Cash & Carry

GLOBAL EQUITIES RESEARCH

Come to where the “carry trade” is! Yesterday and this morning the dollar’s slide widened and the EUR/USD is now standing firmly above 1.50 EUR/USD (1.5034 at 06.00 BST after an intraday high of 1.5060). Meanwhile other assets such as equities, gold and raw materials rose or remained at very high levels. As for U.S. equities, they strongly reversed a two-day losing streak as better-than-expected earnings overshadowed some disappointment about the rise in the initial weekly jobless claims (up to 531k on Oct. 17th and revised up to 520k from 514 k on Oct. 10th) and the fall of the FHFA house price index in August (-0.3 %). However, leading indicators were up 1.0 % in September vs. +0.8 % expected. Among a very long list, Travelers, Mc Donald’s, New York Time, PNC Financial rallied after stronger than expected results. American Express rose to a one-year high after Moody’s said credit-card defaults declined. After session, Broadcom (-8.30 %) disappointed investors, but Amazon.com (+14.48 %!) soared after the company’s result largely topped analysts’ estimates and gave positive guidance, due to the Kindle. On October 22nd, 188 companies of the S&P 500 released their earnings an a record of 80 % were above analyst’s estimates. Despite a P/E back up above historical levels (19 x 2009 operational earnings), the S&P 500 index has still an upside potential.

The latest rally in gold prices ($1061.90 /oz this morning, record high of $1070.80 /oz on October 14th) largely reflects a lack of confidence in the dollar. Gold is also being widely touted as a hedge against inflation. As it happens, gold’s track record as a store of value is far from perfect. However, during times of rapid inflation it has proved its worth, notably after the oil price shocks in the mid- to late-1970s. As some analysts like to stress, gold is still trading well below the all-time high of around $2,300 in real (inflation-adjusted) terms, which was seen briefly in 1980. Gold is also a hedge against deflation. So, there are many reasons why gold price is soaring. Nonetheless, current gold prices are not yet a bubble: gold is close to its long-run averages relative to oil and to equity prices.

The recent slide in the dollar’s share of global foreign exchange reserves greatly exaggerates the extent to which reserve managers are losing faith in the US$. The dollar is still entrenched as the world’s dominant reserve currency. The IMF published its latest foreign exchange on September 30th. The figures provide the underlying currency composition of about 2/3 of global reserves. The share of the dollar in the global total fell from 65.0 % in Q1 2009 to 62.8 % in Q2 – the lowest since 1995. At face value, this might suggest that central bank reserve managers are beginning to turn away from the dollar. But there are at least three reasons why fears over the impact of reserve diversification on the US$ are probably exaggerated. 1) A large portion of the recent shift in the dollar’s share of global reserves can be explained by the weakening US$, rather than by the changes in the behavior of reserve managers. A weaker dollar automatically boosts the US$ value of those reserves held in other currencies. This factor probably accounts for more than half of the decline in the dollar’s share of reserves in Q2. 2) Although China has voiced its concerns about the status of the dollar as the world’s reserve currency, there is no sign that the world’s largest holder of reserves is turning its back on the US$ yet. The underlying currency composition of China’s $2trn stock of reserves is not publicly known. However, official U.S. data shows that China increased its holdings of U.S. Treasuries to $800bn in July compared with $780bn at the end of Q2 and $767bn in Q1. 3) The dollar has already depreciated significantly since 2001, and yet this has not caused large scale diversification of reserves among reserve managers. Now, with the trade-weighted dollar index not far from all-time lows, there is little incentive for reserve managers to begin selling their dollars. In fact, the dollar should strengthen over the next six months. However, the dollar’s position as the world’s dominant currency will stay under the spotlight. And over the very long term it is possible that wider use of other currencies such as the euro, yen, renminbi (not yet convertible!) or even the IMF’s special drawing rights could be warranted. But this will take a very long time…

This morning, Japanese stocks didn’t profit by U.S. equities’ surge and were quite flat. Other Asian markets were on the upside (Shanghai composite +2.15 % at 06.40 BST). U.S. index futures were up DJIA +0.06 %, S&P 500 +0.16 %, Nasdaq 100 +0.18 %. European markets should recoup yesterday’s correction…


