Digestion

GLOBAL EQUITIES RESEARCH

Nice and healthy consolidation from equity indices which at this stage is perfectly understandable. The earnings releases have been out and fully confirmed the reason why the equity indices were rallying : things are improving, the stimulus from the Fed has been efficient and reached the real economy, banks are back to business, credit conditions are good and enjoying by the way some low yield environment which is supporting the housing sector. So, same as in Q2, as time is passing by, the 29 crisis threat seems to be totally avoided, and we even attend an economic pace which surprised everyone, bull and bears together.

However some further upside should remain, whether it is next week, or in a longer time. Indeed, in order to head higher we need something new, which is to say some new data from a fresh period which the equity indices have not played already. And that is what we should get as soon as next week with the important ISM on Monday. A consolidation at this stage is very welcome, and the reasons for the rise remain intact. It might have been too prompt according to some strategist, but remember the drop and the 25% lost in just a week time last October. Same as the market, the economy needs to find its pace on its own, and it seems that things being happening so well, we and the Fed might have to deal with this easy quantitative policies unwinding earlier than initially imagined. And not everything will always be rosy, which doesn’t mean the equity indices should collapse, as we hardly believe the economy will stall given the current friendly yield environment, the risk appetite increase, the back to normal situation which overall is rather good news on all front. The Fed won’t drop it, and the challenge remains, which is precisely the reason why a bear view is developing and justifies a profit taking. The Fed task will be ended once the employment is back on its feet, which is Obama, (so Bernanke)’s mandate.

Also, The rally in emerging market equities has been impressive, but it probably has further to go – at least until next spring. For a start, the economic outlook is fairly bright. Most economists expect GDP growth in emerging markets in 2010-11 to follow a similar trajectory to that in the US. With a stronger acceleration over the next few quarters. The rally in risky assets is already well advanced and valuations are no longer cheap. But it is more likely that risk appetite will wane than collapse. Strong capital flows should continue into emerging markets as investors in high-income countries seek out better returns elsewhere. The price/earnings (P/E) ratio in emerging markets as a whole does not look particularly expensive compared to that in developed markets. Admittedly, compelling value is now hard to find in Asia where 12m trailing P/E ratios are generally around 20 or higher (and over 30 in China). Markets are less stretched in Latin America, but those that could potentially perform best are in Emerging Europe despite the less favourable economic backdrop. P/E ratios in the region are still generally below 10.

Consumer confidence from October was rather bad news, and reflecting what we just said above, not everything is rosy, and economic conditions will be challenging once they run on their own. Indeed, it is very sobering that the Conference Board measure of US consumer confidence has yet to recover to the levels seen before the collapse of Lehman Brothers a year ago and has started to fall again. Clearly, the consumer recovery is built on some very shaky foundations. The fall in the headline index in October, from 53.4 in September to 47.7, was the second in as many months. Confidence is still above February's trough of 25.3, but it is below the level of 61.4 seen when Lehmans hit the wall and the historical average of 94.7. The fall this month is perhaps surprising given the equity market rally and rebound in house prices. Instead, it appears that these influences are being more than offset by falling employment and declining incomes. The alternative University of Michigan measure of confidence also fell in October. The expectations index of the Conference Board measure is now consistent with annual consumption growth of just 1.0%.

The rebound of the bond and bund yesterday was welcome by the way. Indeed unlike the previous session on Monday, the bond markets were able to rebound. Monday’s sharp sell-off ahead of a very heavy auction week, $123 bn this week to be tapped in the US with 41 bn to go today on the 5 year Note and 31 bn tomorrow on the 7 year one, open the door to the polemic of the end of the Fed quantitative easing policy. The Fed has been a big player in buying Treasuries since April (300bn), and it raises the question of the outcome of long term yields with no longer the Fed as a buyer. Obviously from it, the risk to see the housing sector recovery stall. As such yesterday’s rebound was welcome and a relief.

The good point being that we already fear Q4, and October data to be released in November are part of the reason for the current consolidation, which should be more forgiving once out and the next boost to the equity indices in case they come out strong. Don’t forget to play long today ahead of the Q3 GDP out tomorrow which might bring some positive surprises, and worth playing now that we moved 5% off the tops. The Nikkei closed its gap from 2 weeks ago this morning.

