Busy First Day

GLOBAL EQUITIES RESEARCH

First day of a new month with a lot of data to feed us on the economic recovery pace, keeping in mind that the main focus this week remains the employment report to be released tomorrow. The resilience of the equity markets is no longer a doubt, and probably mostly due to inflows chasing higher yields assets, and as such equity seems to be the best choice for now (once more repeated by our start Economist Marc Touati to French investors yesterday, and Swiss investors today). Which makes the current task even more difficult as we would all dream of a bit of fresh air before entering back this market. As such today, and tomorrow will be interesting. October month is known for its spectacular market crashes, which might trigger some fear from investors after the latest 6 month run. However we recommend to stay in there so much the rise so far was just a counter effect from the dramatic sell-off from last year following the cash is king rules with hedge funds unable to provide to fit the heavy customers redemptions. Now is valorisation time.

Employment in Germany was not too bad. Although September’s fall in German unemployment was flattered by yet more statistical changes, the labour market still appears to be holding up better than elsewhere. German unemployment is reported to have fallen by 12,000, pushing the unemployment rate down to 8.2% from 8.3%. But the statistics office states that it has changed its methodology again and, without this alteration, unemployment would have risen by 10,000. Even this wouldn’t be too bad. Unemployment was rising by around 60,000 per month earlier this year and it was clear even then that government incentives for firms to keep workers on for shorter hours were preventing the sharp increases seen in other euro-zone economies.

September's US ADP employment report did little to alter expectations that the official payrolls figures (tomorrow) will reveal some positive surprises, better than the consensus forecast for a 188,000 decline and August's 216,000 fall. The ADP survey indicated that private sector payrolls fell by 254,000 in September compared with a 298,000 drop in August. The ADP survey has been too pessimistic relative to the official payrolls figures in five of the last four months. For instance, in both July and August the ADP survey suggested that employment fell by 80,000 more than the payrolls figures. If that gap remained constant in September, the ADP figure is broadly consistent with payrolls falling by about 170,000. At the same time, it is worth putting more weight on the improvement in a wider range of labour market indicators, such as jobless claims, the ISM employment balances and the help wanted index.

Once again, the employment report is a free call, and as usually lately, we might have built the base of another bear trap with yesterday’s drop (and possibly today before the data), which should send the indices toward new highs very soon. The employment data is not expected to be improving until early next year, which means any signs of brighter release tomorrow will be very celebrated by the market at this stage, especially as we managed to head down before. On the way today, we have to go through some data such as the ISM Manufacturing which might be played negatively after the disappointing Chicago PMI yesterday. We think though there is some upside possibility as a few components started to move above the 60 level such as the new orders and production balances, which should send the ISM index further up in the coming months. We also believe in some upside possibility on the personal income and spending data, as well as the pending home sales. First-time buyers are continuing to take advantage of the tax credit, mortgage rates have fallen back below 5% and mortgage applications have maintained a steady upward trend.

The Nikkei drop this morning should be seen as a fear of this new day starting of a usually wild month, more than the Tankan released overnight which showed business sentiment improves largely as expected but also said that big companies will reduce their capex by more than 10%. Statistics are not working, since the current situation is unseen in the past, and September supposed to be worse month proved to be not bad after all (up 3.5% on both the Eurostoxx cash and the S&P) … Too much long term inflow, equity valorisation attractive compared to other investment products, some nice earnings releases which should confirm the friendly macro environment starting next week with Alcoa and heavily the week after with Intel and the financials, too much people praying for a drop to cut short positions or build long ones, or refuel their portfolio a bit more. No stress, sit back and relax.



ECONOMIC DATA WITH IMPACT


Jobless Claims (13h30 UK time) expected 535k from previous 530k / minor as weekly data and focus employment reporttomorrow

Personal Income & Spending (13h30 UK) expected 0.1% & 1.1% from previous flat and 0.2% / the spending will be important as to see whether consumers are spending which would be more growth supportive / upside possibility / interesting

PCE (13h30 UK) expected 0.1% from previous 0.1% / minor as inflation not the focus for now

Fed’s Bernanke (14h UK) testifies on Financial regulation

ISM Manufacturing (15h UK) expected 54 from previous 52.9 / will be feared after the bad Chicago PMI yesterday / interesting as to measure the industrial activity rebound which seems well on track and promising / the idea being to spread it to the other sectors

Construction Spending (15h UK) expected –0.1% from –0.2% / upside possibility due to the rebound in overall spending / minor

Pending home sales (15h UK) expected 1% from previous 3.2% / upside possibility due to the tax credit and low mortgage rates / minor

