Last But Not Least

GLOBAL EQUITIES RESEARCH

Consolidation session from the US digesting the previous day’s rise with a Consumer Confidence cooling off from 54 to 53 following its sharp last month rise from 47 to 54. Sectors up : Consumer Discretionary +0.5%, Consumer Staples +0.4%, Utilities +0.2%, Materials +0.1%. Sectors down : Tech -0.7%, Energy -0.6%, Financials -0.5%, Telecom -0.5%, Industrials -0.2%, Health Care -0.1%

Last day of the month, and last day of the quarter today. The score will be provided through the micro news coming out as soon as tomorrow with Accenture, but mostly next week with Alcoa on the 7th, Intel on the 13th and the financials with JP Morgan on the 14th October and Goldman on the 15th, GE and BOA the next day. The earnings level should not disappoint given the top down view and the strong macro data we did attend all quarter long. Even more, some business investment pick up should make the other coming quarters solid as well, and send some more doubts as to the non sustainability of the current economic recovery. Indeed, the Fed won’t drop it, and should remain supportive for quite some time, which sooner or later will boost employment, and increase households consumption.

The robust increase in US house prices on the Case-Shiller 20-City measure in July supports other evidence that housing has turned the corner. The 1.2% m/m rise on a seasonally adjusted basis built on a 0.8% gain in June. Prices are already 2% above the trough seen three months ago and are rising at an annualised rate of roughly 8-10%. This is not just a quirk of one measures either - the alternative FHFA measure has increased in each of the last three months. Prices are being supported by the homebuyer tax credit, which is boosting sales and reducing the inventory overhang. But perhaps more significant are the stabilisation in economic activity and the fall in mortgage rates back below 5%. This suggests that the recovery will continue even if the tax credit is not extended beyond November.

A recovery is truly talking place, whether it is sustainable or not it is too strong at this stage to be played the other way. Yes it might not be sustainable, but so far all the bad things that should have occurred did not (since Lehman collapse and its consequences), and the worldwide economic stimuli proved to be enormous and efficient as the landscape is moving and time is passing by. The big question will be the recovery speed once the Central bankers and politics let thing run on their own. It might be a slower recovery, but it surely won’t collapse so much they will be all taking care of the success of such an economic rebound which will reflect their own domestic political one (Obama, Sarkozy). We do not believe the recovery will be the same as in 2003 since the alternative energies should boost other sectors than the oil one. While emerging countries will refrain oil prices from falling. We should still be heading back quickly to the pre Lehman levels 1200 on the S&P and 3200 on the cash eurostoxx, and then move upward gradually in line with the slow economic recovery process.

Chinese data out overnight are till reflecting a nice growing speed. September PMI came in at 55 compared to 55.1 in August, indicating expansion for the sixth straight month, although conditions cooled slightly from August, suggesting the rebound in industrial activity remains intact but is beginning to level off. Economists are saying the rebound is driven by strong domestic demand obviously, but also by an improvement in external demand (which is healthy). The PMI's employment conditions index rose to 53 in September from 51.8 in August, its highest level in 25 months. Meanwhile, the forward-looking new orders component came in at 58, easing from 59.3. Separately, news reports cited mainland media Wednesday as saying Chinese banks may have extended between 600 billion yuan ($87.88 billion) and 700 billion yuan worth of new loans in September.

Window dressing should remain today and will be market supportive, same for tomorrow as a new day of a very promising month should trigger some inflow from pension funds that are gradually coming back into riskier yield assets. This will be a bumpy sessions though due to the employment ADP survey, a little appetizer ahead of the important employment report on Friday.



ECONOMIC DATA WITH IMPACT


Mortgage Applications (12h UK time) / the highest the better / previous was up 12.8% / minor short term

ADP Employment change (13h15 UK time) expected –200k from previous –298k / interesting as the weak labour sector is no longer a doubt, and it is the focus of the weak with the Non Farm payrolls coming on Friday / not so much correlated on a monthly basis with the ADP though / same as on Friday, any improvement will be very welcome

Chicago PMI (14h45 UK time) expected 52 from previous 50 / minor although might be seen as a leading indicator for the ISM tomorrow

