Fresh Air

GLOBAL EQUITIES RESEARCH

Some sort of quiet week ahead in term of data flow, which should be seen as a warm up ahead of the heavy earnings season starting next week with Intel on the 13th, JP and Goldman the following day, and GE just behind. In the meantime Alcoa on Wednesday will be a focus, the Bank of England and ECB should maintain a supportive stance on Thursday, while the Trade Balance will be important for economists on Friday, which should not impact much equity indices though short term. A few Fed guys will be on the air with Dudley on Tuesday in NY, Hoenig on Wednesday, Bernanke on Friday will be speaking about the Fed’s balance sheet in Washington, and Kohn speaking in Oklahoma City that same day. Today’s ISM non manufacturing being interesting (see below).

The acceleration in the rate at which US employment is falling has built on the disappointment from the ISM manufacturing survey and weighted on equities. The 263,000 decline in non-farm payrolls in September was worse than the consensus forecast of a 188,000 drop and August's 201,000 fall (the latter was revised from a 216,000 decline). The deterioration was due in part to a sharper fall in services payrolls, by 147,000 compared with a 69,000 drop in August. But government employment also fell more sharply, by 53,000 vs, 19,000. This is mainly due to layoffs in local government due to cut backs linked to pressures on state budgets. Retail employment fell by 39,000 compared with a 9,000 decline in August, perhaps as the end of the cash for clunkers scheme led to layoffs at auto retailers.

The payrolls data can be very volatile from month to month which should not put too much weight on September's figure. This is especially the case given the recent improvement in a wide range of other labour market indicators. The modest 2,000 fall in temporary employment, compared with a 7,000 drop in August, is encouraging as it tends to lead overall employment. The trend in payrolls should keep on improving in the coming months. That said, it is clear that the labour market remains very weak, and the survey did bring back a bit of stuff in the more the very empty bear part of the glass which is much more than half full. No longer 29 crisis, granted, but some bumpy road still ahead which will trigger some entry level on a market which rose non stop. Upside target very short term remains very much unchanged, even more now that we did breathe a bit. 1200 on the cash S&P and 3200 on the cash Eurostoxx. Earnings from Goldman and JP next week, in addition to the ones of Intel should send the message that firms made money even more in Q3 reflecting the Q3 GDP which will not disappoint on October 29th. The reaction on the employment report will be even more minor as there was some leak about the data the day before.

Growth will remain strong for the coming quarters in the US, and pressure will grow on the employment front gradually along next year. Most economists predict a 3% rise in the coming US GDPs, less impressive 1-2% in Europe being though an improvement from H1. The anticipated boost from inventories did not seem to be there in Q3 (car stocks plunged), but should add to Q4 GDP as much as 2%. The residential investment is now contributing to growth and is no longer a drag, which should balance the latest small disillusion with some upside possible surprises. Keeping in mind that among the disappointment, the ISM could afford come consolidation given its non stop and sharp rise, while the employment impatience should only be a reason for worries next year, anything before being a plus. It does add pressure to the household consumption, spending need to increase, and for that we need the support from the job sector and increasing wages which will be the story of the 2010 year, as well as the Fed easy quantitative policy in case of success, but let’s cross that bridge when we come to it.

This week end gave EU leaders a breather after the Irish “Yes” to the Lisbon Treaty largely reversed last year’s veto. But Czech president, Vaclav Klaus does not intend to sign the Treaty. He plans to wait for U.K. general elections that could see the Conservative party win (spring 2010) and then vote against the Treaty through a referendum. This week end as well, the G7 Finance Ministers met in Istanbul, but this meeting coming so closely on the heels of the G20 gathering in Pittsburgh, nothing new was reported despite worries about foreign exchange volatility. Obviously, there is a shift of power from the G7/8 to the G20.

Back to the markets, some investors start saying that stocks and commodities have risen “too much, too soon, too fast” and that a P/E of 19X 2009 operating earnings for the S&P 500 is too high by historical standards. But this appears to be wrong according to analysts’ forecasts of a really strong increase in Q4 S&P earnings (+500 % !), while current Q3 earnings should be in line with expectations (-20 %) but certainly with strong guidance for 2010/2011. On Friday, U.S. equity indexes ended in the red, but above intraday lows recorded after the U.S. employment report was released. Treasury 10-year rate, that went as low as 3.10 % on Friday on growth concerns rebounded to 3.22 %. The dollar, that strengthened by the end of last week (1.4481 EUR/USD intraday low on Friday) eased to 1.4636 while gold remained above $1000 /oz. This morning at 05.45 GMT U.S. index futures were slightly up (DJIA +0.13 %, S&P 500 +0.12 %, Nasdaq composite +0.18 %). Asian markets were little changed, excepted Kospi (-2.00 %). Today’s opening in Europe could partly reverse Friday’s negative stance.