ECONOMIC DATA WITH IMPACT


US Existing home sales for September (15.00 BST). The dip in August data from 5.24 million (annualized) to 5.10 million was certainly temporary. Data for September could be above the consensus of 5.35 million and reach a 2-year high of 5.50 million. / Major

Ben Bernanke speaks on regulation at Boston Fed Conference (13.30 BST)./ Interesting

Euro-zone, watch for the composite PMI for October (09.00 BST) expected to rise to 51.6 from 51.1. In September, the index remained above 50 for the second month in a row, suggesting that the economy may have expanded modestly in Q3. The destocking process may be coming to an end, prompting the manufacturing PMI to tick up / Interesting

German IFO business sentiment (09.00 BST) is expected to be up to a 11-month high of 93 vs. 91.3, suggesting the economy is experiencing a sustained pick-up in activity / Major

UK provisional estimate of Q3 GDP (09.30 BST) which is expected to rise (0.1 % to 0.2 % QoQ) / Major

POSITIVE IMPACTS


SAINT GOBAIN : Q3 sales €9.72bn (9.6bn exp) / Confirmed H2 operating & net profit to outperform H1 with management adding that it will reach analysts estimates of €2.1bn for the FY operating / Sees more momentum in Q4

DANONE : Q3 sales €3.78bn (3.82bn exp) / Organic gwth 4.1% (3.2% exp) / Dairy volumes +7% (+5% exp) / FY09 targets confirmed

BNPweight in the CAC40 will increase to 8.14% from 7.4% tonight at the close / BNP said that investor demand for its €4.3bn share sale was 2.5 times more than the number of shares on offer / Will reimburse €5.1bn to the govt on Oct. 28

CADBURY : One of Cadbury's 10 biggest investors said a raised bid of 820 p (£11.3 bn) from Kraft would be examined very closely…

VOLKSWAGEN : Audi sees a "very good operating results" for the Q3 (Audi CFO)

VOLVO : Q3 sales SK48.5bn (49.4bn exp) / Operating loss SK3.29bn (-3.75bn exp) / Orders stable from prev. year (+20% from Q2)

PEUGEOT is in discussions with Mitsubishi Motors over a potential JV for a new 4X4 vehicle (La Tribune)

VINCI won a €370 m contract for the construction of Monaco's highest tower

CBK is making preparations to enter Russian retail banking, possibly with a direct bank model, next year (Handelsblatt)

BSKYB : Q1 rev. £1,38bn (1.36bn e) / Adj. operating £198 m (£192m e) / Q1 churn 11.3% (11% e) / 94K new clients in Q1 (87K e)

MEDIASET : Prisa has been in informal talks with Mediaset over the future of the TV biz in Spain, but there is nothing concrete yet (CEO)

REPSOL : PETROBRAS & YPF have been awarded a contract to explore for natural gas and oil off Uruguay's coast

BRIT INSURANCE: 9M Gross Premium £1.33bn (1.2bn e) / No significant catastrophes in Q3 / Returns are likely to be muted in 2010


AMAZON : Q3 rev. $5.45bn (5.04bn e) / EPS $0.45 (0.33 e) / Sees Q4 rev. $8.12-9.13bn (8.19bn e) + operating $300-425m (376m e)

AMEX : Q3 revenue $6.02bn (5.98bn exp) / EPS $0.44 (0.38 exp) / Card spending down 11% from Q308 (-16% in Q209)

NEGATIVE IMPACTS

FRANCE TEL. - VIVENDI : Orange and SFR could each face fines of €600 m to €700 m because the companies allegedly failed to meet their obligations in covering France's population with their 3G networks (Les Echos)

SYNGENTA : Q3 sales $2bn ($2.06 bn exp) / Confirmed FY outlook for EPS to be close to the 2008 level.

