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./