US Total Vehicle sales expected 9.5 mn from previous 14.09 // Domestic Vehicle sales 7.4 mn from previous 10.2

Accenture earnings (after US close)


POSITIVE IMPACTS


TANDBERG said that CISCO offered to buy it for NK17.2bn ($3bn) / Tandberg recommends to accept the offer / Price NK153.50 / 11% premium to Wednesday closing price

CADBURY : Kraft is close to finalizing a deal with lenders on the funding of its bid for Cadbury (The Times)

VIVENDI : Comcast denied a report (Wrap.com) that it had struck a deal to buy NBC Universal for $35 bn / Vivendi owns 20% of NBCU

ENEL sold 80% of its gas grid unit to Italy's fund F2i SGR and AXA Private Equity for €515.7 m (La Repubblica) / Separately, Enel's board meets on interim dividend decision

RENAULT : Sales of Renault Samsung, the South Korean unit of RNO, rose 16.6% in September.

BNP walked away from talks to buy Fortis Commercial Banking & Commercial Finance / Said that this is because of the conditions attached toBNP's recent rights issue

SANOFI bought French biotechnology company Fovea (EV of €370m), specialised in eye diseases + expanded its cancer portfolio through an exclusive worldwide drug licensing deal with Merrimack Pharmaceuticals

DAIMLER : Mercedes-Benz is increasingly confident of reaching its goal of a positive operting result in the H2 (CEO)

BANCA POP. DI MILANO said the sale of convertible bonds to the govt will boost its Core Tier 1 to 7.96% from 6.47% at the end of June

ITALIAN BANKS : The Italian FinanceMinister said that “the Italian banking system, too concentrated, is not going well”… / He dded that Italian banks may be heading toward the next crisis” after refusing government aid…

NORDEA said it has no plans to raise new capital, and will easily meet any new regulatory requirements designed to help ensure banks are in good shape

SEMI CONDUCTORS : iSupply expects rising sales for sector next year / 2009 is forecast to shrink less than feared…


JULIUS BAER, the wealth manager's private banking and asset management units will start trading separately on the stock market under the symbols BAER.VX for private banking and GAM.S for asset management at Reuters / Bloom : BAER VX and GAM VX


NEGATIVE IMPACTS


MICHELIN’s CFO in the WSJ : “The recent world eco. recovery is shaky & could soon fade / Despite the euphoria we have seen in the past weeks, we never had these signals [of recovery] & we still don't have them / The prospects in the coming weeks are not good"

CARREFOUR lost again 0.5% of market share on its French hypermarkets between August 10 & Sept. 6th (TNS Worldpanel)



TRADING IDEAS


Would still buy Dollarwhich seems (at last) to be resuming its upside trend, deficit in Europe will be the focus very soon when France will launch its big loan early next year.

BUY OIL names such as TOTAL (dollar related) / ENI / TECHNIP to play upside trend

BUY CARS such as BMW / VOLKSWAGEN / RENAULT & PEUGEOT which could resume their upside trend

BUY AHOLD on reversal Head & Shoulder possibility (dolalr related) & BUY SAP on double bottom possibility

SELL ALLIANZ to play retracement from the high range

SELL REPSOL / WYNN / ACCOR to play Head & Shoulder possibility

SELL ST GOBAIN / MUNICH RE / DANONE on double top

SELL AMAZON / MARRIOTT / KELLOGG / JC PENNEY / RAYTHEON / YAHOOon double top





BUY AHOLD or TESCO / SELL METRO // BUY BMW / SELL DAIMLER // BUY AEGON or AXA / SELL ALLIANZ

BUY ABB or HOLCIM / SELL ST GOBAIN // BUY TOTAL / SELL REPSOL

BUY CONOCO OR EXXON / SELL CHEVRON // BUY BEST BUY / SELL TARGET


BROKER METEOROLOGY


BOUYGUES RAISED TO BUY FROM HOLD BY CITIGROUP

BRITISHLAND RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS

TOUR EIFFEL RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS

COFINIMMO RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS

WOLSELEY RAISED TO BUY FROM HOLD BY CITIGROUP

CRH RAISED TO BUY FROM HOLD BY CITIGROUP

VENDANTA RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY



FRANCE TELECOM CUT TO SELL FROM HOLD BY CITIGROUP

ACCOR CUT TO UNDERPERFORM FROM NEUTRAL BY EXANE

CORIO CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS

MAN GROUP REMOVED FROM EUROPEAN 1ST LIST BY BANK OF AMERICA - ML

KLEPIERRE CUT TO SELL FROM NEUTRAL BY GOLDMAN SACHS

INGENICO CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS

SCHNEIDER ELECTRIC CUT TO NEUTRAL FROM OUTPERFORM BY CREDIT SUISSE

TF1 CUT TO UNDERPERFORM FROM NEUTRAL BY CREDIT SUISSE

MERCIALYS CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS

METROVACESA RESUMED AT SELL BY GOLDMAN SACHS


DATA


WTI : 69,9 (4,00 %)