ECONOMIC DATA WITH IMPACT


Mortgage Applications (11h UK time) / previous was down 13.7% / the highest the better / minor

Durable Orders (12h30 UK time) expected 1% from previous –2.6% // ex transport 0.7% from –0.3% /the recent rebound in durable orders has been fairly muted, it should increase its pace over the next few months / minor as September related data

New Home sales (14h UK time) expected 440k from previous 429k /the rebound in new home sales has not been as strong as the one in existing home sales, but the low mortgage rates level, the improvement in valuations and the tax credit for first time buyers may bring upside surprises / minor as already profited from nice Existing home sales last Friday

POSITIVE IMPACTS

MITTAL : Q3 Sales $16.2 Bn (15.9 to 17.2 est ) / Q3 EBITDA $1.6BN (1.67 est) / Q3 Net pft $903M (-14M to +58M est) / DIV $0.75 for 2010 (in line) / Sees gradual improvement through 2010, operating environment remains challenging /

HEINEKEN : Q3 Rev e 4.07Bn (4.12 est) / Raised its f’cast for organic net profit growth to low double digit for the full year 2009 (high single digit est. ) / UK continued to gain mkt share & further reduced costs in Q3

TELIASONERA : Q3 Sales SEK 27.1Bn (26.9 est) / Q3 EBITDA ex items SEK9.8Bn (9.3 est)/ Q3 Op pft SEK8.18Bn (7.52 est) / Q3 Net pft SEK5.04Bn (5.13 est) / 09 Outlook unch / Baltic situation remains challenging

HANDELSBANKEN : Q3 Total Income sek7.8bn (7.9bn exp) / NII sek5.6bn (5.5bn exp) / Net Comm sek1.8bn (1.72bn exp) / Loan losses sek866m (-1.27bn exp) / Tier1 ratio 13.5% / conf call at 8:00 UKT

NORDEA : Q3 NII €1.3bn (In line) / Operating profit €832m (557m exp) / Net Loan losses €358m (495m exp) / Tier1 12% / Says FY cost growth to be at the same level as in the first 9-Month / conf call at 9:00 UKT

PRUDENTIAL : Q3 Total group Insurance sales £700m (653m consensus reuters) / Says strong capital position & well positioned to benefit from the next stage of the eco cycle

BG Group : Q3 Rev £2.2Bn (2.03est) / Q3 Earning £474M ( 444 est) / Q3 Op pft £856M (in line) / Q3 PTP £838M (780 est)

NOVOZYMES : Q3 Sales DKK2.12Bn (2.14 est) / Q3 Op pft DKK428M (435.4) / Q3 PTP DKK428M (398 est) / Q3 net pft DKK316M( 307.1 est) / Sees FY net pft +8-10% (5-10% est) / FY 09 Free cashflow DKK400-500M (300-400 est) /

PEUGEOT / VOW / GM : Malaysia is scouting for a partner for national carmaker Proton as it faces mounting foreign competition. Recent newspaper reports have speculated that Proton could again try for a tie-up with VOW or seek out GM or Peugeot as a potential partner

NESTLE : ALCON reported Q3 Rev 1.6 Bn (1.54 est) / Q3 EPS 1.71 (1.45est) / Raised forecast $6.6-6.7 ( 6.43 est)

UCB it had closed its retail five-year bond issue after raising €750M .

EADS : UK agreed to take 19 A400M instead of 25 , while paying the same amount of money.

KLEPIERRE : 3M Rev €239.2M (239.6 est)

DB1 is emerging as the front-runner to bid for the Warsaw Stock Exchange, although analysts say that the Polish government might be expecting too high a price (Reuters)

EDP RENOVAVEIS : 9M net pft €70.10 (67M est)

STOREBRAND : Q3 Group profit nok908m (632m exp) / Helped by Life Insurance (nok893m vs 625m exp) / Says was in a good Fin position at end of Q3 / Conf call at 14:00 UKT

VISA : Q4 Revenue $1.9bn ($1.8bn exp) / EPS $0.74 ($0.72 exp) / said it plans to buy back as much as $1bn in shares and increased its quarterly dividend payment amount by 19%.

CEMEX Q3 sales $4.2 bn vs 4.29 expected / net profit 121 mn vs 128 exp / ebitda 806 vs 871 exp / lost 20% from its top in 8 sessions

NEGATIVE IMPACTS


SAP : Q3 Rev €2.51 Bn (2.63 est) / Q3 Op pft €606M (633 est) / Software sales €525M (570 est) / Net pft €487M ( 443 est) / 09 Software & software related svc cut to down 6-8% ( down 4-6% est)

SANOFI :The U.S. FDA has sent a warning letter to Sanofi accusing them of distributing misleading promotional material on its Uroxatral treatment for urinary problems caused by an enlarged prostate.

