crisis" (COO) / RNO would be planning more restructuring at the company…
BRITISH AIRWAYS plans to team up with American Airlines and Qantas Airways to make a joint alliance offer to Japan Airlines
SWEDBANK plans to issue a trading update before the market open in conjunction with the prospectus for its planned rights issue
NOKIA : Palm said overnight it shipped 823,000 smartphones in the Q1 (700,000 to 800,000 exp) but issued Q2 revenue guidance well below analysts estimates…
REWEIGHTING CAC40 (GE Est.) : Main losers are TOTAL (from 13.68% to 12.85%) + AIR FRANCE (from 0.42% to 0%) + EDF (from 2.10% to 1.663%) + SOC. GEN (from 4.38% to 3.996%) / Others losers are CREDIT AGRICOLE, GDF-SZE…
REWEIGHTING DAX30 (GE Est.) : Main losers are HANNOVER RE (from 0.36% to 0%) + VOLKSWAGEN (from 2.1% to 1.45%) + SIEMENS (from 10.78% to 10%)
REWEIGHTING EUROSTX (GE Est.) : Main losers are FORTIS (from 0.44% to 0%) + RENAULT (from 0.45% to 0%) + VW (from 0.69% to 0.47%) + BNP (from 3.21% to 3.11%) + SANTANDER (from 5.89% to 5.74%) + DBK (from 2.10% to 2.01%)
REWEIGHTING FTSE100 (GE Est.) : Main losers are PENNON (from 0.13% to 0%) + F&C (from 0.13% to 0%) + BALFOUR BEATTY (from 0.126% to 0%)
TRADING IDEAS
BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL SOC GEN / GDF SUEZ & TOTAL to play sharp decrease in weight tonight
SELL SAP to play island reversal possibility & SELL BNP run too fast + head & shoulder possibility
SELL DANONE / TELEFONICA /EDF on double top / AIR LIQUIDE & LINDE toppish for now
SELLVALLOUREC & ST GOBAIN on island possibility
BUY AIR FRANCE to play CAC40 exit tonight, Amadeus good news , Star Alliance now on JAL, restructuring on track, end of its CAC journey nightmare
BUY CARREFOUR to play defensive with some possible stormy time ahead + lagging for mysterious reasons
BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL AIR LIQUIDE or LINDE
BUY AXA / SELL ALLIANZ // BUY EON / SELL EDF
BUY LVMH / SELL PINAULT // BUY SAINSBURY / SELL TESCO
BUY VERIZON / SELL AT&T // BUY WAL-MART / SELL HOME DEPOT
BROKER METEOROLOGY
DEUTSCHE BANK RAISED TO BUY FROM HOLD BY ING
DAIMLER RAISED TO OUTPERFORM FROM MARKET PERFORM BY BERNSTEIN
SWISS LIFE RESUME AT BUY BY DEUTSCHE BANK
BRITISH LAND RAISED TO BUY FROM HOLD BY SOCIETE GENERALE
TELECOM ITALIA SAVING SHARES RAISED TO NEUTRAL FROM SELL BY UBS
EUROPEAN CIVIL AEROSPACE COMPANIES EPS RAISED BY AVERAGE 11% BY GOLDMAN SACHS
STANDARD LIFE RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
ROLLS ROYCE RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
SABMILLER RAISED TO BUY FROM NEUTRAL BY UBS
HAMMERSON RAISED TO HOLD FROM SELL BY SOCIETE GENERALE
HAYS RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
MICHEAL PAGE RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
ORASCOM TEL RAISED TO BUY FROM NEUTRAL BY BANK OF AMERICA – ML
SWEDBANK RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
NEXT RAISED TO BUY FROM HOLD BY UBS
BANCA MONTE DI PASCHI CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
BANCA GENERALI CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
ENI CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE
EUROPEAN AUTOS CUT TO BENCHMARK FROM OVERWEIGHT BY BERNSTEIN
SONAE CUT TO NEUTRAL FROM BUY BY UBS
LOGITECH CUT EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
OMV CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE
TULLOW OIL CUT TO HOLD FROM BUY BY CITIGROUP
DATA
WTI : 72,3 (0,24 %)
Eur/$ : 1,4718 (-0,16 %)
$ /Yen : 91,21 (0,03 )
10 Yr US : 3,39 ( 0,35 bp)
10 Yr Euro : 3,37 ( 2,9 bp)
Indices : US close ; Europe close
SOX : -1,69 %;-0,26%
S&P :-0,31 %; 0,31 %
DOW: -0,08%; 0,37 %
NAS :-0,30%; 0,26%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,75 %; 0,67 %
ENERGY : -0,70 %; 0,33 %
FINANCIAL : -0,45 %; 0,95 %
HEALTHCARE : 0,01 %; 0,09 %
TECHNO : -0,28 %; 0,30 %
TELECOM : -1,59 %; -1,03 %
INDUSTRIAL : -0,24 %; 0,26 %
UTILITIES : -0,55 %; -0,27 %
TO BE COMING
Today
Results :Mediobanca
Dividend :Heinz ($0.42)
Events :Euler Hermes AGM
Monday
Results :
Dividend : ENI (€0.50)
Events: General Mills AGM / Nike AGM
Tuesday
Results : Imperial Tobacco trading statement / Carnival
Dividend :
