Sell Rosh Hashanah

GLOBAL EQUITIES RESEARCH
Would we play “the Sell Rosh Hashanah buy Kippur” old saying ? why not, still believing there is a nice upside left (8 to 10%) without major changes from the current macro background as inflows are stepping out of monetary funds for riskier assets such as equity business. But once today’s M&A possible rumours before the weekend are over, we do thing we are on for a little pause until the Employment report in two weeks time, which will be the start of some further supportive news such as Alcoa October 7th, Intel Oct 13th, Goldman & JP Morgan Oct 14th earnings. We think the recovery is happening, and the process will require some flexibility from the Central Banks. Employment, which according to everyone is the required conditions to make the recovery sustainable, unlike the one or two years jobless recoveries which sometimes happened in the past, will need to recover and get some hiring back.
Inflation will be the next problem as we will enter a period where the base effect will not be friendly (prices were falling same time last year), and market players will fear that the unwinding of the quantitative policy happens too soon, spoiling the fragile recovery. However, the Fed already said they will focus on the economic recovery, and speaking with some customers, we do agree with the idea that the Fed will have no other choice than to let inflation go for a while (if any), until the hiring process is on track and the economic recovery more solid. It is always better to attend a solid growth with inflation rather than stagflation (no growth with inflation). The good point being here that any inflation would help cleaning the debts from households, and accelerate the deleverage process.
As a matter of fact, next week FOMC meeting will be the focus on Wednesday, in addition to some home sales data on Thursday and Durable Orders the following day. The stronger tone of incoming economic news has further decreased the chances that the Fed will boost the size of its asset-purchase programme. As to the concerns over the sustainability, Fed officials have suggested that near-term rate increases are not likely (the markets still expect the Fed to start increasing rates early next year), and once more, we hardly see the Obama-Bernanke team do such an easy mistake when the recovery success will be rewarded at the same level on a political front …
Yesterday’s Housing Starts and Philadelphia index reminded that the recovery will go through bumpy roads. The 1.5% m/m increase in US housing starts in August leaves the number of starts some 23% above January's trough. But all the increase in August came in the volatile multi-family starts component. Single family starts fell from 494,000 to 479,000, although they remain above January's low of 357,000. Some of the upward trend in recent months surely reflects the increase in demand driven by the homebuyer tax credit. With that due to expire at the end of November, some tends to think homebuilding may soon flatten off. However, demand for new homes is probably also being boosted by the stabilisation in prices and high affordability. Accordingly, homebuilding activity is likely to continue to recover, but the large degree of excess supply suggests that the pace of the recovery might be moderate to start with. As to the Philly Fed manufacturing index, it is not as strong as the jump in the headline index from 4.2 in August to 14.1 in September appears to suggest. The new orders balance slipped back from 4.2 to 3.3 while the employment balance dropped from -12.9 to -14.3.
Things are getting better and should remain so, but we enter a period where there will not be much more news but possible M&A deals to support equity indices until the fast and furious Q3 earnings and employment report out in two weeks.
Today will be bumpy, with not only the big quarterly option expiries, but also the reshuffle from equity indices due to new re weighting.

ECONOMIC DATA WITH IMPACT

Quarterly option expiry / LSE 10h15-30 UK/ Eurostoxx 11h UK / Dax 12h UK / CAC 15h UK / single stocks on the close + reshuffle

POSITIVE IMPACTS

GSK is in talks to buy a 5% stake in Dr. Reddy's (The Economic Times) / The deal may be priced around $150 m
AIR FRANCE-IBERIA-LUFTHANSA wouldhave hired Rothschild to study an IPO of Amadeus, the travel reservations giant / Amadeus is controlled by PE firms with 52.8%, Air France with 23.14% + Iberia and Lufthansa with 11.57% each / Amadeus would be worth €8bn
ALSTOM : The CEO of French national railway met M. Schwarzenegger to push the sale of French High-speed train TGV to California
SODEXO reaffirmed its mid-term targets to generate average annual revenue growth of 7% and to reach an operating margin of 6%
BNP & FORTIS agreed to take a majority stake in the non-life insurance unit of UBIBANCA for €120m in cash
VOLKSWAGEN confirmed it is planning to integrate its 3 different brands for light and heavy commercial vehicles under one roof
BRITISH LAND is poised to conclude the long-awaited £2.2bn sale of half of its Broadgate office complex to Blackstone (FT)
SYNGENTA : Brazil's biosecurity regulator approved 2 new varieties of genetically modified corn, developed by Monsanto and Syngenta
NOVARTIS received FDA approval for Valturna, a single-pill combination of valsartan and aliskiren, to treat high blood pressure.
RAUTARUUKKI said the industry faces a slow recovery from the recession

