Short, But Not For Long

GLOBAL EQUITIES RESEARCH
The short positions are still worth playing in a week empty of data news , meaning no good news, but just some FOMC meeting which some might fear if talking about a possible timing of the unwinding from the easy quantitative policy, and a G20 starting on Thursday which should not bring much. However we could not head too far down . Not only the macro backgroubd will keep on improving in October whith the happy earnings festival, but also there is too much cash out there starving for riskier investment vehicles, and equity being precisely one of them. It's no secret that a large driver behind the outperformance of financial assets (both stocks and bonds) has been the extraordinary outflow from money market assets looking for higher yields . From a peak of almost $4trn in Jan 2009, money market funds have declined by $440bn over the past 8 months . In fact last week alone Money Market funds saw a $54bn outflow. With Central banks set to remain on hold for the foreseeable future, this trend is set to remain. The outflows from money market funds have largely found their way into the credit market. Credit leads Equities which supports another 10% upside for both the Eurostoxx and the S&P. The missing piece of the puzzle remains the developed market consumer but with US household wealth rising in Q2 by $2trn, the first improvement since 3Q07, stability appears to be coming back to the consumption side of the equation as well . US households might still need to cut their debts further. However, the combination of an increasing wealth and a continued need to deleverage means higher savings, and so greater demand for financial assets at a time when the supply of assets with some sort of yield is declining. After our little pause, don't forget to buy back and jump in still agressively
"Most of the growth data in the coming week are likely to have a positive tone" wrote an economist, who sees consumer and business spending gaining steam. Economists agree on the short term forecast. This week's data "will continue to portray an economic recovery that is gathering momentum". But they caution that the burst of growth this quarter isn't sustainable. "The temporary boosts to spending and real growth connected with the 'cash-for-clunkers' program and the first-time home buyers credit will dissipate by the end of the year", and some same economists consider the growth will declien right after that early 2010, which we heaviky desagree. However, t hat's why they expect "FOMC to maintain an aggressive stance on monetary policy" in Wednesday's announcement .
No one expects the FOMC to raise rates any time soon, but there is abundant speculation that the committee could take another baby step toward a more-normal policy. The Fed has been buying most of the mortgage-backed securities now being underwritten. The FOMC will probably announce that it will slow the pace of purchases of MBS and extend them through the first quarter of 2010, according to some economists. The Fed has purchased about $850 billion of MBS, about two-thirds of the $1.25 trillion it committed to buying. Mortgages rates might be rising slightly once it is over, but should remain on very attractive levels.
The slowdown in the Fed's support for mortgages is only one reason to believe the current boomlet in housing could fade next year. The other big reason: The $8,000 government subsidy for first-time home buyers expires on Nov. 30. Buyers may be rushing now to complete sales before the deadline, and that flurry could be goosing home sales now. As many as 40% of home buyers this year have qualified for the credit, and the National Association of Realtors calculates that the credit boosted sales by about 350,000 this year (the other sales would have taken place anyway). Sales of existing homes are expected to rise 3% in August, the fifth straight increase, to hit a two-year high of 5.40 seasonally adjusted annual units. Sales of new homes are expected to increase about 2% to a seasonally adjusted annual rate of 433,000 in August, which would also be the fifth straight increase and the highest in a year. "The housing market is picking up steam from a very depressed level". "Foreclosures and the $8,000 tax credit are juicing the overall level of sales. The big question is what happens after Nov. 30. Congress may extend or even expand the tax credit. Some economists say it won't matter. "There has been a fundamental shift in home buying owing to greater affordability and confidence, which is likely to be sustained even after the tax credit expires".
The other big number of the week will be the August durable-goods orders. The improvement in the Institute for Supply Management index above 50%, and the jump in the ISM new orders index to a five-year high of 64.9% bodes well for the manufacturing sector. Sales are rising faster than expected. After soaring 5.1% in July on a surge in orders at Boeing, new orders are likely to come back down to earth in August, economists say. The median forecast looks for orders to rise about 0.7%, led by autos, machinery, and tech. Orders for core capital equipment goods are expected to increase, and business investment in equipment could contribute to growth for the first time since late 2007
Take opportunity to buy defensive names. After their initial strong performance from March to Sept ’03, Cyclicals lost ground relative to Defensives over the next 12 months. The current recovery trade, where its sustainability is not a done deal, could at least show a similar “pause” and experience a sector rotation. Would be careful about Metals and Mining names following the run of 75%, the sector is not as attractive anymore, trading at 52% P/E premium to broad market vs historical averages. Telecoms might be worth it as the European Telecoms are trading at a 50% relative P/E discount.
A switch from whatever cyclicals you bought so far, into M&A possible targets, and dividend yield names such as defensive telecom and pharma ones is worth playing.