Events : Power & Gas Leaders Conference at BoA - ML / Global Consumer & Retail Conference at BoA - ML / Commodities Conference at Credit Suisse / Swiss Equities Conference at Credit Suisse / Intel Developer Forum
Wednesday
Results : United Utilities trading statement / BB&B
Dividend :Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights
Events: Steel and Mining conf at Credit Suisse
Thursday
Results :Hennes & Mauritz / RIM
Dividend :
Events:Oil & Gas Conference at Deutsche Bank
ECONOMIC DATA PREVIEW
InGermanywatch the Producer prices(7.00 GMT) for August. German’s producer prices are expected to get back to positive territory at +0.2% in August (prior -1.5%) led by the rise of energy cost and by the progressive recovery. Meanwhile from a year ago producer prices will pass from -7.8% in July to -7.2% in August.
ECONOMY
United-States: Housing starts and building permits increased in August
After reaching an historical low in April, to 479,000 and 498,000 respectively, housing starts and building permits found an upward path in May and June, before slightly contracting in July However, the real estate sector reached a bottom floor as showed by the rise of the NAHB index a monthly survey of home builders .In addition, the weakness in prices and in mortgage rates boost housing sales in the United States. Consequently housing starts and building permits increased in August to reach 598,000 and 579,000 respectively. After the rise of the ISM survey, the increase of the retails sales and industrial production and the reduction of job destruction this is another sign of the present recovery in the United-States.
United-States: Initial jobless claims stabylized and continuing claims slightly decrease
The weekly figure of labour market are confirming a stabilization in the United-States. Indeed initial jobless claims remained stable at 557 000 and continuing claims decreased very slightly from 6 101 000 to 6 100 000. After over laying off companies are now starting to have a more realistic behaviour matching economic fundamentals. As showed by the rise if the ISM manufacturing and services index, investment is strongly recovering in the United-States and the virtuous circle : investment-employment-consumption is back. Nevertheless we will not see any significant decrease of the unemployment rate before spring summer 2010.
Euro area: Trade surplus rose in July
Euro area trade surplus increased for a fourth consecutive month to reach 6.8 billion euros (prior +2.3 bn) a highest since July 2004. This rise was mainly led by the surge of exports by 4.1% from June (prior +0.9%) boosted by German’s exports mainly to China and by the drop of imports by 0.3% after rising 0.2% in June. Despite the high level of the euro currency its important to notice that this rise of exports match the drop of the euro currency at the end of 2008 and of the first quarter 2009 as there is a gap from six to nine months between the evolution of the currency and the evolution of exports. If he progressive recovery is confirmed in the euro area as Germany and France returned to growth in the second quarter and as euro area GDP fell just 0.1% after plunging 2.5% at the first quarter, the rebound remained fragile. Indeed even if the bottom floor has been reached the hardest need to be done, meaning transforming the present rebound into a real recovery
Would we play “the Sell Rosh Hashanah buy Kippur” old saying ? why not, still believing there is a nice upside left (8 to 10%) without major changes from the current macro background as inflows are stepping out of monetary funds for riskier assets such as equity business. But once today’s M&A possible rumours before the weekend are over, we do thing we are on for a little pause until the Employment report in two weeks time, which will be the start of some further supportive news such as Alcoa October 7th, Intel Oct 13th, Goldman & JP Morgan Oct 14th earnings. We think the recovery is happening, and the process will require some flexibility from the Central Banks. Employment, which according to everyone is the required conditions to make the recovery sustainable, unlike the one or two years jobless recoveries which sometimes happened in the past, will need to recover and get some hiring back.
