Bump-Rebound

GLOBAL EQUITIES RESEARCH

It is now granted that the stimulus is proving to be efficient, enough anyway to get some nice and lasting growth from the US n° 1 heavy weight economic champion ($14 trn GDP vs China n°2 with 3trn). Indeed, some famous (and interesting) bear economists are now admitting that recent improvements in the incoming data suggest that over the coming quarters the US economy will enjoy a burst in growth driven by the fiscal stimulus, a rebound in business investment and an easing in the inventory rundown. They are revising their 2009 and 2010 GDP forecasts higher. But they now forecast that this spurt will be short-lived, and that growth is likely to fall back in the second half of next year as the initial thrust fades and consumption remains weak. We would recommend to listen to the first fact, that the economy is enjoying a nice and strong rebound, which would last at least one year. Indeed, next year is just pure fiction at this stage, and the lagging indicators might join the party as soon as the end of this year, in which case these predictions which already said that the stimulus would be inefficient, would misguide your investment strategies which should be facts driven for now so much the background is changing everyday positively a bit more. They now expect GDP to grow at an annualised rate of around 3.0% in both Q3 & Q4. GDP in 2009 as a whole may now only fall by around 2.5%. They admit growth may even accelerate further in the first half of 2010 as more of the fiscal stimulus set aside for spending on public works comes online. They now think that GDP will increase by around 3.0% in 2010, up from the previous forecast of a 1.0% gain. (The latest consensus forecast for next year is around 2.3%.)

We think that employment will recover earlier than one would imagine, and the consumption will follow. Not even worth adding that at this stage, given theviolence of the drop last year, 60% up from the lows is only erasing 40% drop which in October last year would only take a few days. This is the reason why the market is quickly heading back toward pre Lehman bankruptcy levels (3200 Eurostoxx & 1200 S&P), and might not even stop there if things keep on improving at that pace. When you press a spring, it does rebound, and the last bit of the drop (in term of timing but huge in %) of the equity indices was more due to a need to cash in some money more than to fit with an economic growth pace. Take a look at the week of the 12th October, the Eurostoxx plunged from 3082 on the Monday to 2326 on the Friday, –25% drop, meaning 32% rise to recover to the same initial level... As to the economic activity, it was off for 4 months (November-February), which made firms restructure at high speed in order to survive in this new stalled economic environment which did not last long thanks to the high reactivity from officials very involved so much their political success depends on the economic one.

We are just in a time frame where things are close to be ideal on a financial front. The huge amount of spare capacity means that the threat of a full-blown debt-deflation cycle will remain the Fed’s primary concern. Under such circumstances, the Fed will keep interest rates close to zero for a while, or at least the monetary policy will remain very accommodative. During that time the banks will make a lot of money, and competition will be back with the banks happy to lend again on friendly financial conditions, which will be housing supportive and boost market deals such as M&A very actively, which will support banks even more etc… virtuous effect.

Chinese data out in the coming night should be very supportive, as well as the M&A possible rumours which you will have to deal with every Friday . Texas Instrument mid quarter update last night just brought additional confidence about the current quarter.

Opening up we should break the highs, trading will play short with a double top possibility which we do not recommend to play. Next consolidation should be on Monday afternoon, as there are no data that day and the market will fear the Retail Sales out the following day



ECONOMIC DATA WITH IMPACT


Bank of England (13h UK) / The MPC is unlikely to alter its quantitative easing (QE) programme, given that it was only last month that it voted to extend the policy by £50bn

Jobless Claims (13h30 UK) expected 560k from previous 570k / minor as volatile and weekly data

Trade Balance (13h30 UK) expected –27.3 bn$ from previous –27 / Any widening in July’s external trade deficit is likely to have been driven by an increase in oil prices / More positively, the ISM suggests that exports will increase for the third month in a row and probably in the months that follow too / minor

Coming night : Chinese Retail Sales + Trade Balance + Industrial Production


POSITIVE IMPACTS



BMW is planning to expand its cooperation with PEUGEOT (Handelsblatt) / BMW and Peugeot already cooperate in 4-cylinder motors, and could expand the alliance into components.

