Job The Trend

GLOBAL EQUITIES RESEARCH
Employment report today is obviously the focus of the week. Indeed it is granted that the manufacturing sector is on track for a recovery, it should spill to other sectors and already does, and any improving employment survey would add to the already “full enough glass” to bring confidence to investors that the recovery is sustainable. Indeed, hiring would increase consumer mood, and make households be part of the game which would be a safety belt to the rising economic trend. As the graph we sent yesterday is showing, the employment sector is like a big boat that can not manoeuvre easily, but once it turns it is for good and for a lasting trend. However, “jobless” recoveries can last 1.5/2 years (1981 / 1991 /2002) with the last two leading to a strong growing trend.
In the UK, yesterday’s August’s CIPS/Markit report on services suggests that the biggest part of the economy is continuing to enjoy a pretty decent recovery. The rise in the headline business activity index from 53.2 in July to 54.1 took it to its highest level in almost two years. On the face of it, it is now at a level consistent with quarterly growth in services output of around 0.7%. And the business expectations index picked up sharply too, rising from 69.3 to 72.3. Given the rises in the output balances of the construction and manufacturing surveys, a weighted average of the three is now pointing to quarterly growth of overall GDP of around 0.2%. Assuming that the surveys hold onto their gains in September, they will therefore suggest that the economy pulled out of recession in Q3. And there was no stimulus on the service sector, which means the spill over effect is already efficient.
This week is traditionally a quiet one, being stuck between the UK bank holiday last Monday, and the US Labour day coming on Monday. Obviously this quiet activity is ideal for the equity indices to consolidate, especially after such a nice summer rally, at a time when fund managers are slowly back to work, ready to deal with a new economic landscape and focus on the nice strategic ideas to be implemented ahead of next year.
Today’s employment report is expected bad, according to the pessimistic ADP employment survey from the private sector out last Wednesday and the ISM manufacturing job component out last Tuesday (sell off). However, next month data might bring upside surprises due to the end of seasonal workers. In the meantime one thing for sure, the economic background is improving, and not only on the manufacturing front anymore. Another things being that some strange flows and market reactions might occur due to the long US weekend coming and the lack of players in place who covered their funds earlier in the week given the previous summer rally and the lack of short term impact news flow. They also possibly ran for a last bit of holidays before dealing with the end of year chapter.
G20 should be non event in term of market trend and just a demagogic way of looking good with public opinion. G20 finance ministers and central bankers meet in London today and Saturday ahead of the G20 summit in Pittsburgh on September 24th and 25th. The final statement will surely welcome the early signs that the major economies are emerging from recession. But any talk about coordinated exit strategies from emergency fiscal and monetary policies seems premature. There will be no consensus on the extent and timing of the regulatory changes needed to reform the financial system, the future role of the dollar or the case for a new global reserve currency. Proposals for Tobin-style taxes will certainly go nowhere. But bankers and their bonuses will be heavily criticized again…
Yesterday, U.S. stocks traded in a tight range until the end of the session and surged in late trading. Treasurys fell, sending yields higher, as stocks managed to post gains and the U.S. government said it planned to sell $70 billion in Treasury bonds and notes next week. Gold traded near $1,000 and was set for its strongest weekly rally since April after the price broke through a technically important level, luring investors. Gold was at $990.74 an ounce, close to a six-month high, after climbing 3.7 % this week. A move through $976 means gold may have resumed a “bull-run,” targeting $1,033 and then potentially a high of $1,106, according to Barclays Capital. Silver traded near a 13-month high and was poised for its biggest weekly gain since May. Silver has advanced 41 % this year compared with gold’s 13 % European markets should be slightly up ahead of the U.S. employment report for August.