Inflation will be the next problem as we will enter a period where the base effect will not be friendly (prices were falling same time last year), and market players will fear that the unwinding of the quantitative policy happens too soon, spoiling the fragile recovery. However, the Fed already said they will focus on the economic recovery, and speaking with some customers, we do agree with the idea that the Fed will have no other choice than to let inflation go for a while (if any), until the hiring process is on track and the economic recovery more solid. It is always better to attend a solid growth with inflation rather than stagflation (no growth with inflation). The good point being here that any inflation would help cleaning the debts from households, and accelerate the deleverage process.
As a matter of fact, next week FOMC meeting will be the focus on Wednesday, in addition to some home sales data on Thursday and Durable Orders the following day. The stronger tone of incoming economic news has further decreased the chances that the Fed will boost the size of its asset-purchase programme. As to the concerns over the sustainability, Fed officials have suggested that near-term rate increases are not likely (the markets still expect the Fed to start increasing rates early next year), and once more, we hardly see the Obama-Bernanke team do such an easy mistake when the recovery success will be rewarded at the same level on a political front …
Yesterday’s Housing Starts and Philadelphia index reminded that the recovery will go through bumpy roads. The 1.5% m/m increase in US housing starts in August leaves the number of starts some 23% above January's trough. But all the increase in August came in the volatile multi-family starts component. Single family starts fell from 494,000 to 479,000, although they remain above January's low of 357,000. Some of the upward trend in recent months surely reflects the increase in demand driven by the homebuyer tax credit. With that due to expire at the end of November, some tends to think homebuilding may soon flatten off. However, demand for new homes is probably also being boosted by the stabilisation in prices and high affordability. Accordingly, homebuilding activity is likely to continue to recover, but the large degree of excess supply suggests that the pace of the recovery might be moderate to start with. As to the Philly Fed manufacturing index, it is not as strong as the jump in the headline index from 4.2 in August to 14.1 in September appears to suggest. The new orders balance slipped back from 4.2 to 3.3 while the employment balance dropped from -12.9 to -14.3.
Things are getting better and should remain so, but we enter a period where there will not be much more news but possible M&A deals to support equity indices until the fast and furious Q3 earnings and employment report out in two weeks.
Today will be bumpy, with not only the big quarterly option expiries, but also the reshuffle from equity indices due to new re weighting.
ECONOMIC DATA WITH IMPACT
Quarterly option expiry / LSE 10h15-30 UK/ Eurostoxx 11h UK / Dax 12h UK / CAC 15h UK / single stocks on the close + reshuffle
POSITIVE IMPACTS
GSK is in talks to buy a 5% stake in Dr. Reddy's (The Economic Times) / The deal may be priced around $150 m
AIR FRANCE-IBERIA-LUFTHANSA wouldhave hired Rothschild to study an IPO of Amadeus, the travel reservations giant / Amadeus is controlled by PE firms with 52.8%, Air France with 23.14% + Iberia and Lufthansa with 11.57% each / Amadeus would be worth €8bn
ALSTOM : The CEO of French national railway met M. Schwarzenegger to push the sale of French High-speed train TGV to California
SODEXO reaffirmed its mid-term targets to generate average annual revenue growth of 7% and to reach an operating margin of 6%
BNP & FORTIS agreed to take a majority stake in the non-life insurance unit of UBIBANCA for €120m in cash
VOLKSWAGEN confirmed it is planning to integrate its 3 different brands for light and heavy commercial vehicles under one roof
BRITISH LAND is poised to conclude the long-awaited £2.2bn sale of half of its Broadgate office complex to Blackstone (FT)
SYNGENTA : Brazil's biosecurity regulator approved 2 new varieties of genetically modified corn, developed by Monsanto and Syngenta
NOVARTIS received FDA approval for Valturna, a single-pill combination of valsartan and aliskiren, to treat high blood pressure.