CADBURY : Kraft plans to present a new offer for Cadbury “sooner rather than later” (The Guardian)

SAP reiterated its 2009 outlook + said that win rate against rivals has never been higher…

TELECOM ITALIA has received multiple offers for more than $500 m each to buy its stake in Telecom Argentina (El Cronista)

GSK : A FDA panel backed a GlaxoSmithKline’s vaccine designed to protect against cervical cancer in women

THOMAS COOK : Creditor banks of Arcandor have launched a placing of their 43.9% stake in Thomas Cook, via an accelerated bookbuilding / The full stake, worth over £850m, would be sold & the placing was already "well covered," as it had been widely expected

FRAPORT : Passenger numbers fell 0.4% at Frankfurt airport in August and air freight fell 5% / However, CEO said that the number of passengers at Frankfurt airport may decline as little as 5-6% this year, compared with a previous forecast of a 6-9% slide

STM : The French Strategic Fund could take a stake in STM (Les Echos) / It could also take stake in ERAMET & in AREVA’s T&D / At the end of June, Areva announced plans to sell its T&D unit and divest its 11.4% stake in STM and the 26.1% it holds in Eramet

ASML raised sales outlook : Sees Q3 and Q4 2009 net sales of above €500 m (€450m exp for Q3)

HOME RETAIL : Argos and Homebase performed well, delivering cash margin ahead of Home retail’s expectations

KESA ELECTRICALS : Q1 like for like sales down 3.9% / Said that in France trading conditions remained challenging


TEXAS INSTRUMENT raised its Q3 outlook = Now sees Q3 sales $2.73bn-2.87bn (2.69bn e) / Sees Q3 EPS of $0.37-0.41 (0.35 e)



NEGATIVE IMPACTS



BANCO POPULAR said it will raise up to €1.2bn from the sale of new shares (€500m) + 4-year convertible bonds (€500m to €700m) / It said it will use the funds to support "organic growth" + boost solvency and to prepare for an expected increase in the standards for how much regulatory capital banks are required to have…

ALCATEL-LUCENT : Huawei denied a report in French magazine Challenges that it was in talks to form an alliance with Alcatel-Lucent

OIL : As expected, OPEC agreed to hold output targets steady / However OPEC said that oil market remains oversupplied & OPEC remains concerned over pace of economic recovery

WM MORRISON : H1 underlying profit £359m, in line / Interim dividend up 35% to 1.08p / But expects market growth to slow in the H2 as inflationary pressures ease / Confident that it will deliver its profit expectations for the year



TRADING IDEAS


Go shopping when (if) approaching 2743 gap closure on the Eurostoxx cash on excessive drops, conso today should not last long as usual lately, Texas Instrument mid quarter tonight, China’s August data the following night , M&A rumours spreading back on Friday will be very supportive

BUY AEGON to play island possibility

BUY CARREFOUR / MC DONALDS / REED ELSEVIER on reversal Head & Shoulder & BUY METRO / AIR LIQUIDE on double bottom possibility



BUY KPN / SELL TELEFONICA // BUY PEUGEOT / SELL RENAULT // BUY VINCI / SELL LAFARGE // BUY TOTAL / SELL VALLOUREC // BUY ST GOBAIN / SELL HOLCIM // BUY EXXON / SELL CONOCOPHILLIPS // BUY ELI LILLY / SELL BRISTOL


BROKER METEOROLOGY


THYSSENKRUPP RAISED TO BUY FROM HOLD BY RBS

EUROPE INTEGRATED OIL& GAS STOCKS RAISED TO ATTRACTIVE FROM INLINE BY MORGAN STANLEY

ALPHA LAVAL RAISED TO NEUTRAL FROM SELL BY UBS

DANONE RAISED TO NEUTRAL FROM UNDERWEIGHT BY BANK OF AMERICA – ML

CENTRICA RAISED TO BUY FROM HOLD BY CITIGROUP


BP CUT TO NEUTRAL FROM OVERWEIGHT BY HSBC

ROYAL DUTCH SHELL CUT UNDERWEIGHT FROM NEUTRAL BY HSBC

RICHEMONT CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN

REMY COINTREAU CUT TO UNDERPERFORM FROM NEUTRAL BY BANK OF AMERICA – ML

BOVIS CUT TO UNDERPERFORM FROM NEUTRAL BY BANK OF AMERICA – ML

INDITEX CUT TO NEUTRAL FROM BUY BY NOMURA


DATA


WTI : 72,1 (1,44 %)

Eur/$ : 1,4574 (0,12 %)

$ /Yen : 91,97 (-0,03 )

10 Yr US : 3,48 ( 1,11 bp)

10 Yr Euro : 3,36 ( 8,8 bp)


Indices : US close ; Europe close

SOX : 1,08 %;0,92%

S&P :0,78 %; 0,80 %

DOW: 0,53%; 0,69 %

NAS :1,11%; 1,15%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 0,62 %; 0,86 %

ENERGY : 0,19 %; 1,01 %

FINANCIAL : 1,37 %; 0,58 %

HEALTHCARE : 1,03 %; 0,95 %

TECHNO : 0,81 %; 1,01 %

TELECOM : 0,40 %; 0,52 %

INDUSTRIAL : 1,47 %; 1,47 %

UTILITIES : -0,01 %; 0,15 %



TO BE COMING



Today

Results :Morrison Supermarkets / National Semiconductor / Home Retail

Dividend :