Eur/$ : 1,4619 (-0,15 %)

$ /Yen : 89,95 (-0,12 )

10 Yr US : 3,31 ( -0,01 bp)

10 Yr Euro : 3,22 ( -0,9 bp)


Indices : US close ; Europe close

SOX : 0,85 %;0,57%

S&P :-0,33 %; -0,76 %

DOW: -0,31%; -0,77 %

NAS :-0,08%; -0,65%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -0,62 %; -0,29 %

ENERGY : -0,48 %; -0,41 %

FINANCIAL : -0,55 %; -0,90 %

HEALTHCARE : -0,47 %; -1,30 %

TECHNO : 0,26 %; -0,33 %

TELECOM : -0,28 %; -0,55 %

INDUSTRIAL : -0,75 %; -0,98 %

UTILITIES : -0,88 %; -1,17 %



TO BE COMING



Today

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:



Wednesday

Results :Michael Page Internationa trading statement / Alcoa / Costco / Sainsbury sales / Monsanto

Dividend : General Dynamics ($ 0,38) / Medtronic ($0.205) / Monsanto ($0.265) / Verizon ($0.475)

Events:E.On capital market day



ECONOMIC DATA PREVIEW



In the United-Stateswatch the Personal income and consumption for August(13.30 GMT). For August, we forecast a progression of 0.3% of households income in the United States, led by the sharp drop in jobs destruction. Meanwhile, household expenses should increase for a fourth consecutive month by 1.2% in August. This good performance will be mainly explained by the rise of consumer prices (+ 0,4% in August) and by the sharp increase of retail sales (with and without cars). Watch as well the ISM manufacturing for September(15.00 GMT). Capital spending is back in the United States and more specifically in the industrial sector. In those conditions, we forecast a new rise of the ISM manufacturing index which should reach 54 in September a new high since April 2006.

In the Euro zonewatch the first estimation of the Unemployment rate for August (13.30 GMT). Despite the slight recovery in the Euro area the unemployment rate is expected to rise from 9.5% in July to 9.6% in August This rise is quite logical as unemployment is a lagging indicator of the economic activity. We forecast that the unemployment rate will decrease in the coming months to reach 9.1% in 2009.



ECONOMY



United-States: the GDP shrank less than anticipate at the 2nd quarter

After dropping by 2,7% (annualised) in the third quarter and by 5,4% in the fourth quarter of 2008, US GDP , fell again by 6,4% in the first quarter 2009 due to the sharp drop in capital spending and to a massive destocking. Actually the first quarter was the bottom for the American recession. Indeed, the publication of the final figure for the US GDP for the 2nd quarter revealed to be better than expected. Indeed the US GDP which was expected to drop by 1.0%, retreating by “only” 0.7% (annualised). Looking at the breakdown personal consumption dropped by 0.9% (prior -1.0%), fixed investment dropped by 12.5% (prior -13.5%), imports fell by 14.7%(prior -15.1%) and finally government consumption rise 6.7% (prior +6.4%). These improvements has been led by the government stimulus plans such as “cash for clunkers” and first time homebuyer credits. This is just the beginning of the US recovery, as shown by the industrial production’ sharp rebound in the third quarter. The industrial growth will be in line with a 3% rise in the third quarter GDP.


Euro area: The deflation is slightly increasing in the Euro area

In negative territory since June marking the beginning of the deflation in the euro zone and after reaching a new bottom at -0.6% YoY in July, consumer prices dropped by 0.2%YoY in August. With energy prices dropping slightly, consumer prices fell by 0.3%YoY in September (forecast -0.2% YoY). Nevertheless as energy prices and more specifically oil prices will steeply increase and as the euro area is progressively recovering inflation will more likely going back to positive territory by the end of the year. We indeed forecast that inflation will reach 0.3% in the euro area in 2009.


Germany: Unemployment rate slightly decrease in September

German unemployment is oscillating around 8.2% since April 2008 and dropped from 8.3% August to 8.2% (-12 000) in September. Led by the government incentives it seems that the labour market in Germany is holding up better that the other country of the euro area. Nevertheless the recovery remained fragile as showed by the drop of 0.9% of the industrial production in July and we are still far from the virtuous circle : investment-employment-consumption. The German unemployment rate should reach 9.4% in 2009.