ECONOMIC DATA WITH IMPACT


ISM Non Manufacturing (15h UK time) expected 50 from previous 48.4 / interesting as to see whether the industrial sector pick up did spread to other sectors, 48 is already showing some growing pace, anything about 50 would just be a very nice plus.


POSITIVE IMPACTS


ANGLO-AMERICAN : Baosteel has proposed to pay £1bn for a 30% stake in Anglo American's huge Minas Rio iron ore mine in Brazil

HENKEL is meeting cost savings targets earlier than planned, following its takeover of National Starch operations (Handelsblatt)

TOTAL & GDF SUEZ are set to sign a deal worth €1bn over gas field in Kazakhstan (M. Sarkozy visits the country from Tuesday)

VOLVO : a US-led consortium is challenging Geely Automobile of China in the race to buy Volvo from Ford

VINCI would be close to signing a €1.2bn deal over building an oil pipelinein Kazakhstan (M. Sarkozy visits the country from Tuesday)

EADS + THALES +ALSTOM + SUEZ ENVIRONNEMENT + AREVA … would be close to winning small contracts while M. Sarkozy visits Kazakhstan from Tuesday…

VIVENDI : GE & Comcast will have a deal on NBCU in 2 to 3 weeks and negotiations for Vivendi's 20% stake will start soon (CNBC)

HOLCIM’s liquidity needs have been met with recent refinancing efforts, and the firm doesn't plan any further acquisitions (CEO)

RHODIA’s order book has been improving since June but uncertainties over the duration of the current re-stocking trend of European customer remain (CEO in La Tribune)

DBK‘s CEO still thinks that the target for a pretax RoE of 25% is achievable (Der Spiegel) / Separately, DBK plans to buy a 75% stake in Sal. Oppenheim (Welt am Sonntag)

BARCLAYS (Minor) is likely to enter exclusive talks this week to buy Standard Life's banking division (Mail on Sunday)

RSA abandoned plans for a $1bn rights offer after potential takeover targets ruled themselves out of a sale (Sunday Telegraph)

INTESA SANPAOLO may sell its insurance business as part of a plan to improve its capital ratios (Il Messaggero) + is considering tomerge its consumer credit units and merge them with unlisted Delta

JULIUS BAER‘s CEO said that the bank’s assets under management increased in the Q3 and clients conducted more transactions.

IRISH BANKS : The government estimates that the country’s banks will need an additional €6bn for their bad commercial property

loans (Sunday Tribune)

EDISON : A2A will soon start negotiations with its partner EDF over the future of Edison (Il Sole 24 Ore) / A2A is ready to sell its stake or buy that of EDF

ROCHE-NOVARTIS : The optical drug Lucentis, sold by Roche in the US & NOVN elsewhere, proved effective in 2 late-stage studies

KUDELSKI is offering $1.55 a share in cash for OpenTV Corp., a U.S.-based software and technology firm specialized in digital television products, valuing the company at $215 m

LVMH voiced optimism about the outlook for LVMH and Dior at Paris fashion week on Friday, thanks partly to strong growth in Asia.


NEGATIVE IMPACTS


ARCELORMITTAL is close to pulling out of a $20bn plan to build steel plants in India due to probs in persuading farmers to sell lands

VOLKSWAGEN expects the German car market to fall by 20% in 2010 now that the government's car scrapping scheme has expired

MEDIASET : Fininvest, the holding Co that controls Mediaset & Mondadori, was ordered by a Milan Court to pay damages worth €750 m to CIR SpA after bribing a judge involved in the early 1990s takeover battle for publisher Arnoldo Mondadori…

ASTRAZENECA in Barron’s : The group looks like a reasonable defensive play but Crestor, subject of a patent infringement suit + pipeline pressure + acquisition possibility + capitalization too big to be swallowed… could push investors to pass on…

SIEMENS is among half a dozen power transformer makers targeted in a cartel probe by the EU Commission (Der Spiegel)