REWEIGHTING CAC40 (GE Est.) : Main winners are TECHNIP (from 0% to 0.656%) + BNP (from 7.04% to 7.483%) + SANOFI (from 7.095% to 7.48%) + PERNOD RICARD (from 1.447% to 1.628%) / Others gainers are DANONE, DEXIA, AIR LIQUIDE…
REWEIGHTING DAX30 (GE Est.) : Main winners are INFINEON (from 0% to 0.83%) + E.ON (from 9.32% to 10%) + BEIERSDORF (from 0.63% to 0.77%)
REWEIGHTING EUROSTX (GE Est.) : Main winners are INBEV (from 0% to 1.42%) + CRH (from 0% to 0.87%) + TOTAL (from 5.75% to 6.03%) + FRANCE TELECOM (from 2.32% to 2.43%) + IBERDROLA (from 1.50% to 1.68%) …
REWEIGHTING FTSE100 (GE Est.) : Main winners are SEGRO (from 0% to 0.20%) + WHITBREAD (from 0% to 0.17%) + RENTOKIL (from 0% to 0.155%)

NEGATIVE IMPACTS

EDF (Minor) : A board meeting at EDF on who will replace CEO will be delayed by several days from Sept. 23 (Reuters) / Anne-Marie Idrac, junior minister for trade, is being mentioned as a possible candidate to replace M. Gadonneix…
LLOYDS (Yest.) : British regulators set tougher than expected terms on Lloyd's exit from the govt scheme to insure it against credit losses (Daily Telegraph + FT) / FSA concluded after stress tests that it needed more than £20 bn to operate without the insurance…
CONTINENTAL mandated Credit Suisse to evaluate options for future sustainable financing and capital structures = Conti has a August 2010 deadline to repay €3.5 bn of a syndicated loan + net total debt of €9.75 bn, almost twice the size of its shareholder equity
RENAULT is "still deep in crisis" (COO) / RNO would be planning more restructuring at the company…
BRITISH AIRWAYS plans to team up with American Airlines and Qantas Airways to make a joint alliance offer to Japan Airlines
SWEDBANK plans to issue a trading update before the market open in conjunction with the prospectus for its planned rights issue
NOKIA : Palm said overnight it shipped 823,000 smartphones in the Q1 (700,000 to 800,000 exp) but issued Q2 revenue guidance well below analysts estimates…

REWEIGHTING CAC40 (GE Est.) : Main losers are TOTAL (from 13.68% to 12.85%) + AIR FRANCE (from 0.42% to 0%) + EDF (from 2.10% to 1.663%) + SOC. GEN (from 4.38% to 3.996%) / Others losers are CREDIT AGRICOLE, GDF-SZE…
REWEIGHTING DAX30 (GE Est.) : Main losers are HANNOVER RE (from 0.36% to 0%) + VOLKSWAGEN (from 2.1% to 1.45%) + SIEMENS (from 10.78% to 10%)
REWEIGHTING EUROSTX (GE Est.) : Main losers are FORTIS (from 0.44% to 0%) + RENAULT (from 0.45% to 0%) + VW (from 0.69% to 0.47%) + BNP (from 3.21% to 3.11%) + SANTANDER (from 5.89% to 5.74%) + DBK (from 2.10% to 2.01%)
REWEIGHTING FTSE100 (GE Est.) : Main losers are PENNON (from 0.13% to 0%) + F&C (from 0.13% to 0%) + BALFOUR BEATTY (from 0.126% to 0%)

TRADING IDEAS

BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL SOC GEN / GDF SUEZ & TOTAL to play sharp decrease in weight tonight
SELL SAP to play island reversal possibility & SELL BNP run too fast + head & shoulder possibility
SELL DANONE / TELEFONICA /EDF on double top / AIR LIQUIDE & LINDE toppish for now
SELLVALLOUREC & ST GOBAIN on island possibility
BUY AIR FRANCE to play CAC40 exit tonight, Amadeus good news , Star Alliance now on JAL, restructuring on track, end of its CAC journey nightmare
BUY CARREFOUR to play defensive with some possible stormy time ahead + lagging for mysterious reasons

BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL AIR LIQUIDE or LINDE
BUY AXA / SELL ALLIANZ // BUY EON / SELL EDF
BUY LVMH / SELL PINAULT // BUY SAINSBURY / SELL TESCO
BUY VERIZON / SELL AT&T // BUY WAL-MART / SELL HOME DEPOT

BROKER METEOROLOGY

DEUTSCHE BANK RAISED TO BUY FROM HOLD BY ING
DAIMLER RAISED TO OUTPERFORM FROM MARKET PERFORM BY BERNSTEIN
SWISS LIFE RESUME AT BUY BY DEUTSCHE BANK
BRITISH LAND RAISED TO BUY FROM HOLD BY SOCIETE GENERALE
TELECOM ITALIA SAVING SHARES RAISED TO NEUTRAL FROM SELL BY UBS
EUROPEAN CIVIL AEROSPACE COMPANIES EPS RAISED BY AVERAGE 11% BY GOLDMAN SACHS
STANDARD LIFE RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS
ROLLS ROYCE RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
SABMILLER RAISED TO BUY FROM NEUTRAL BY UBS
HAMMERSON RAISED TO HOLD FROM SELL BY SOCIETE GENERALE
HAYS RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
MICHEAL PAGE RAISED TO HOLD FROM SELL BY DEUTSCHE BANK
ORASCOM TEL RAISED TO BUY FROM NEUTRAL BY BANK OF AMERICA – ML
SWEDBANK RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS
NEXT RAISED TO BUY FROM HOLD BY UBS