ECB’s Trichet (17h45 UK) speaks on the financial crisis


POSITIVE IMPACTS


DANONE denied speculation that it is in discussions with Mead Johnson Nutrition or that it has hired any adviser or bank to advise the company on the topic / Separately, Danone reached an amical settlement with Wahaha & will sell its 51% stake in the JV

M&S : Q2 UK like for like sales -0.5% (-1.4% exp) / Q2 international sales +9.6% / As expected, raise its FY GM guidance = Now expects the FY GM to be 50 to 100bps lower than last year vs down 125-175 basis points before

THOMAS COOK : Trading finishing strongly + winter trading improved since the last update / Confident in reaching FY targets

ADIDAS : Nike reported better : Q1 revenue $4.8bn (4.9bn exp) / Q1 EPS $1.04 (0.97 exp) tks to deep cost cuts & lower taxes / Orders for goods to be delivered from now until January fell 6%, in line with expectations / Warned that retailers & consumers remained wary…

EDISON : S&P revised its outlook to negative from stable, affirming its BBB+

SANOFI : CEO in an interview : Sanofi is likely to exercise its option to create a massive animal health JV with Merck US & give birth to an enormous player in the $19 bn global animal health market / Separately, said that vaccine revenue are exp. to double in 5 years to €5 bn / Added that Multaq launch in U.S. in line with internal expectations…

HSBC is close to selling its London, NYand Paris offices for about $2bn (Reuters)

INTESA SANPAOLO will not take up Tremonti bondand will issue Tier 1 bond of up to €1.5 bn / Sees Core Tier 1 around 7% in next 12-18 months + can count on over 200 bp of core Tier 1 from capital ops on non-core assets / Able to maintain capital targets even resuming dividend payment

NOVARTIS said its FTY720 oral drug to treat multiple sclerosis reduced both relapses and disability progression.

GSK : British health officials said that GSK's cervical cancer vaccine was "most unlikely" to have caused the death of a 14-year-old girl who died after receiving it Monday.



NEGATIVE IMPACTS


ENSKILDA BANKEN (SEBa) said it would inject more capital into its operations in Lithuania and Latvia due to rising bad loan provisions

TELENOR : A Siberian court adjourned a hearing in Telenor's appeal against $1.7 bn in damages it had been ordered to pay to Russia's Vimpelcom / The hearing will resume on March 24, 2010

LLOYDS (not new) : EU Competition Commissioner has reiterated her demand that Lloyds sell off some activities to compensate for being propped up by state aid (The Daily Telegraph)

UNICREDIT approved a capital increase of up to €4 bn / Core Tier 1 ratio would be 7.65%, above the bank's goal of 7 to 7.5%

ENI : Gazprom is considering adding a 3rd partner to its South Stream gas pipeline consortium with Eni / EDF would be this 3rd partner with a 10% stake in the project, according to the WSJ

SAAB may not get the full SEK4.3 bn ($612m) loan it has asked for from the European Investment Bank (Dagens Industri)

TUI may have to support Hapag-Lloyd further to secure state aid for the ailing shipper / TUI could be asked to convert further €700m of loans into hybrid capital by 2014 if needed

CNP : S&P s lowered its LT ratings to AA- from AA / The outlook is stable.



TRADING IDEAS


Would still buy Dollarwhich seems (at last) to be resuming its upside trend


BUY AHOLD on reversal Head & Shoulder possibility + dollar / BUY RENAULT & PEUGEOT which could resume its upside trend

BUY SAP / VOLKSWAGEN / SUN MICRO / VERIZON / QUALCOMM on double bottom possibility

BUY OIL names such as TOTAL / ENI / TECHNIP to play upside trend

SELL REPSOL / ALLIANZ / PHILIPS / SCHNEIDER & ACCOR to play Head & Shoulder possibility

