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GLOBAL EQUITIES RESEARCH
August's US ADP employment report came out lower than expected, but the correlation with the employment report is not that clear. It did little to alter expectations that the official payrolls figures tomorrow will reveal a drop only marginally better than July's 247,000 decline. The ADP survey indicates that private payrolls fell by 298,000 in August compared with a 360,000 decline in July. This might suggest that the current forecast for the official payrolls numbers is too optimistic. But don’t forget that the ADP survey has been too pessimistic relative to the official payrolls figures in four of the last three months. For instance, in July it initially suggested that payrolls would fall by 124,000 more than they did. The employment report is the one that will tell where the US are in term of job destructions. However, there will be still some uncertainty due to seasonable workers who weight on the data, and should not do anymore next month.
The rebound in the non-manufacturing ISM survey out today hasn't gone as far as its manufacturing counterpart. After increasing in each of the previous four months, the composite index slipped back in July from 47.0 to 46.4. Nonetheless, it should be bouncing back to in August, spurred on by a further increase in new orders. The employment balance has lagged behind the recovery in the headline index, supporting other evidence that the labour market remains very weak.
The minutes of the US Fed's August policy meeting suggested that the FOMC is in no hurry to alter its current policy stance. It won't raise interest rates before long. The minutes note that the recovery will be "modest", that there is "substantial resource slack", that inflation will remain "subdued" and that the weakness of the labour market is "of particular concern". Admittedly, the President of the Richmond Fed, Jeffery Lacker, was quoted in the media last week as saying the Fed should consider whether it needs to complete its asset-purchasing program (so far it has purchased nearly all of the $300bn Treasuries but only half of the $1.45trn of MBS and agency debt it said it would). The Fed will probably prefer to keep policy too supportive for too long rather than risk extinguishing the recovery and sending the economy back into recession.
Focus will remain the employment report, which however is just a free call. Indeed, the reason for a consolidation is very understandable, quiet week in term of news flow, sharp summer rally, tough employment report coming. However, the employment survey should not be the reason for it. Indeed, employment sector should not improve before October-November for the most optimistic players, and by the end of the 2010 year for the most pessimistic ones. A jobless recovery is currently occurring, and this already happened in the past. As to the very bearish scenario which consists in saying the current recovery from both equity indices and the economy will not last, employment should be seen as another reason to possibly rise sharply. Indeed, the consumer mood of the US households, according to last week’s spending and confidence surveys, is not as bad as thought. Meaning that any employment improvement would just be a huge boost in term of economic activity, and so, of course, for the equity markets which for the moment are just rising, front running a welcome economic growth, whatever the speed, at a time when there is not much place to go in term of return on investment. When the hiring time comes, just fasten seat belt, and this will happen rather sooner than later, being the Obama mandate focus, which Bernanke is fully working on as well as Geithner. In the meantime, rising assets prices from both equity and housing sectors will blow a positive wind which the coming economic surveys will reveal, this is the virtuous circle we keep on reminding so many times.
Quiet day ahead, not much news, this week being traditionally a quiet one, even more as we wait for the tough employment report to be released tomorrow (out before the US cash opening which might trigger a last hour reverse move there).

ECONOMIC DATA WITH IMPACT

The UK services PMI (09.30 UK) is likely to have strengthened in August. A rise in the business activity index to 54 or so would leave it pointing to services output growth of around 0.4% q/q and would follow the improvement seen in the quarterly CBI services survey.
ECB meeting (12h45 UK) / no rate change expected (1%) / Press Conference (13h30 UK) / should remain friendly in term of easing policy as Trichet already spoke last week that way saying the recovery was still fragile and will remain friendly
Jobless Claims (13h30 UK) expected 565k from previous 570k / the lower the better / employment report focus tomorrow / minor
ISM non manufacturing (15h UK) expected 48 from previous 46.4 /a rebound should occur after July’s drop / interesting as to measure the non manufacturing potential pick up which would open the door to a full recovery
ICSC Chain Store Sales (16h UK) / previous was –5% / the higher the better / interesting