BANCA MONTE DI PASCHI CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
BANCA GENERALI CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS
ENI CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE
EUROPEAN AUTOS CUT TO BENCHMARK FROM OVERWEIGHT BY BERNSTEIN
SONAE CUT TO NEUTRAL FROM BUY BY UBS
LOGITECH CUT EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY
OMV CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE
TULLOW OIL CUT TO HOLD FROM BUY BY CITIGROUP

DATA

WTI : 72,3 (0,24 %)
Eur/$ : 1,4718 (-0,16 %)
$ /Yen : 91,21 (0,03 )
10 Yr US : 3,39 ( 0,35 bp)
10 Yr Euro : 3,37 ( 2,9 bp)

Indices : US close ; Europe close
SOX : -1,69 %;-0,26%
S&P :-0,31 %; 0,31 %
DOW: -0,08%; 0,37 %
NAS :-0,30%; 0,26%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,75 %; 0,67 %
ENERGY : -0,70 %; 0,33 %
FINANCIAL : -0,45 %; 0,95 %
HEALTHCARE : 0,01 %; 0,09 %
TECHNO : -0,28 %; 0,30 %
TELECOM : -1,59 %; -1,03 %
INDUSTRIAL : -0,24 %; 0,26 %
UTILITIES : -0,55 %; -0,27 %

TO BE COMING

Today
Results :Mediobanca
Dividend :Heinz ($0.42)
Events :Euler Hermes AGM

Monday
Results :
Dividend : ENI (€0.50)
Events: General Mills AGM / Nike AGM

Tuesday
Results : Imperial Tobacco trading statement / Carnival
Dividend :
Events : Power & Gas Leaders Conference at BoA - ML / Global Consumer & Retail Conference at BoA - ML / Commodities Conference at Credit Suisse / Swiss Equities Conference at Credit Suisse / Intel Developer Forum

Wednesday
Results : United Utilities trading statement / BB&B
Dividend :Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights
Events: Steel and Mining conf at Credit Suisse

Thursday
Results :Hennes & Mauritz / RIM
Dividend :
Events:Oil & Gas Conference at Deutsche Bank

ECONOMIC DATA PREVIEW

InGermanywatch the Producer prices(7.00 GMT) for August. German’s producer prices are expected to get back to positive territory at +0.2% in August (prior -1.5%) led by the rise of energy cost and by the progressive recovery. Meanwhile from a year ago producer prices will pass from -7.8% in July to -7.2% in August.

ECONOMY

United-States: Housing starts and building permits increased in August
After reaching an historical low in April, to 479,000 and 498,000 respectively, housing starts and building permits found an upward path in May and June, before slightly contracting in July However, the real estate sector reached a bottom floor as showed by the rise of the NAHB index a monthly survey of home builders .In addition, the weakness in prices and in mortgage rates boost housing sales in the United States. Consequently housing starts and building permits increased in August to reach 598,000 and 579,000 respectively. After the rise of the ISM survey, the increase of the retails sales and industrial production and the reduction of job destruction this is another sign of the present recovery in the United-States.

United-States: Initial jobless claims stabylized and continuing claims slightly decrease
The weekly figure of labour market are confirming a stabilization in the United-States. Indeed initial jobless claims remained stable at 557 000 and continuing claims decreased very slightly from 6 101 000 to 6 100 000. After over laying off companies are now starting to have a more realistic behaviour matching economic fundamentals. As showed by the rise if the ISM manufacturing and services index, investment is strongly recovering in the United-States and the virtuous circle : investment-employment-consumption is back. Nevertheless we will not see any significant decrease of the unemployment rate before spring summer 2010.

Euro area: Trade surplus rose in July
Euro area trade surplus increased for a fourth consecutive month to reach 6.8 billion euros (prior +2.3 bn) a highest since July 2004. This rise was mainly led by the surge of exports by 4.1% from June (prior +0.9%) boosted by German’s exports mainly to China and by the drop of imports by 0.3% after rising 0.2% in June. Despite the high level of the euro currency its important to notice that this rise of exports match the drop of the euro currency at the end of 2008 and of the first quarter 2009 as there is a gap from six to nine months between the evolution of the currency and the evolution of exports. If he progressive recovery is confirmed in the euro area as Germany and France returned to growth in the second quarter and as euro area GDP fell just 0.1% after plunging 2.5% at the first quarter, the rebound remained fragile. Indeed even if the bottom floor has been reached the hardest need to be done, meaning transforming the present rebound into a real recovery