MOBISTAR (51% owned by FTE) : Q3 revenue €386m (392m exp) / Ebitda €142m (146m exp) / Confirmed FY guidance

AIR FRANCE KLM's job cutting plan will cost between €150-160 m (La Tribune)

HAVAS : Q3 revenue €318m (344m exp) with organic sales down 9.3% (-6.6% exp) / No FY outlook

TF1 : Axel Duroux, CEO representative would be about to leave the group, confirming the actual coolness with actual CEO M. Paolini…

AREVA : Q3 revenue €3.16bn (3.25bn e) / Order backlog €47.5bn / Confirms outlook / Began talks with potential capital hike partners

TOTAL (Minor) : CEO warned of an oil supply crunch if environmental policies deter investment in oil & gas before sufficient alternatives are in place… (FT)

UK BANKS : FSA said globally important banks should be required to hold additional capital and perhaps extra liquidity in recognition of their “too big to fail” status within the international financial system (FT)

TRADING IDEAS


BUY ASML / on double bottom possibility

BUY E.ON / VEOLIA / BUY QUALCOMM / CARREFOUR

BUY ANGLO GOLD / SELL BHP // BUY REED ELSEVIER / SELL PEARSON // BUY ENI or BP / SELL ROYAL DUTCH // BUY GSZ / SELL EDF // BUY PUBLICIS / SELL LAGARDERE // BUY BAYER / SELL AKZO // BUY VISA / SELL MASTERCARD


BROKER METEOROLOGY


ZURICH FINANCIAL RATED NEW BUY BY RBS

BNP-PARIBAS RAISED TO BUY FROM NEUTRAL BY UBS

ALCATEL – LUCENT RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS

ERICSSON ADDED TO CONVICTION BUY LIST BY GOLDMAN SACHS

ERICSSON RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS

TELIASONERA RAISED TO BUY FROM NEUTRAL BY UBS

LOGITECH RAISED TO BUY FROM NEUTRAL BY UBS

MINING STOCKS RAISED TO BENCHMARK BY CREDIT SUISSE

VODAFONE RATED NEW BUY BY ING

VERBUND ADDED TO MOST PREFERRED LIST BY UBS

VINCI STARTED AT OVERWEIGHT BY MORGAN STANLEY

KPN RAISED TO BUY BY ING

PORTUGAL TELECOM RAISED TO BUY BY ING

TELEKOM AUSTRIA RAISED TO BUY BY ING


ENI CUT TO NEUTRAL FROM BUY BY UBS

ROYAL DUTCH SHELL CUT TO NEUTRAL FROM BUY BY UBS

GALP CUT TO NEUTRAL FROM BUY BY UBS

IBERDROLA REMOVED FROM PREFERRED LIST BY UBS

GLAXO CUT TO HOLD FROM BUY BY JEFFERIES

STANDARD BANK CUT TO NEUTRAL FROM BUY BY UBS

GDF-SUEZ ADDED TO LEAST PREFERRED LIST BY UBS

ENDESA ADDED TO LEAST PREFERRED LIST BY UBS

REPSOL REMOVED FROM KEY CALL LIST BY UBS


DATA


WTI : 81,6 (0,85 %)

Eur/$ : 1,5025 (-0,05 %)

$ /Yen : 91,66 (-0,35 )

10 Yr US : 3,45 ( 3,54 bp)

10 Yr Euro : 3,31 ( -1,4 bp)


Indices : US close ; Europe close

SOX : 1,29 %;-0,53%

S&P :1,06 %; -0,02 %

DOW: 81,6%; 0,85 %

NAS :0,68%; -0,48%

DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 1,15 %; 0,02 %

ENERGY : 0,82 %; -0,49 %

FINANCIAL : 2,66 %; 0,69 %

HEALTHCARE : 0,85 %; 0,21 %

TECHNO : 0,65 %; -0,38 %

TELECOM : 0,56 %; 1,30 %

INDUSTRIAL : 0,76 %; -0,30 %

UTILITIES : 0,27 %; -0,62 %

TO BE COMING

Today

Results : EU\\ B Sky B / Danone sales / Gazprom / Honeywell (BMO) / Ingenico / Saab (BMO) / Syngenta / Volvo /

US \\ Fortune Brands / Honeywell / Microsoft / Morgan Stanley / Schlumberger (BMO) / Verizon

Dividend :

Events :B Sky B (AGM)

Monday

Results : EU\\ Banco Popular (BMO) / Boliden / Corning / Merck KGaA / Michelin sales / Scania

US \\ VerizonAsia

Asia\\ Tata Motors

Dividend :

Events:

