Texas It Is

GLOBAL EQUITIES RESEARCH

There is a nice M&A timing which firms CEOs will be happy to catch (Vivendi once more today). Not only yields remain at historically low levels, but the banks are more keen on lending, which marks the end of the credit crisis. Commercial real estate, currently in poor state, will be supported in H2 in Europe anyway (very probably in the US too). China’s sovereign-wealth fund looking to invest in US real estate according to the WSJ, after saying last week that the fund plans a ten-fold expansion of its overseas investment this year, is another story to add to the “close to be full glass” which is certainly not half empty anymore. The virtuous circle we started thanks to worldwide stimuli is soon running on its own. Indeed, M&A activity stalled summer 2007 on the sub prime troubles, with a lot of deals in the pipe which obviously have been cancelled. The economic landscape has changed, not saying the same deals will be back at all, but fantastic opportunities are standing out there when taking into account the current equity prices, yields and economic growth levels. And this M&A activity resumption is just reflecting how efficiently the stimuli are spilling over, since neither the Fed not the ECB triggered these deals… it is full of cash, and always was, but the cash was supposed to be king due to the trauma of a possible Great Depression revival, and the banks were not lending at all being stuck with their own balance sheets problems. The money is stepping back into riskier assets, business should gradually be coming up. 10 year fix loan rates from banks lost nearly 1% since June in France (4.5 to 3.6%). Remember that economists evaluate a 1% drop in mortgage rates equivalent to 10% cut of housing prices in term of affordability.

So now is time to upgrade forecasts, whether from bear or bull strategists, we are finishing Q3 in a rather positive stance, and according doom players the stimuli should not be helping anymore. We disagree. The dynamic that has started will find a follow through, and given the current improvement Q4 economic growth should remain resilient. Next bear time supposed to be 2010… We must admit that it is difficult to figure out 2010 growth speed, but one thing for sure things are improving, and we hardly see why they would not keep on getting better. Spending has always been a lagging indicator in recovery time, same as hiring, and the very obvious risk in these data is that they will improve anytime soon in such an environment of easier credit conditions, low inventory/sales ratio level from firms facing a pick up in sales, a housing sector stabilisation, a rising stock market and a positive growth momentum.

Even the UK situation is improving, although not so easy over there.July’s industrial production figures add to the growing evidence that the UK economy has returned to moderately positive growth in Q3. The 0.5% monthly rise in total production (manufacturing output rose by a stronger 0.9%) means that, were production just to stagnate in the next two months, Q3 would see an increase in output of about 0.8%. After the 0.5% drop seen in Q2, this would add about 0.3% to GDP growth. Along with an improvement on the services side, this should be enough to bring the recession to at least a temporary end. Nonetheless, yesterday’s BRC retail sales figures – showing a 0.1% like-for-like annual drop – are a reminder that, while improving overseas conditions are helping the export-dependent industrial sector to recover, the domestic economy still has plenty of problems to overcome. As such, the UK should continue to lag behind in the global recovery.

Technically there is a gap to be closed on the cash Eurostoxx 2753/2743, on the Nasdaq cash 2023/2018, a double top in the euro dollar and obviously a double bottom on the dollar yen. The lack of news and interest at this time of the day would easily afford a little consolidation for today. Focus today Beige Book tonight, and Texas Instrument mid quarter update after the US close, as well as Apple presentation. The Kerviel, Lehman, Madoff year, was a lot in one year, but that year is well is over and same as firms, we are building the base of a safe and interesting 2010 year.

ECONOMIC DATA WITH IMPACT


Mortgage Applications (12h UK) / previous was down 2.2% / the higher the better / minor as volatile and weekly data

Oil inventories (15h30 UK)

Fed’s Beige book (19h UK) / will tell us that the economic rebound is still weak but going the right way, hiring sector remaining the weak point, and focus being on leaving the policy easy in order to get the employment sector back on track which might take some time still.


POSITIVE IMPACTS

Mortgage Applications (12h UK) / previous was down 2.2% / the higher the better / minor as volatile and weekly data

Oil inventories (15h30 UK)

Fed’s Beige book (19h UK) / will tell us that the economic rebound is still weak but going the right way, hiring sector remaining the weak point, and focus being on leaving the policy easy in order to get the employment sector back on track which might take some time still.

TRADING IDEAS


Go shopping when (if) approaching 2743 gap closure on the Eurostoxx cash on excessive drops, conso today should not last long as usual lately, Texas Instrument mid quarter tonight, China’s August data the following night , M&A rumours spreading back on Friday will be very supportive

BUY AEGON to play island possibility

BUY CARREFOUR / MC DONALDS / REED ELSEVIER on reversal Head & Shoulder & BUY METRO / AIR LIQUIDE on double bottom possibility

BUY KPN / SELL TELEFONICA // BUY PEUGEOT / SELL RENAULT // BUY VINCI / SELL LAFARGE // BUY TOTAL / SELL VALLOUREC // BUY ST GOBAIN / SELL HOLCIM // BUY EXXON / SELL CONOCOPHILLIPS // BUY ELI LILLY / SELL BRISTOL