ECONOMIC DATA WITH IMPACT

Employment report (13h30 UK) expected –230k from previous –247k / rate 9.5% from 9.4% / average hourly earnings +0.1% from +0.2% / average weekly hours expected 33.1 from previous 33.1 // the rate might worsen slightly and the job destruction figure data will slow / te weekly hours is interesting as firms managers extend working hours before hiring process / however this report is just a free call for long positions as an improvement of the job sector front is only expected by October-November for the mega optimistic players (we and some others) and by the end of next for mega bear strategists (the street) given its lagging time once the recovery is on track / important as if any good news on that front then the sustainability of the recovery is no longer a question

POSITIVE IMPACTS

DEUTSCHE TELEKOM is in talks with VODAFONE, FRANCE TELECOM and TELEFONICA about selling its British unit T-Mobile UK, which could be sold for around €4bn (FT)
PEUGEOT is considering making an alliance with Japanese counterpart Mitsubishi (La Tribune) / Mitsubishi offers many attractions to PSA, because they already have joint projects in the works…
DAIMLER : CEO said that the company's 2009 savings will significantly exceed the planned €4 bn
SAINT-GOBAIN repeated that cost-cutting measures will help it achieve better earnings in the H2 / "It seems the worst is over" CEO said
A2A & Montenegro signed a contract giving A2A control of a minority stake in power monopoly Elektroprivreda / A2A will pay €190 m
ING received 5 bids for its Asian private banking assets + 3 bids for the Swiss assets it put up for sale, potentially raising $2bn (Reuters)
SANTANDER‘s Brazilian unit filed for an IPO in Brazil & the US, in what could become one of the largest IPOs of the year / In July, SCH said it would sell about 15% of its Brazilian unit through a new share issue, suggesting the IPO would be worth around $5.6bn
CREDIT SUISSE held talks with Mesirow Financial about buying its $11bn business that invests clients’cash in hedge funds (Reuters)
AREVA : China's sovereign wealth fund CIC is in talks with Areva for a possible investment in the nuclear group (Les Echos) / Areva said in June it would open up its capital to "strategic and industrial" partners for investment to the value of 15%
FERROVIAL has formed a consortium to bid for the £15.9 bn London Crossrail contract (Expansion)
ALCATEL said it was raising its convertible bonds issue to €1 bn from €870 m after the full exercise of the over-allotment option
DEXIA is looking for a buyer for its unprofitable Freench insurance unit Epargne & Pensions (De Standaard)
BANCO POPOLARE said provisions in July & August were less than budgeted / CEO said that July & August were good…
AIR FRANCE may announce a plan for as many as 1500 voluntary redundancies at a work council meeting today (Les Echos)

NEGATIVE IMPACTS

RDSA-ENI-TOTAL : S&P lowered its rating to 'AA' from 'AA+' for RDSA with outlook stable + revised to negative from stable its outlooks on ENI and TOTAL / Capital expenditure- and dividend-driven pressures on FCF contributed to all the rating decisions.
HSBC’s weighting in Hang Seng Indexes will be cut to 15% from 16.4% on Sept. 7
ALSTOM-SCHNEIDER : Toshiba plans to bid for French nuclear group Areva's power distribution and transmission unit in a deal that could cost it more than €3.8 bn (Reuters)
BASF is preparing to restart an idled steam cracker at its headquarters but still sees only stabilisation at low levels (CEO)
EADS : CEO said that order intake in the civilian helicopter sector were a source of concern for the company / He added that he was confident ahead of WTO ruling
GSK warned of anaemia risk with Myfortic, its transplant drug, involving cases of fatigue, lethargy or abnormal paleness of the skin

TRADING IDEAS

BUY BNP / METRO / BAYER / AIR LIQUIDE / LVMH on double bottom possibility
BUY AMD to play island possibility & BUY PEUGEOT which failed to close its downside gap (18.45, traded 18.55) lagging the index + dble bottom
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 CARREFOUR (killed yesterday) / MC DONALDS / REED ELSEVIER on reversal Head & Shoulder possibility
SELL BOEING on island possibility

BUY CARREFOUR / SELL PINAULT // BUY KPN / SELL DTE // BUY AIR FRANCE / SELL BRITISH AIRWAYS // BUY ST GOBAIN / SELL HOLCIM // BUY F TEL / SELL TELEFONICA // BUY UNILEVER / SELL DANONE // BUY ELI LILLY / SELL BRISTOL

BROKER METEOROLOGY

PEUGEOT RAISED TO NEUTRAL FROM SELL BY UBS
REED ELSEVIER ADDED TO CONVICTION BUY LIST BY GOLDMAN SACHS
UNITED BUSINESS MEDIA ADDED TO CONVICTION BUY LIST BY GOLDMAN SACHS
CTC MEDIA RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
HMV RAISED TO NEUTRAL FROM NEUTRAL BY UBS
LONMIN RAISED TO OUTPERFORM FROM NEUTRAL BY EXANE
ESSILOR RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY HSBC
ELECTROLUX RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY HSBC
ATLANTIA RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY
PUMA RAISED TO OVERWEIGHT FROM NEUTRAL BY HSBC