Events :Maurel & Prom analyst meeting / Home Depot at Goldman Sachs Retailing Conference / PepsiCo at Barclays Capital Back-To-School Conference / Euro Tech conf at Deutsche Bank



Friday

Results : Club Mediterranee / Campbell Soup

Dividend : Coca-Cola Co ($ 0.41) / NYSE Euronext ($0.30)

Events: ABB capital market day



Monday

Results :

Dividend : Compagnie Financiere Richemont (CHF 0.30)

Events : Abbott at Morgan Stanley Global Healthcare Conference / Technology Conference at Deutsche Bank



Tuesday

Results : Adobe / The Kroger

Dividend :

Events: Frankfurt Motor Show press day / Applied Materials at Deutsche Bank Technology Conference / Bank of America at Barclays Capital Conference / Cardinal Health at Morgan Stanley Global Healthcare Conference / Annual Chemical conference at Credit Suisse / Global Healthcare Conference at Merrill Lynch



Wednesday

Results :Oracle (AMC)

Dividend : Antofagasta ($0.034) / Cadbury (GBp 6,333333) / Land Securities (GBp 7.00) / Logica ( GBp 1,111111) / Swedbank AB (SEK 1.00)

Events:Frankfurt Motor Show press day / Qualcomm at Deutsche Bank Technology Conference / Total mid-year review in London / Asian Technology Conference at Credit Suisse



ECONOMIC DATA PREVIEW



In the United States watch the Trade balance (13.30 GMT) for July. Having reached its lowest level since November 1999 at US $ 25.97 billions, the deficit rose again in June to US$ 27 billions. It should be slightly down in July lead by the weakness of the Dollar boosting exports and slowing down imports.



In France, watch the Industrial production (7.45 GMT) for July. The French industrial production, pulled by the car industry, remained positive in June but by 0.3% only. The improvement should continue in July and we anticipate a small increase of 1%. Nevertheless this recovery remains fragile and despite the last three months growth, the YoY rate will remain negative at -12.3% in July as against -12.8% in June. Watch as well the Trade balance (7.45 GMT) for July. Following 4 consecutive months of reduction, the foreign trade deficit which got worse in June, reaching €4 billions should stabilize around that level. Indeed, exports which were down 1.7% in June should be unchanged, hit by the strength of the euro but helped by exports towards Germany. As for imports, which rose by 1.3% in June, they also should remain unchanged./JB



ECONOMY



United-States: Fed Beige book

“Reports from the 12 Federal Reserve Districts indicate that economic activity continued to stabilize in July and August. Most Districts noted that the outlook for economic activity among their business contacts remained cautiously positive. A majority of Districts confirmed that the "cash-for-clunkers" program boosted traffic and sales. Most regions reported some improvement in residential real estate markets. Downward pressure on home prices continued in most Districts, although Dallas and New York noted that local prices were firming. Reports on commercial real estate suggest that the demand for space remained weak and that non-residential construction-related activity continued to decline. Loan demand was described as weak and many Districts reported that credit standards remained tight. Consumer spending remained soft in most Districts. Most Districts reported modest improvements in the manufacturing sector. The near-term outlook among manufacturers varied, but the majority of reports indicated that manufacturers were cautiously optimistic. Labor market conditions remained weak across all Districts, but several also noted an uptick in temporary hiring and a decline in the pace of layoffs. Wage pressures remained low across all Districts. Several Districts noted businesses and local governments imposing wage freezes or even reducing employee compensation in some instances.”



Germany: Inflation increase in August

The final release of the German consumer price index for August confirmed the preliminary release at +0.2% QoQ,+0.0%YoY. After reaching its lowest point in July at -0.5% YoY German inflation get back into positive territory. Looking at the breakdown from a year ago alcohol and tobacco rise by 3.6%,clothing and shoes rise by 1.4% and household equipment rise by 1.9%. This rise of inflation is quite logical as the “base effects” since oil pick in July 2008 are now slowing down and as the economy is progressively recovering. Anyway the consumer price index in volume should rise by 0.7% in 2009 and by 2.3% in 2010 meaning an acceptable level of inflation for the German economy.



United Kingdom: Slight increase of the global trade deficit and of the visible trade balance in July

Both visible trade balance and total trade balance deficit rise in July to £ 6.5bn and £ 2.4 bn. Looking at breakdown of the global trade balance, exports are starting to grow again from £10.1bn in June to £ 10.8 bn in July as the global economy is recovering increasing the demand for United Kingdom goods abroad. Meanwhile imports rose from £12.9bn to £ 13.3 bn explaining the slight increase of the trade deficit. Nevertheless total goods exports are still about 16% lower than their level from a year ago and the global trade balance recovery will be strongly linked to the overseas demand.