ECONOMIC DATA WITH IMPACT
The FHFA house price index (15.00 UK time) increased in three of the last four months to June and it wouldn’t be surprising to see another small gain in July.The combination of the tax credit for first-time buyers and historically low mortgage rates appears to have brought an end to the three-year long decline in house prices

POSITIVE IMPACTS
CADBURY’s CEO softened his rhetoric about a possible deal with Kraft, acknowledging that there is some merit in a combination of the 2 companies (WSJ) / Cadbury approched the UK Takeover Panel to ask Kraft to either make formal proposal or walk away for 6 months
ACCOR raised €272 m from the sale of 158 of its hotelF1 brand low-budget hotels in France / Accor said the deal will enable it to reduce its adjusted net debt by approximately €187 m in 2009, of which €130 m will be added to the group's cash reserves.
EDF is close to agreeing a big asset swap with E.ON / Separately, it played down reports that it was also considering the sale of a 20% stake in British Energy (The Times)
IMPERIAL TOBACCO said trading remains in line with management's expectations / Altadis integration is progressing well
VEOLIA’s CEO is the only remaining candidate for the top job at EDF as he has won the backing of Nicolas Sarkozy (Les Echos)
SANTANDER (not new) said that it could raise up to $7.3 bn by listing 16.2% of its Brazil unit Banco Santander
OERLIKON is looking for buyers for any of its business units and its main shareholder said it would be willing to help with cash
SANOFI-AVENTIS has received an additional order from the US to produce vaccine to help protect against the Influenza A virus.
NOVARTIS said it is “very confident” about its drugs pipeline, which is “delivering nicely” (CEO)
VIVENDI may decide to sell its 20% stake in NBC Universal at a board meeting on Oct. 14 (Bloomberg)
RIO TINTO sold its Alcan Composites business to Swiss machinery firm Schweiter Technologies for $349 m.

NEGATIVE IMPACTS
VINCI’s CEO said that Europe's construction market is likely to shrink further in 2010, despite multi-billion euro government stimulus packages and some signs of recovery in the region (FT)
WPP’s CEO described the recession as L-shaped : “The forecast for levels of increase in ad spending, both traditional & nontraditional, are pretty anemic for the next 2 or 3 years” (Interview in the WSJ)
HERMES’s CEO said he isn’t optimistic about the next 6 months because of a delayed economic recovery in Japan
HEIDELBERGCEMENT : 2nd part of the capital raising : Subscription period from Sept.24 to October 7 included / Price €37
AIR FRANCE plans to reduce seating capacity on its flights by 2% during the winter season to lessen the impact of falling demand
ABB has yet to see demand for its products pick up and it is difficult to tell when the recovery will come (Chairman)
ASTRAZENECA lost a bid to dismiss an Ontario suit claiming it was negligent in the development & sale of Seroquel
TESCO predicted that the market will be “flat at best” for UK retailers in Xmas…

TRADING IDEAS
BUY DOLLAR / YEN to play double bottom // SELL Euro / Dollar double top
SELL GSZ / IBERDROLA /EDF / BAYER / TOTAL / DANONEon double top
SELL CARS such as DAIMLER / RENAULT / BMW / FIAT toppish for now in consolidation process
SELL BNP run too fast // SELLST GOBAIN with island possibility still / SELL AIR LIQUIDE & LINDE seems toppish for now
BUY TELECOM such as FRANCE TELECOM / DEUTSCHE TELEKOM to play defensive underperform and good yield return
BUY CARREFOUR to play defensive

