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