Long March

GLOBAL EQUITIES RESEARCH

China was the focus this morning, with most of monthly data released today. Media reports have suggested that loan growth fell further last month, although the reported level of new lending was still nearly a fifth higher than a year before. But recent data have hinted at a broad acceleration of activity across the economy. Indeed, new lending unexpectedly accelerated in August: Yuan 410.4bn vs. 355.9bn in July and 320.0bn expected. Industrial production grew at a faster pace than forecast (+12.3 % YoY in August vs. 11.8 % expected and 10.8 % in July). Growth in reported fixed investment (+33.0 % in August vs. +32.9 % in July) is encouraging: in the first half of the year many firms seem to have reported upfront the full value of ongoing investment projects. On that basis, there may now be little new investment to report, but actual activity on the ground will continue. China’s imports have been boosted in recent months by commodity stockpiling. This continued with record purchases of iron ore and oil in July. Metals imports, which account for around a tenth of the total, rose by 22 % in dollar terms in June and July combined, while other imports fell by 17 %. This strength is unlikely to last as stockpiling naturally winds down: in August, overall imports declined -17 % YoY vs. -15 % in July. Exports fell more than economists estimated in August (-23.4 % YoY vs -19.0 % expected and -23.0 in July). Trade surplus soared to $15.7 bn vs 10.6 in July and 13.6 expected. Exports have accelerated in MoM terms for China and as for much of Asia. Given the sharp drop-off in trade at the height of the crisis, there is room for that recovery to continue. Indeed, the strength of the latest ISM manufacturing index suggests that shipments to the U.S. could be up by more than 20 % YoY by early 2010. The outlook for Chinese exporters looks relatively healthy. Retail sales climbed 15.4 % YoY in August, the most for the year accounting for seasonal distortions caused by the lunar New Year holiday. Consumer prices fell by 1.2 % YoY in August, declining for a seventh month and giving the central bank more room to keep interest rates at a four-year low to stoke growth. Producer prices dropped 7.9 % vs. -8.2 % in July.

This morning, the dollar touched a new low for the year against the euro (1.4618). Three factors have been weighing on the greenback: 1) increased appetite for risk, fuelling huge ”carry trade” movements toward riskier assets 2) concerns about the inflationary implications of “credit easing” 3) China’s reservation about the dollar’s dominance as a reserve asset. Investors’ increased appetite for risk has clearly taken its toll on the dollar since the spring. One consequence of this growth in risk appetite has been a reduction in the cost of borrowing. Ironically, this has increased the attractiveness of the dollar as a funding currency, which in turn has led to further risk taking. The dollar fell toward a nine-month low against the euro as reports showed China’s factory output and new lending gained last month by more than economists estimated, reducing demand for the U.S. currency as a refuge. The yen strengthened for a second day against the euro on speculation Japanese exporters are repatriating earnings toward the end of the third quarter.

GM sale of Opel and Vauxhall marks a further step of the spreading of M&A, which will be market mover on the upside in the near future.

U.S. Treasury prices extended gains Thursday, pushing 10-year yields down by the most in two months (3.35 %), as the government's sale of 30-year bonds drew strong investor demand on the heels of two note auctions that went off successfully this week. U.S. stocks strongly rose again (S&P 500 +1.04 % at 1044.14) with S&P 500 futures slightly retreating this morning (-0.15 %). Gold price that retreated to $982.47 /oz rose again above $1,000 this morning (1,001.79). European stocks should be up at the opening.



ECONOMIC DATA WITH IMPACT


Michigan Confidence (15h UK) expected 67.5 from previous 65.7 / minor


POSITIVE IMPACTS



INTESA SANPAOLO : Exor, the Agnelli family holding, is analysing the possible purchase of Banca Fideuram, ISP's asset management unit valued at €3.8 bn (Il Sole 24 Ore) / Others possible candidates include private equity funds and Banco Santander.

AIR FRANCE : The cargo arm of Air France-KLM is preparing to undergo a radical overhaul of its organization (Les Echos)

ABB is scheduled to hold a capital markets day in Zurich

STANDARD CHARTERED is “actively evaluating” the acquisition of the Indian assets of RBS but is yet to take a decision (Bloomberg)

GAS NATURAL : DBK & Generali are interested in buying the gas distribution assets GAS Natural is forced to sell following its UNF takeover (Expansion)

NOVARTIS : The New England Journal of Medicine published data supporting reports that an H1N1 swine flu vaccine being made by Novartis can protect people with a single dose

VOLKSWAGEN is in talks with Malaysian carmaker Proton about partnership

BMW said its August car sales in mainland China surged 63.2% from a year earlier (at 9,013 units…)

LAFARGE’s CEO said that he is seeing some stabilisation or slight recovery / Stimulus packages will have an impact, but the question is when exactly, and where… / Talks about contrast between emerging and developed markets (FT)

PRUDENTIAL will look to Asia as a source of capital & may seek to raise equity there (FT)



NEGATIVE IMPACTS



ACCOR : S&P placed its 'BBB' long-term and 'A-3' short-term corporate credit ratings on Accor on CreditWatch with negative implications

HANNOVER RE (Minor) : The world's 4th-largest reinsurer's parent company Talanx, which owns around a 50% stake in Hannover Re, is considering a public listing (FT)

IBERIA : Passenger traffic -6.5% in Aug. from a year earlier, especially in the biz unit load factor 82.4%, down from 84.2% a year earlier

BASF : Board member said that demand for building chemicals in the US has stabilised but a rebound will take several years

ING : Standard Chartered has dropped out as a bidder in the contest to buy ING's Swiss & Asian private banking biz (WSJ) / HSBC, Julius Baer and DBS Group are still in the running.