POSITIVE IMPACTS

PERNOD RICARD : FY recurring operating €1.85bn (1.86bn exp) / Net €1.01bn (999m exp) / Proposed FY dividend of €0.50 + to give 1 free share for 50 held / Net debt/Ebitda 5.3 / Plans to sell assets to cut more debt / Will provide 2009-10 guidance on Nov. 2 but expects a still difficult economic environment + an overall stagnation of the wines & spirits industry in 2009/2010
ROCHE : The EC has approved MabThera to treat patients whose chronic lymphocytic leukaemia returns
NOVARTIS : A pilot trial with adjuvanted cell culture-based vaccine for H1N1 flu shows a strong immune response, even after one dose.
ACCIONA & IBERDROLA could each receive $200 m in US state aid to renewable energy from the second phase of the Obama administration's subsidy program (Cinco Dias)
ATLANTIA said preliminary traffic on its Italian network for the July to August period rose 0.9% on year, “confirming the improvement seen in the second quarter."
INFINEON aims to reach an operating profit margin of 10% in the Q4 (CEO in the FTD)
VEOLIA : EUROTUNNEL & SNCF agreed to buy the rail-freight businesses of Veolia / No financial details

NEGATIVE IMPACTS

RSA’s leading investors are prepared to support CEO should he push ahead with plans to raise $1bn in a right offering (Daily Telegraph)
LLOYDS’s plan to raise new capital and cut its reliance on the govt’s toxic debt insurance plan is being stress-tested by the FSA (Daily Telegraph) / The plans may include a £10bn rights issue (Guardian yest.) + a sale of assets such as Scottish Widows & Clerical Medical
TOTAL plans to temporarily halt production at its Flanders refinery from Sept. 12 because of weak demand in Northwestern Europe
DTE-VODAFONE : The German federal cartel office is looking into plans of Deutsche Telekom, Vodafone and Ewetel to cooperate on installing optical fiber for high-speed Internet access / The study will focus on suspicion of curbs on competition (Die Welt)
THYSSENKRUPP plans to eliminate thousands of jobs, mostly abroad (Handelsblatt) / Press conference expected tomorrow
ATOS is in advanced talks to buy Italian electronic-payment services company SIA-SSB / The price under discussion is between €350 m and €400 m (La Tribune).
LVMH : Champagne sales may decline as much as 19% this year to 260m bottles, down from 322m in 2008 (WSJ)
UBS : Canadian government officials pressed representatives of UBS for details of Canadians who might be account holders

TRADING IDEAS

BUY AMD to play island possibility & BUY PEUGEOT which failed to close its downside gap (18.45, traded 18.55) lagging the index
BUY DT BOERSE to play double bottom, fitting with a possible increase from the volumes anytime soon
BUY RENAULT& DAIMLER to play car sector rebound
BUY SIEMENS / ACCOR (split from services & hotel divisions) / PHILIPS / ST GOBAIN which retraced enough for now
BUY MC DONALDS / REED ELSEVIER on reversal Head & Shoulder possibility
SELL BOEING / UNICREDITO on island possibility

BUY AIR FRANCE / SELL BRITISH AIRWAYS // BUY ST GOBAIN / SELL HOLCIM // BUY STATOIL / SELL NORSK HYDRO
BUY F TEL / SELL TELEFONICA // BUY UNILEVER / SELL DANONE // BUY ELI LILLY / SELL BRISTOL // BUY JUNIPER / SELL QUALCOMM

BROKER METEOROLOGY

DEUTSCHE TELEKOM RAISED TO NEUTRAL FROM UNDERPERFORM BY CREDIT SUISSE

BELGACOM CUT TO HOLD FROM BUY BY ING
SWISS LIFE CUT EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
BASF CUT TO REDUCE FROM NEUTRAL BY NOMURA
SEVERSTAL CUT TO UNDERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY

DATA

WTI : 68,2 (-0,44 %)
Eur/$ : 1,4275 (0,08 %)
$ /Yen : 92,26 (-0,13 )
10 Yr US : 3,32 ( 1,82 bp)
10 Yr Euro : 3,23 ( -1 bp)