WPP REMOVED FROM CONVICTION BUY LIST BY GOLDMAN SACHS
AEGIS REMOVED FROM CONVICTION BUY LIST BY GOLDMAN SACHS
TF1 ADDED TO CONVICTION SELL LIST BY GOLDMAN SACHS
PEARSON ADDED TO CONVICTION SELL LIST BY GOLDMAN SACHS
ITV CUT TO NEUTRAL FROM SELL BY GOLDMAN SACHS
ABERTIS CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
ANGLO AMERICAN CUT TO UNDERPERFORM FROM NEUTRAL BY EXANE


DATA

WTI : 68,2 (0,06 %)
Eur/$ : 1,4256 (0,03 %)
$ /Yen : 92,60 (0,02 )
10 Yr US : 3,35 ( 0,52 bp)
10 Yr Euro : 3,24 ( 1,2 bp)

Indices : US close ; Europe close
SOX : 1,43 %;-0,01%
S&P :0,85 %; 0,28 %
DOW: 0,69%; 0,22 %
NAS :0,82%; 0,20%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 2,19 %; 1,01 %
ENERGY : 0,52 %; 0,36 %
FINANCIAL : 2,15 %; 1,45 %
HEALTHCARE : -0,00 %; -0,60 %
TECHNO : 0,60 %; 0,04 %
TELECOM : -0,24 %; -0,73 %
INDUSTRIAL : 1,49 %; 0,53 %
UTILITIES : 0,29 %; -0,32 %

TO BE COMING

Today
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

Thursday
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

ECONOMIC DATA PREVIEW

In the United-States, watch the Employment report(13.30 GMT) for August, unemployment rate is expected to worsen but job destructions should decrease as after over laying off companies start to match the economic fundamentals.

ECONOMY

United States: The ISM services contracted at a slower pace in August
The ISM services contracted at a slower pace in August and reached a level of 48.4 (forecast 48.0) the highest level in 11 months and very close to the level of 50 which would have signify an expansion of the activity. Looking at the breakdown “business activity” rose from 46.1 to 51.3, “new orders” (an advance indicator of services investment) rose from 48.1 to 49.9 and “new export orders” rose from 47.5 to 54.0. The employment sub index remained weak at 43.5 (previous 41.5) and was probably the reason of a figure under the level of 50. Nevertheless the September upcoming release should showed an expansion of the activity with a PMI services over crossing the level 50. It is important to bear in mind that services accounted for 80% of the GDP in the United-States.

Euro area: PMI composite
After contracting at a slower pace for four consecutive month the Euro area PMI composite (manufacturing and services) went back to growth in August for the first time since May 2008 by reaching the level of 50.4 (final release). Knowing that the limit of 50 represent the boarder between a contraction and an expansion of the activity. Indeed he euro area is progressively stepping out of the recession and the GDP should more likely turn positive at the third quarter 2009 after 5 consecutive months of decline. Meanwhile the PMI services rose for the fith time in sixth month and for two consecutive months reaching the level of 49.9 (final release) meaning very close to an expansion, confirming the progressive recovery of the services in the Euro area.

Euro area: The European Central Bank leaved unchanged its leading rate in September
The European Central Bank left again its refi rate unchanged in September. At the opposite of the Bank of England or the Fed which cut their interest rate close to zero to boost the activity, the European Central Bank by refusing to decrease its refi rate to 0.75% or 0.5% is playing against the actual fragile recovery. Despite the fact that the year on year GDP of the euro area is still close to -5.% YoY, the inflation is remaining negative and the euro is stabilizing to a dangerous high level for the recovery, the European Central Bank is preparing the field to a possible increase of its leading rate. Indeed as the GDP of the euro area should finally recover and turn positive at the third quarter 2009 after five consecutive quarter of decline the temptation will be high for the European Central Bank to increase its refi rate. Consequently we forecast an increase by 25 pts in December or latest in January 2010. This will increase the euro and kill the European recovery