FRANCE TELECOM will temporarily suspend job reshuffling linked to the group's restructuring, reacting to a wave of suicides at the Co.

TOTAL said that 2009 profit may be half of 2008 level / Warned of oil crisis on higher demand in 2014-2015 with oil prices back to $145



TRADING IDEAS


BUY AEGON to play island possibility

BUY UNILEVER / METRO on double bottom possibility

BUY CARREFOUR / BASF on reversal Head & Shoulder



BUY BP / SELL ROYAL DUTCH // BUY PEUGEOT / SELL EUROSTOXX or RENAULT // BUY ENI / SELL TOTAL // BUY KPN / SELL TELEFONICA // BUY VISA & AMEX / SELL MASTERCARD // BUY EXXON / SELL CONOCOPHILLIPS


BROKER METEOROLOGY


M6 RATED NEW BUY BY DEUTSCHE BANK

ASML RAISED TO BUY BY JEFFERIES

AXA RAISED TO BUY FROM NEUTRAL BY BANK OF AMERICA – ML

OLD MUTUAL RAISED TO NEUTRAL FROM UNDERWEIGHT BY BANK OF AMERICA – ML

BULGARI RAISED TO BUY FROM UNDERPERFORM BY BANK OF AMERICA – ML

NOVATEK RAISED TO BUY FROM SELL BY GOLDMAN SACHS

LLOYDS RATED NEW BUY BY SOCIETE GENERALE

OMEGA PHARMA RATED NEW BUY BY UBS

NOVO NORDISK STARTED AT BUY BY JEFFERIES

TOMTOM RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS


DAIMLER CUT TO UNDERWEIGHT BY HSBC

SOLVAY CUT TO HOLD FROM BUY BY RBS

SWISS RE CUT TO NEUTRAL FROM BUY BY BANK OF AMERICA - ML

VOESTALPINE CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS


DATA


WTI : 72,3 (0,17 %)

Eur/$ : 1,4611 (0,20 %)

$ /Yen : 91,27 (0,31 )

10 Yr US : 3,36 ( 0,9 bp)

10 Yr Euro : 3,30 ( -5,8 bp)


Indices : US close ; Europe close

SOX : 1,78 %;0,79%

S&P :1,04 %; 0,20 %

DOW: 0,84%; 0,22 %

NAS :1,15%; 0,38%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 1,76 %; 0,01 %

ENERGY : 1,64 %; 0,67 %

FINANCIAL : 0,86 %; -0,33 %

HEALTHCARE : 0,70 %; 0,26 %

TECHNO : 1,39 %; 0,64 %

TELECOM : 2,17 %; 1,13 %

INDUSTRIAL : 1,02 %; 0,03 %

UTILITIES : 0,15 %; -0,23 %



TO BE COMING



Today

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



Thursday

Results :FedEx / Carnival

Dividend :

Events:Kingfisher analyst meeting



ECONOMIC DATA PREVIEW



In the United States watch the preliminary release of the University of Michigan confidence (15.00 GMT) for July expected to increase from 65.7 to 67.5 as the recession is over he United-States. Indeed the economy is getting back to the virtuous circle : investment-employment -consumption.



In Japan watch the final release of the GPD (0.50 GMT) for the second quarter expected to confirm the preliminary release at +0.9% QoQ and +3.7% annualized.



ECONOMY



United-States: trade deficit widened in July

Having reached its lowest level since November 1999 at US $ 25.97 billions, the US trade deficit that narrowed in May at –$26.38 bn, rose in June at $27.5bn (revised from $27bn)and widened again in July at $32 bn as imports surged by a record 4.7 %. Imports rose due to the volume and cost of oil which rebounded the last three months. The gap between imports and exports grew by 16 % the most in more .than a decade. The deficit remains less than half of what it was in June last year



United-States: Initial jobless claims and continuing claims declined

The labour market is progressively improving despite the rise of the unemployment rate, as job destructions are decreasing as seen in the last employment report. The weekly release employment data are confirming this trend. Indeed after slightly rising to 576 000 in July, initial jobless claims declined to 550 000 last week. After over laying off companies are now starting to have a more realistic behaviour matching economic fundamentals which are clearly showing a recovery. Meanwhile continuing claims dropped from 6 247 000 to 6 088 000 last week. The unemployment rate should reach 10% in 2010 and then stabilized at this level.



France: Industrial production slightly rose in July and trade deficit narrowed in July

After an 3.0% upsurge in May, correcting the steep decline of the previous months, the French industrial production, pulled by the car industry, remained slightly positive in June by only. 0.2% (revised from +0.3 %) The improvement continued in July by a small increase of 0.1 %. Nevertheless this recovery remains fragile and despite the last 3 months growth, from a year ago industrial production decreased as expected by at -13.0% in July as against -12.9% in June and from a lowest level of -18.8 reached in April. Meanwhile following four consecutive months of reduction, the foreign trade deficit which got worse in June, reaching €3,5 billions narrowed to reach- 1,3 bn euros in July. Indeed, exports skyrocketed by 9% despite the high level of the euro currency but boosted by the German demand, and imports rose only by 1,0%.