RAUTARUUKKI said the industry faces a slow recovery from the recession
REWEIGHTING CAC40 (GE Est.) : Main winners are TECHNIP (from 0% to 0.656%) + BNP (from 7.04% to 7.483%) + SANOFI (from 7.095% to 7.48%) + PERNOD RICARD (from 1.447% to 1.628%) / Others gainers are DANONE, DEXIA, AIR LIQUIDE…
REWEIGHTING DAX30 (GE Est.) : Main winners are INFINEON (from 0% to 0.83%) + E.ON (from 9.32% to 10%) + BEIERSDORF (from 0.63% to 0.77%)
REWEIGHTING EUROSTX (GE Est.) : Main winners are INBEV (from 0% to 1.42%) + CRH (from 0% to 0.87%) + TOTAL (from 5.75% to 6.03%) + FRANCE TELECOM (from 2.32% to 2.43%) + IBERDROLA (from 1.50% to 1.68%) …
REWEIGHTING FTSE100 (GE Est.) : Main winners are SEGRO (from 0% to 0.20%) + WHITBREAD (from 0% to 0.17%) + RENTOKIL (from 0% to 0.155%)
NEGATIVE IMPACTS
EDF (Minor) : A board meeting at EDF on who will replace CEO will be delayed by several days from Sept. 23 (Reuters) / Anne-Marie Idrac, junior minister for trade, is being mentioned as a possible candidate to replace M. Gadonneix…
LLOYDS (Yest.) : British regulators set tougher than expected terms on Lloyd's exit from the govt scheme to insure it against credit losses (Daily Telegraph + FT) / FSA concluded after stress tests that it needed more than £20 bn to operate without the insurance…
CONTINENTAL mandated Credit Suisse to evaluate options for future sustainable financing and capital structures = Conti has a August 2010 deadline to repay €3.5 bn of a syndicated loan + net total debt of €9.75 bn, almost twice the size of its shareholder equity
RENAULT is "still deep in crisis" (COO) / RNO would be planning more restructuring at the company…
BRITISH AIRWAYS plans to team up with American Airlines and Qantas Airways to make a joint alliance offer to Japan Airlines
SWEDBANK plans to issue a trading update before the market open in conjunction with the prospectus for its planned rights issue
NOKIA : Palm said overnight it shipped 823,000 smartphones in the Q1 (700,000 to 800,000 exp) but issued Q2 revenue guidance well below analysts estimates…
REWEIGHTING CAC40 (GE Est.) : Main losers are TOTAL (from 13.68% to 12.85%) + AIR FRANCE (from 0.42% to 0%) + EDF (from 2.10% to 1.663%) + SOC. GEN (from 4.38% to 3.996%) / Others losers are CREDIT AGRICOLE, GDF-SZE…
REWEIGHTING DAX30 (GE Est.) : Main losers are HANNOVER RE (from 0.36% to 0%) + VOLKSWAGEN (from 2.1% to 1.45%) + SIEMENS (from 10.78% to 10%)
REWEIGHTING EUROSTX (GE Est.) : Main losers are FORTIS (from 0.44% to 0%) + RENAULT (from 0.45% to 0%) + VW (from 0.69% to 0.47%) + BNP (from 3.21% to 3.11%) + SANTANDER (from 5.89% to 5.74%) + DBK (from 2.10% to 2.01%)
REWEIGHTING FTSE100 (GE Est.) : Main losers are PENNON (from 0.13% to 0%) + F&C (from 0.13% to 0%) + BALFOUR BEATTY (from 0.126% to 0%)
TRADING IDEAS
BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL SOC GEN / GDF SUEZ & TOTAL to play sharp decrease in weight tonight
SELL SAP to play island reversal possibility & SELL BNP run too fast + head & shoulder possibility
SELL DANONE / TELEFONICA /EDF on double top / AIR LIQUIDE & LINDE toppish for now
SELLVALLOUREC & ST GOBAIN on island possibility
BUY AIR FRANCE to play CAC40 exit tonight, Amadeus good news , Star Alliance now on JAL, restructuring on track, end of its CAC journey nightmare
BUY CARREFOUR to play defensive with some possible stormy time ahead + lagging for mysterious reasons
BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL AIR LIQUIDE or LINDE
BUY AXA / SELL ALLIANZ // BUY EON / SELL EDF
BUY LVMH / SELL PINAULT // BUY SAINSBURY / SELL TESCO
BUY VERIZON / SELL AT&T // BUY WAL-MART / SELL HOME DEPOT
BROKER METEOROLOGY
DEUTSCHE BANK RAISED TO BUY FROM HOLD BY ING
DAIMLER RAISED TO OUTPERFORM FROM MARKET PERFORM BY BERNSTEIN
SWISS LIFE RESUME AT BUY BY DEUTSCHE BANK
BRITISH LAND RAISED TO BUY FROM HOLD BY SOCIETE GENERALE
TELECOM ITALIA SAVING SHARES RAISED TO NEUTRAL FROM SELL BY UBS
EUROPEAN CIVIL AEROSPACE COMPANIES EPS RAISED BY AVERAGE 11% BY GOLDMAN SACHS
STANDARD LIFE RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
ROLLS ROYCE RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
SABMILLER RAISED TO BUY FROM NEUTRAL BY UBS
HAMMERSON RAISED TO HOLD FROM SELL BY SOCIETE GENERALE
HAYS RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
MICHEAL PAGE RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
ORASCOM TEL RAISED TO BUY FROM NEUTRAL BY BANK OF AMERICA – ML
SWEDBANK RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
NEXT RAISED TO BUY FROM HOLD BY UBS
BANCA MONTE DI PASCHI CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