SALZGITTER : CEO warned against over-optimism, recovery in steel-sector demand in recent weeks is not likely to be sustained.The market remains unstable and at best will be flat.

HSBC : The biggest foreign issuer of credit cards in the U.S. said defaults surged 48% in Sept as most of its largest competitors posted declines (Bloom)

LLOYS , RBS, NRK will be broken up and parts of their businesses sold off to create 3 new banks.

EDF - VEOLIA : Henri Proglio is not planning a full merger between EDF and VEOLIA, politicians who questioned Proglio .

CENTRICA to invest £725M to biuld 270MW offshore wind farm / announces equity partner & refinancing of existing wind portfolio

TRADING IDEAS


BUY ACCOR to play buying opportunity after five sessions down, off 5% from the top levels, ahead of GDP tomorrow which should be strong

BUYRENAULT (-16% from its top) / PEUGEOT (-10%) & BUY LAFARGE (-10% /Home sales today)

BUY E.ON / FRANCE TELECOM to play reversal Head & Shoulder possibility

BUY ALLIANZ / AEGON / QUALCOMM on double bottom possibility

BUY CARREFOUR which close its gap / Take a look on BNP and SOC GEN gaps which will be closed soon (51.12/51.74 & 44.64/44.68 respectively)


BUY ANGLO GOLD / SELL BHP // BUY REED ELSEVIER / SELL PEARSON // BUY GSZ / SELL EDF // BUY VISA / SELL MASTERCARD

BROKER METEOROLOGY

ERICSSON RAISED TO NEUTRAL FROM SELL BY UBS

ING RAISED TO BUY BY BANK OF AMERICA – ML

BBVA RAISED TO NEUTRAL FROM UNDERPERFORM BY BANK OF AMERICA - ML

VOLVO RAISED TO HOLD FROM SELL BY DEUTSCHE BANK

SWISS RE RAISED TO BUY FROM NEUTRAL BY NOMURA

HANNOVER RE RAISED TO NEUTRAL FROM REDUCE BY NOMURA

ACCIONA RATED NEW OVERWEIGHT BY HSBC

GAS NATURAL RAISED TO BUY FROM NEUTRAL BY UBS

DASSAULT SYSTEMES RAISED TO HOLD FROM SELL BY CITIGROUP

HELLENIC TELECOM ITALIA RATED NEW OVERWEIGHT BY BARCLAYS CAPITAL

BT RATED NEW OVERWEIGHT BY BARCLAYS CAPITAL

DEUTSCHE TELECOM RATED NEW OVERWEIGHT BY BARCLAYS CAPITAL

TELEFONICA RATED NEW OVERWEIGHT BY BARCLAYS CAPITAL

KPN RATED NEW OVERWEIGHT BY BARCLAYS CAPITAL

NOBEL BIOCARE RAISED TO BUY FROM HOLD BY CITIGROUP

BP RAISED TO EQUALWEIGHT FROM NEUTRAL BY BARCALYS CAPITAL

BP RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS

BP REMOVED FROM PAN EUROP SELL LIST BY GOLDMAN SACHS

ADP RAISED TO NEUTRAL FROM UNDERPERFORM BY JP MORGAN

PEUGEOT RAISED TO BUY FROM HOLD BY RBS

PEUGEOT RAISED TO BUY FROM HOLD BY BERNSTEIN

CABLE & WIRELESS STARTED AT OVERWEIGHT BY BARLAYS CAPITAL

LAND SECURITIES RATED NEW BUY BY DEUTSCHE BAK

BRITISH LAND RATED NEW HOLD BY DEUTSCHE BANK

HAMMERSON RATED NEW BUY BY DEUTSCHE BANK


CREDIT AGRICOLE CUT TO HOLD FROM BUY BY CITIGROUP

NATIXIS CUT TO SELL FROM BUY BY CITIGROUP

BP CUT TO HOLD FROM BUY BY CITIGROUP

BP CUT TO HOLD FORM BUY BY GOLDMAN SACHS

AKZO NOBEL CUT TO HOLD FROM BUY BY ING

TELIASONERA RATED NEW UNDERWEIGHT BY BARCLAYS CAPITAL

PORTUGAL TELECOM RATED NEW UNDERWEIGHT BY BARCLAYS CAPITAL

SES CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS

VERBUND CUT TO REDUCE FROM NEUTRAL BY NOMURA

SCOR CUT TO NEUTRAL FROM BUY BY NOMURA

DATA


WTI : 79,3 (0,64 %)