SELL ALCATEL / VIVENDI / SIEMENS / ALSTOM / ENEL / IBERDROLA / DANONE on double top

SELL AMAZON / JC PENNEY / RAYTHEON / YAHOOon double top



BUY AEGON or AXA / SELL ALLIANZ // BUY HOLCIM / SELL ST GOBAIN

BUY TOTAL / SELL REPSOL // BUY RENAULT / SELL PEUGEOT BUY BEST BUY / SELL TARGET


BROKER METEOROLOGY


NOVARTIS RAISED TO BUY FROM HOLD BY CITIGROUP

LEGAL & GENERAL RAISED TO HOLD FROM SELL BY DEUTSCHE BANK

ADIDAS RAISED TO BUY FROM SELL BY RBS

PPR RAISED TO HOLD FROM SELL BY RBS

BURBERRY RAISED TO BUY FROM HOLD BY RBS

UNICREDIT RAISED TO BUY FROM NEUTRAL BY NOMURA

DSM RAISED TO BUY FROM REDUCE BY NOMURA

INFINEON RAISED TO OUTPERFORM FROM NEUTRAL BY EXANE

STERIA RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY

SEVERSTAL RAISED TO BUY FROM NEURAL BY BANK OF AMERICA – ML

LONZA REMOVED FROM EUROPEAN CHEMICALS LEAST PREFERRED LIST BY UBS

UMICORE REMOVED FROM EUROPEAN CHEMICALS LEAST PREFERRED LIST BY UBS


BAYER CUT TO NEUTRAL FROM BUY BY UBS

BAYER REMOVED FROM EUROPEAN CHEMICALS MOST PREFERRED LIST BY UBS

LINDE REMOVED FROM EUROPEAN CHEMICALS MOST PREFERRED LIST BY UBS

DASSAULT SYSTEMES CUT TO UNDERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY

HOCHTIEF CUT TO UNDERPERFORM FROM OUTPERFORM BY CREDIT SUISSE


DATA


WTI : 67,1 (0,39 %)

Eur/$ : 1,4623 (0,24 %)

$ /Yen : 89,71 (0,17 )

10 Yr US : 3,30 ( 1,28 bp)

10 Yr Euro : 3,23 ( -2,5 bp)


Indices : US close ; Europe close

SOX : -1,43 %;-0,92%

S&P :-0,22 %; -0,17 %

DOW: -0,48%; -0,25 %

NAS :-0,31%; -0,36%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -0,08 %; 0,17 %

ENERGY : -0,33 %; -0,63 %

FINANCIAL : -0,59 %; -0,16 %

HEALTHCARE : -0,07 %; -0,05 %

TECHNO : -0,70 %; -0,57 %

TELECOM : -0,40 %; -0,66 %

INDUSTRIAL : -0,08 %; 0,10 %

UTILITIES : 0,26 %; -0,34 %



TO BE COMING



Today

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 :BNP Paribas capital increase subscription / 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:



Tuesday

Results :Tesco

Dividend :

Events:



ECONOMIC DATA PREVIEW



In the United-Stateswatch the final release of the Gross Domestic Product for the second quarter(13.30 GMT). As we already mentioned in our forecast the first quarter was the bottom for the American recession. Indeed, the publication of the final figure for the US GDP will confirmed the improvement during the second quarter which should retreat by “only” 1% (annualized).

In the Euro zonewatch the first estimation of the Consumer price index for September. As energy prices are slightly dropping we forecast that consumer price index will decline by 0.2% YoY as in August confirming a stabilization of the deflation in the Euro area. Indeed the inflation should reach 0.3% in 2009 in the Euro area.

In the Germany watch the Unemployment rate for September expected to rise from 8.3% to 8.4% despite the slight recovery in Germany. This is quite logical as unemployment is a lagging indicator of the economic activity.



ECONOMY



United-States: Conference Board consumer confidence unexpectedly dropped in September

Despite the recovery which is taking place in the United-States, despite the reduction of the jobs destructions and the rise of incomes the consumer confidence index from the Conference Board declined from 54.5 in August to 53.10 in September. Nevertheless the US consumer confidence remained widely above its lowest level of 25.30 in February 2009. In addition this modest fall was reversing the sharp increase of the previous month. Looking at the breakdown we see that the current condition balance fell from 25.4 to 22.7 and the expectation balance declined very slightly from 73.8 to 73.3. Moreover despite the improvement on the labour market the employment sub index remained very weak.


Euro area: The economic confidence reached its highest level in a year in September

After reaching an historical low of 64.6 in March, the economic confidence index progressed for a sixth consecutive month in September and reach 82.8 its highest level in a year. 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. This improvement was led by the industrial service sector and by consumer confidence all I rising on the month. As the economic confidence index is sharply correlated with the GDP this rise suggest that the economy started to expand at the third quarter after felling by 0.1% at the second quarter