BANCA GENERALI CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
ENI CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE
EUROPEAN AUTOS CUT TO BENCHMARK FROM OVERWEIGHT BY BERNSTEIN
SONAE CUT TO NEUTRAL FROM BUY BY UBS
LOGITECH CUT EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
OMV CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE
TULLOW OIL CUT TO HOLD FROM BUY BY CITIGROUP
DATA
WTI : 72,3 (0,24 %)
Eur/$ : 1,4718 (-0,16 %)
$ /Yen : 91,21 (0,03 )
10 Yr US : 3,39 ( 0,35 bp)
10 Yr Euro : 3,37 ( 2,9 bp)
Indices : US close ; Europe close
SOX : -1,69 %;-0,26%
S&P :-0,31 %; 0,31 %
DOW: -0,08%; 0,37 %
NAS :-0,30%; 0,26%
DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,75 %; 0,67 %
ENERGY : -0,70 %; 0,33 %
FINANCIAL : -0,45 %; 0,95 %
HEALTHCARE : 0,01 %; 0,09 %
TECHNO : -0,28 %; 0,30 %
TELECOM : -1,59 %; -1,03 %
INDUSTRIAL : -0,24 %; 0,26 %
UTILITIES : -0,55 %; -0,27 %
TO BE COMING
Today
Results :Mediobanca
Dividend :Heinz ($0.42)
Events :Euler Hermes AGM
Monday
Results :
Dividend : ENI (€0.50)
Events: General Mills AGM / Nike AGM
Tuesday
Results : Imperial Tobacco trading statement / Carnival
Dividend :
Events : Power & Gas Leaders Conference at BoA - ML / Global Consumer & Retail Conference at BoA - ML / Commodities Conference at Credit Suisse / Swiss Equities Conference at Credit Suisse / Intel Developer Forum
Wednesday
Results : United Utilities trading statement / BB&B
Dividend :Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights
Events: Steel and Mining conf at Credit Suisse
Thursday
Results :Hennes & Mauritz / RIM
Dividend :
Events:Oil & Gas Conference at Deutsche Bank
ECONOMIC DATA PREVIEW
InGermanywatch the Producer prices(7.00 GMT) for August. German’s producer prices are expected to get back to positive territory at +0.2% in August (prior -1.5%) led by the rise of energy cost and by the progressive recovery. Meanwhile from a year ago producer prices will pass from -7.8% in July to -7.2% in August.
ECONOMY
United-States: Housing starts and building permits increased in August
After reaching an historical low in April, to 479,000 and 498,000 respectively, housing starts and building permits found an upward path in May and June, before slightly contracting in July However, the real estate sector reached a bottom floor as showed by the rise of the NAHB index a monthly survey of home builders .In addition, the weakness in prices and in mortgage rates boost housing sales in the United States. Consequently housing starts and building permits increased in August to reach 598,000 and 579,000 respectively. After the rise of the ISM survey, the increase of the retails sales and industrial production and the reduction of job destruction this is another sign of the present recovery in the United-States.
United-States: Initial jobless claims stabylized and continuing claims slightly decrease
The weekly figure of labour market are confirming a stabilization in the United-States. Indeed initial jobless claims remained stable at 557 000 and continuing claims decreased very slightly from 6 101 000 to 6 100 000. After over laying off companies are now starting to have a more realistic behaviour matching economic fundamentals. As showed by the rise if the ISM manufacturing and services index, investment is strongly recovering in the United-States and the virtuous circle : investment-employment-consumption is back. Nevertheless we will not see any significant decrease of the unemployment rate before spring summer 2010.
Euro area: Trade surplus rose in July
Euro area trade surplus increased for a fourth consecutive month to reach 6.8 billion euros (prior +2.3 bn) a highest since July 2004. This rise was mainly led by the surge of exports by 4.1% from June (prior +0.9%) boosted by German’s exports mainly to China and by the drop of imports by 0.3% after rising 0.2% in June. Despite the high level of the euro currency its important to notice that this rise of exports match the drop of the euro currency at the end of 2008 and of the first quarter 2009 as there is a gap from six to nine months between the evolution of the currency and the evolution of exports. If he progressive recovery is confirmed in the euro area as Germany and France returned to growth in the second quarter and as euro area GDP fell just 0.1% after plunging 2.5% at the first quarter, the rebound remained fragile. Indeed even if the bottom floor has been reached the hardest need to be done, meaning transforming the present rebound into a real recovery
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