BROKER METEOROLOGY


BNP-PARIBAS AISED TO OVERWEIGHT FROM NEUTRAL Y JP MORGAN

BMW AISED TO OVERWEIGHT FROM UNDERWEIGHT Y MORGAN STANLEY

BMW AISED TO BUY FROM HOLD Y RBS

SANDVIK AISEDTO OVERWEIGHT FROM EQUALWEIGHT Y MORGAN STANLEY

LINDT AISED TO BUY FRO MHOLD Y DEUTSCHE BANK

JOHN WOOD AISED TO OVERWEIGHT FROM NEUTRAL Y JP MORGAN

SODEXO AISED TO HOLD FROM SELL Y DEUTSCHE BANK

BEIERSDORF AISED TO BUY FROM HOLD Y RBS


LONMIN UT TO NEUTRAL FROM BUY Y BANK OF AMERICA

UBS UT TO NEUTRAL FROM OVERWEIGHT Y JP MORGAN

LAFARGE UT TO NEUTRAL FROM BUY Y UBS

WIENERBERGER UT TO UNDERWEIGHT FROM NEUTRAL Y CREDIT SUISSE

ASSA ABLOY UT TO EQUALWEIGHT FROM OVERWEIGHT Y MORGAN STANLEY

TRINITY MIRROR UT TO SELL FROM BUY Y CITIGROUP

PEUGEOT UT TO HOLD FROM BUY Y RBS




DATA


WTI : 71,1 (3,78 %)

Eur/$ : 1,4489 (0,07 %)

$ /Yen : 92,32 (-0,06 )

10 Yr US : 3,45 ( -2,79 bp)

10 Yr Euro : 3,27 ( 4,2 bp)


Indices : US close ; Europe close

SOX : 2,25 %;1,14%

S&P :0,88 %; 0,73 %

DOW: 0,59%; 0,42 %

NAS :0,94%; 0,62%

DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 2,07 %; 2,27 %

ENERGY : 2,73 %; 2,72 %

FINANCIAL : 0,75 %; 0,65 %

HEALTHCARE : -0,30 %; -0,33 %

TECHNO : 0,88 %; 0,47 %

TELECOM : 0,92 %; 1,08 %

INDUSTRIAL : 1,23 %; 1,04 %

UTILITIES : 0,29 %; 0,39 %

TO BE COMING

Today

Results :Texas Instruments mid quarter (AMC)

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 / Exxon Mobil Corporation at Barclays Energy Conference / Global retailing conf at Goldman Sachs / Automotive & Transportation conf at Credit Suisse / Capital Goods & Aerospace & Defence Conference / Shipping & Offshore Services Conference at Jefferies

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 / Euro Tech conf at Deutsche Bank

Friday

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: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

ECONOMIC DATA PREVIEW

In the United States watch the Fed’s Beige Book (19.00 GMT) for September. The report of each Federal Reserve on current economic situation by district should reflect the recovery of the activity in the United-States in most of the sectors as showed by the recent ISM manufacturing and ISM services.

In Germany, watch the final release of the consumer price index (7.00 GMT) August expected to confirm the preliminary release at +0.2%,+0.0%. Indeed as the “base effects” since oil pick in July 2008 are ending YoY prices after reaching a low point in July are now reversing trend. Consumer price index should reached positive territory in September. /JB

ECONOMY

Germany: New increase of the trade surplus in July

Germany trade surplus rose for a third consecutive month from 12.1 bn euros in June to 13.9 bn euros in July. This new increase of the trade surplus was lead by a rise of exports by 2.3% (prior +6.1%) as the demand for German’s goods abroad is boosted by the recovery of the global economy. Additionally Germany which has a structural growth based on exports is less affected by the high level of the euro currency than other members of the Euro Area. Meanwhile imports fell from 5.9%in June to 0.0% in July despite the rise of the euro and of the private consumption, as a corrective trend since June. July release is the highest trade surplus since October 2008.

Germany: Industrial production unexpectedly fell in July

German industrial production fell unexpectedly from +0.8% in June (revised from -0.1%) to -0.9% in July. In the wake of the 4th consecutive rise in the IFO index on business expectations by the German Industry and as factory orders rose by 3.5%in July, Industrial production was expected to rise by 1.6% by the economist consensus. Looking at the breakdown energy dropped by 3.9%,capital goods by 3.2% and construction decline by 2.3%. Intermediate goods rise by 1.8% and consumer goods were flat at 0.0%. Meanwhile from a year ago industrial production passed from -17.6% in June to -17.% in July. Its important to bear in mind that industrial production account for 24% of the German’s GDP. This unexpected fall of the industrial output is showing that the recovery is very progressive in Germany. Indeed if the improvement is noticeable, we are still far away from a positive annual growth rate.

Japan: Trade surplus devreased in July

After rising for three consecutive months, Japan’s trade surplus declined from 602.2 bn Yen in June to 437.3 bn Yen in July. Indeed exports fell by 3.5% from a year ago and foreign demand for cars and electronics remained very weak and the high level of the Yen is hitting the demand for Japanese goods abroad. Meanwhile imports rose by 8.0% from a year ago. Despite the rebound of the GDP at the 2nd quarter at +0.9% QoQ Japan remained hit by a strong deflation situation which is now lasting for fifteen years. Consumer price index for 2009 should remained in negative territory at -0.2% YoY and GDP in volume should drop by 5% this year.