Tuesday

Results : EU\\ Aegis / Akzo Nobel / Banco Bilbao Vizcaya Argentaria / Banco Espirito Santo / Bayer / BP / Daimler (3Q final details) / Enagas / Klepierre sales / KPN / Norsk Hydro / Petroleum Geo-Services / Publicis / Reckitt Benckiser / Renewable Energy / Saipem / Svenska Cellulosa / Vestas Wind

US \\ Ernst & Young / United States Steel / Visa

Asia \\ Canon / Honda Motor / Tata Steel

Dividend :

Events : Pfizer analyst & investor / SAP TechEd Vienna event

Wednesday

Results : EU\\ Acerinox / Anglo Pacific / Arcelor Mittal / Banco Santander / BG Group (BMO) / British American Tobacco interim / Broadvision / EDP Renovaveis / ENI / GlaxoSmithKline / Heineken trading statement / Mediobanca / NH Hoteles / Nordea Bank / Prudential / SAP / Seche Environnement / Svenska Handelsbanken / Symantec / TeliaSonera (BMO) / TomTom / Umicore

US \\ ConocoPhillips (BMO) / General Dynamics / Goodyear / International Paper (BMO) / Lazard

Asia \\ Nomura / PetroChina

Dividend :Rolls-Royce (GBp 6)

Events:

Thursday

Results :EU\\ Abb / AstraZeneca / BASF (BMO) / Continenta / Dassault Systemes / Deutsche Bank (BMO) / Deutsche Lufthansa (BMO) / Geberit / Lonza / Man AG / Neste Oil (BMO) / Renault sales / Standard Chartered / Telenor / Volkswagen

US \\ American Electric Power / Colgate-Palmolive / Eastman Kodak / Electronic Arts / ExxonMobil / Kellogg (BMO) /Procter & Gamble / Sprint /

Dividend :

Events:BHP Billiton AGM / Nordea Bank

ECONOMIC DATA PREVIEW

Watch in the United-States the Existing home sales for September (15.00 GMT). Existing home sales are expected to rise from 5.10 million in August to 5.40 million in September as the real estate market is progressively recovering. Moreover low prices and mortgage rates should boost house purchases.

Watch in the Euro area the advanced release of the PMI manufacturing and services for October (15.00 GMT). PMI manufacturing and services are both expected to progress in October above the level of 50, confirming that companies are back to investment. Nevertheless we are still far from the virtuous circle Investment-employment -consumption.

Watch in France the consumer spending for September (7.45 GMT). The effects of the deflation and the cash for clunkers program, without forgetting the back to school allowances, should boost French private consumption by 1% in September. Moreover, with substantial savings, (precisely 16.7%), they can dig in. Consequently, household consumption should increase by 1% in 2009 despite the rise in unemployment.

ECONOMY

United-States: New rise of the Conference Board leading indicators in September

The economic recession is over in the United-States as showed by the ISM manufacturing and services index reaching respectively 52.6 and 50.9 in September, and by the rebound in household consumption, confirmed by the increase of retail sales. Not to mention the US manufacturing companies investing again. In such conditions, the Conference Board leading index, already up since last April, confirmed logically its progression by rising 1% in September

United-States: Weekly Initial jobless claims slightly rose and continuing claims declined

Initial jobless claims rose from 520 000 to 531 000 last week ending two consecutive week of decline. Nevertheless the employment market is slowly but surely recovering and after over laying off companies are now matching closer economic fundamentals. Meanwhile continuing claims dropped for a fifth consecutive week from 6 021 000 to 5 923 000 a lowest since the last week of march 2009 confirming that the hiring market is progressively recovering led by the economic rebound in the United-States. Nevertheless unemployment remained a lagging indicator of the economic activity as there is a gap of six month between the economic recovery and a significant improvement of labor market

France: Sharp rise of the business confidence indicator

After sixth consecutives months of rise the French business confidence indicator rose sharply in October. Increasing by

3 pts since September this advance indicator of industrial activity and GDP reached 89 the highest level since September 2008 and a global progression of 20 pts since the ground floor in March 2009. This indicator is progressively getting closer to the level of 100, meaning its long run average. This mean that French economy and industry are now out of the recession and the GDP should reach 1.3% in 2010.