Eur/$ : 1,4822 (0,12 %)

$ /Yen : 91,24 (0,49 )

10 Yr US : 3,46 ( 1,68 bp)

10 Yr Euro : 3,27 ( -8,5 bp)


Indices : US close ; Europe close

SOX : -2,52 %;-1,64%

S&P :-0,33 %; 0,02 %

DOW: 0,14%; 0,38 %

NAS :-1,20%; -0,61%

DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -1,09 %; 0,02 %

ENERGY : 0,92 %; 1,27 %

FINANCIAL : -0,63 %; 0,00 %

HEALTHCARE : 0,46 %; 0,68 %

TECHNO : -1,10 %; -0,62 %

TELECOM : 0,93 %; 0,87 %

INDUSTRIAL : -0,99 %; -0,36 %

UTILITIES : -0,34 %; 0,12 %

TO BE COMING

Today

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 / Symantec (AMC)

Asia \\ Nomura / PetroChina

Dividend : Rolls-Royce (GBp 6)

Events:


Thursday

Results : EU \\ Abb / Alstom / AstraZeneca / BASF final details (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

Friday

Results : EU \\ Agfa-Gevaert / Alcatel-Lucent / Belgacom (BMO) / Edison / Energias de Portugal // Red Electrica / Sandvik / Sanofi-Aventis (BMO) / Shire / SSAB (BMO) / WPP trading statement

US \\ Chevron / Constellation Energy / Duke Energy / Electronic Artes / Ford / NYSE Euronext /

Asia \\ Hitachi / Samsung Electronics / Sony

Dividend :

Events : KBC Ancora AGM

Monday

Results : EU \\ Altran Technologies sales / Linde / Metro AG / TNT

US \\ Ford (BMO)

Dividend :

Events: Pernod Ricard AGM

Tuesday

Results :EU \\ Antofagasta production report / BMW / Endesa / Fresenius / Swiss Re / Telecom Italia Media / UBS

US \\ US car sales / Kraft Fodds (AMC) / MasterCard (BMO)

Dividend :

Events:

ECONOMIC DATA PREVIEW

Watch in the United-States the Durable goods orders for September (12.30 GMT). This very volatile index should increase in September by 1%. This improvement should be driven by the orders sub index of the ISM manufacturing indicator which reached 60.8 in September. Excluding transportation orders which dropped by 0.3% in August, ending three consecutive up months , should increase by 1% as well in September.

ECONOMY


United-States: Consumer confidence unexpectedly fell in October.

US consumer confidence surprisingly dropped for a second consecutive month from 53.4 in September (forecast 53.5) to 47.7 in October. Indeed rise will be led by the US recovery, the rebound in the stock markets, not to mentioned low interest rates and weak consumer prices the Conference Board consumer confidence was expected to slightly rise in October. Nevertheless these influences have been offset by rising unemployment as Americans are fretted about a lack of jobs. Looking at the breakdown the current conditions declined from 23.0 to 20.7 while expectations dropped from 73.7 to 65.7. Nevertheless it is important to bear in mind that unemployment is a lagging indicator of the economic activity and there is a gap of 6 to 9 months between the present recovery and a substantial improvement of the US employment. Till then the Consumer confidence should improve but will remained fragile.

France: New rise of the consumer confidence in October

After the rebound of household consumption in September and the rise of the French Business confidence indicator in the industry for a seven consecutive month this is now the turn of household confidence to rise. France household confidence is increasing slowly but surely from 1pt for a third consecutive month reaching -35 in October a highest since January 2008 meaning before the recession started in France. Looking at the breakdown all sub indexes are rising starting by the opportunity to make major spending rising by 3pts in October a higher since December 2007. The question mark being if France consumption and household are presently boosted by public spending what will happen when this booster will decline? On the other hand household are surprisingly less worried about unemployment rise and this for a fourth consecutive month. Nevertheless these encouraging data will not be able to support to many “bad news” as a lasting strong euro or a rise of the European Central Bank leading rate./