BUY ENI or BP / SELL REPSOL // BUY HOLCIM or ST GOBAIN / SELL LAFARGE // BUY NESTLE / SELL DANONE // BUY PHILIPS / SELL SIEMENS // BUY BASF / SELL LINDE // BUY AXA / SELL ALLIANZ // BUY LVMH / SELL PINAULT // BUY VERIZON / SELL AT&T

BROKER METEOROLOGY
CREDIT AGRICOLE ............................... RAISED TO NEUTRAL FROM SELL............................... BY UBS
VOLKSWAGEN............................... RAISED TO HOLD FROM SELL............................... BY CITI
SARAS ............................... RAISED TO OUTPERFORM FROM NEUTRAL............................... BY CSGN

AIR LIQUIDE............................... CUT TO UNDERPERFORM FROM NEUTRAL............................... BY ML
K+S............................... CUT TO UNDERPERFORM FROM NEUTRAL............................... BY ML
UNITED BUSINESS MEDIA............................... CUT TO UNDERPERFORM FROM HOLD............................... BY JEFFERIES
NESTE OIL + OMV............................... CUT TO NEUTRAL FROM BUY ............................... BY NOMURA
TECHNIP ............................... CUT TO NEUTRAL FROM OUTPERFORM............................... BY EXANE
SAIPEM............................... CUT TO UNDERPERFORM FROM NEUTRAL ............................... BY EXANE
DATA

WTI : 70,0 (-33,20 %)
Eur/$ : 1,4716 (0,03 %)
$ /Yen : 91,65 (0,31 )
10 Yr US : 3,49 ( 0,56 bp)
10 Yr Euro : 3,38 ( 0,3 bp)

Indices : US close ; Europe close
SOX : -0,03 %;2,47%
S&P :-0,34 %; 2,49 %
DOW: -0,42%; 1,83 %
NAS :0,24%; 2,87%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : -0,73 %; 4,80 %
ENERGY : -0,86 %; 4,76 %
FINANCIAL : -0,89 %; 3,04 %
HEALTHCARE : 0,63 %; 1,20 %
TECHNO : 0,13 %; 3,21 %
TELECOM : -0,50 %; 1,53 %
INDUSTRIAL : -0,59 %; 2,48 %
UTILITIES : -0,44 %; 1,52 %

TO BE COMING

Today
Results :Imperial Tobacco trading statement / Severn Trent trading 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 / General Mills
Dividend : Aviva (GBp 10.00) / Ford 1 per 1 poison pill rights / Centrica (GBp 4,066667) / Petrofac (GBp 0,107)
Events: Steel and Mining conf at Credit Suisse

Thursday
Results : LSE trading updtae /Hennes & Mauritz / RIM
Dividend : Philip Morris ($ 0.58)
Events : Oil & Gas Conference at Deutsche Bank / Philips analyst day / Vallourec investor day

Friday
Results :
Dividend :
Events: DSM analyst day

Monday
Results :Prudential / Wolseley
Dividend : Colruyt ( GBp 4,722222) / Dow Chemical ($ 0,15) / Kraft Foods ($ 0.29) / US Bancorp ( $ 0,05) / Xerox Corp ( $ 0,0425)
Events:


ECONOMIC DATA PREVIEW
Inthe United-Stateswatch the Richmond Fed Manufacturing index(15.00 GMT) for September, expected to rise from 14 to 16 following the industrial rebound in the Unite-States.

ECONOMY

United-States: Conference Board leading index rose again in ugust
The United States economy is recovering as shown by the sharp increase in the PMI manufacturing and services for more than three months, but also by the rise in retail sales in August (with and excluding cars). Not to mention the rebound in industrial production as well as the reduction in jobs destructions (216 000 in August the “best performance” since August 2008). In such conditions, the advanced indicator of the Conference Board, which has rebounded since last April, reaching 0.9% in July rose by 0.6% in August.