Indices : US close ; Europe close
SOX : -0,42 %;-0,18%
S&P :-0,33 %; 0,06 %
DOW: -0,32%; 0,07 %
NAS :-0,09%; 0,17%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 0,74 %; 1,07 %
ENERGY : -0,53 %; 0,24 %
FINANCIAL : -1,01 %; 0,03 %
HEALTHCARE : -0,08 %; 0,00 %
TECHNO : -0,02 %; 0,24 %
TELECOM : -0,21 %; -0,18 %
INDUSTRIAL : -0,52 %; -0,06 %
UTILITIES : -0,81 %; -0,68 %

TO BE COMING

Today
Results :Pernod Ricard / Sun Microsystems
Dividend :Bank of America -ML ($0.01) / Merck & Co ($0.38)
Events :Peugeot: new C3 and DS3 presentation / HMV AGM / British Airways traffic

Friday
Results :
Dividend : Nike ($0.25) / Sara Lee ($0.11)
Events:

Monday
Results :
Dividend :
Events : Tenaris investor day / TeliaSonera investor day

Tuesday
Results :
Dividend :Baxter International ($ 0,26)
Events:

Wednesday
Results :Texas Instruments mid quarter
Dividend : Diageo (GBp 24,66667) / Michael Page ( GBp 3,2) / Shire (GBp 1.302)
Events:Compagnie Financière Richemont AGM / Citigroup Tech conf / Apple expected to reveal new product developments at media event

ECONOMIC DATA PREVIEW

In the United States, watch the ISM services (15.00 GMT) for August expected to improve to reach the level of 48.0 getting closer to 50 the border between and contraction and an expand of the activity. It is important to bear in mind that services account for 80% of the GDP in the United-States. Keep an eye on the weekly release of initial jobless claims and continuing claims (13.30 GMT) both expected to decrease as we assist at a progressive adjustment of the labour market. Nevertheless it will be important to watch closely the unemployment report Friday 4th to confirm the trend.

In the Euro area, watch the European Central Bank announces rate (12.45 GMT) for August expected to remained unchanged at 1.0% but which could increase in a near future lead by the progressive recovery in Europe.

ECONOMY

United States: factory orders rose the most in thirteen months
New orders for manufactured goods rose from 0.9% in June to 1.3% in July or $ 4.6 billion the sharpest rise since June 2008. Nevertheless excluding transport new orders decrease by 0.7% showing the weight of the government stimulus to boost car sales. Looking at the detail capital goods rose by 9.7% following a 5.6% decrease and defence orders rose by 16.4% (previous -29.4%) ,. Meanwhile durable goods orders rose by 5.1% (previous -1,1%) and transportation orders rose by 18.5% after dropping by 11.9% in June It is important to bear in mind that the largest portion of the Obama stimulus plan will occur in 2010 showing that the economy has still a wide growth potential. As a consequence the GDP should reach 2.5% in 2010.

United States: ADP employment change higher than expected
Non farm private employment decreased 298 000 from July to August. At a glance the figures appears gloomy as the consensus was expected -250 000 but the this is not as bad as it looks. Indeed this is the best ADP employment change release since September 2008 meaning that the labour market is progressively recovering. Indeed after having over laying off lead by the fear of a bleak economic outlook companies start to stick to the economic fundamental as the recession is over and growth is back. On the other hand non farm productivity (final release) rise from 0.3% at the first quarter to 6.6% at the second quarter the highest quarterly increase since the third quarter 2003.

Euro area: GDP preliminary release for the second quarter showed subsantial improvment since the first quarter.
Euro area GDP which reached and historical low at the first quarter (-2.5% QoQ,-4.9% YoY) dropped for a fifth consecutive month quarterly at -0.1% and for a third consecutive month from a year ago at -4.7% YoY as per the preliminary release confirming the advanced release. Nevertheless the preliminary release showed substantial improvement since the first quarter. Indeed looking at the breakdown net trade made a 0.7% point contribution after subtracting 0.4% at the first quarter. Meanwhile consumer spending rise by 0.2% after dropping by 0.5% at the first quarter. If we notice a substantial improvement since the first quarter as the ground floor has been reached the economic outlook remained very fragile as investment did not recover yet and has the high level of the euro and energy cost as well as a possible rise in ECB main rate could stop the rebound trend