UBS financial position has stabilised but it still has a long way to go before returning to profitability (Financial regulator)

HSBC‘s CEO is convinced there will be a 2nd global economic slump and as a result doesn’t want the bank to grow too fast (FT) /

BANCO SABADELL : UNICREDIT is considering selling its 4% stake (Cinco Dias)

ROYAL BANK OF SCOTLAND will meet investors this week to finalise the details of a £4 bn share placing (Daily Telegraph)

SWEDISH BANKS : Finance Minister warned Swedish banks with operations in Latvia of an imminent political crisis in the country / He also informed the banks that there is growing pressure from the IMF to force Latvia to devalue its currency (Svenska Dagbladet).

EUROPEAN BANKS : JPM expects European banks to raise $78 bn capital over next 6 months, triggered by Basel II proposals

RWE-EON : The Free Democrats' deputy chairman said there might not be a blanket extension of nuclear plants' lives (Der Spiegel)



TRADING IDEAS


Would definitely buy resuming its upside trend

BUY BNP / ALSTOM / CARREFOUR / GSZ on double bottom possibility

BUY OIL names such as TOTAL (ex div 09/11/13 €1.14) / ENI / TECHNIP to play upside trend

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

BUY AHOLD on reversal Head & Shoulder possibility & BUY NOKIA killed

SELL BAKER HUGHES to play island possibility



BUY FTE / SELL TEF // BUY ROCHE / SELL SANOFI // BUY PHILIPS / SELL ASML // BUY BMW / SELL DAIMLER // BUY ABB or HOLCIM / SELL ST GOBAIN // BUY TOTAL / SELL REPSOL // BUY ELI LILLY / SELL BRISTOL // BUY EXXON / SELL CHEVRON // BUY BEST BUY / SELL TARGET


BROKER METEOROLOGY


ALLIANZ RAISED TO OVERWEIGHT FROM NEUTRAL BY HSBC

AEGON RAISED TO OVERWEIGHT FROM NEUTRAL BY HSBC

HANNOVER RE RAISED TO OVERWEIGHT BY HSBC

THYSSENKRUPP RATED NEW OVERWEIGHT BY HSBC

ARCELOR MITTAL RATED NEW OVERWEIGHT BY HSBC

BARCLAYS RAISED TO NEUTRAL FROM SELL BY UBS

BOUYGUES RAISED TO BUY FROM UNDERPERFORM BY BANK OF AMERICA – ML

SYNGENTA RAISED TO OUTPERFORM BY CREDIT SUISSE

AKZI NOBEL RAISED TO HOLD FROM SELL BY RBS

IBERIA RAISED TO BUY FROM NEUTRAL BY BANK OF AMERICA – ML

RIO TINTO RAISED TO BUY FROM HOLD BY RBS

BHP BILLITON RAISED TO BUY FROM HOLD BY RBS

ANTOFAGASTA RAISED TO BUY FROM SELLBY RBS

BTG RAISED TO HOLD BY JEFFERIES

KINGFISHER RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS

HMV RAISED TO BUY FROM NEUTRALBY GOLDMAN SACHS

HEALTHCARE SECTOR RAISED TO NEUTRAL FROM UNDERWEIGHT BY RBS


VALLOUREC CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY

SCOR CUT TO NEUTRAL FROM OVERWEIGHT BY HSBC

EULER HERMES CUT TO UNDERWEIGHT BY HSBC

IMERYS RATED NEW UNDERWEIGHT BY HSBC

BASIC RESSOURCES CUT TO NEUTRAL FROM OVERWEIGHT BY ING


DATA


WTI : 69,9 (-0,41 %)

Eur/$ : 1,4638 (0,43 %)

$ /Yen : 89,75 (-0,36 )

10 Yr US : 3,22 ( -0,01 bp)

10 Yr Euro : 3,12 ( -3,5 bp)


Indices : US close ; Europe close

SOX : -1,09 %;-0,78%

S&P :-0,45 %; -0,28 %

DOW: -0,23%; -0,15 %

NAS :-0,46%; -0,22%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -0,80 %; -0,42 %

ENERGY : -0,70 %; -0,34 %

FINANCIAL : -0,19 %; 0,11 %

HEALTHCARE : -0,28 %; -0,40 %

TECHNO : -0,33 %; -0,08 %

TELECOM : -0,41 %; -0,40 %

INDUSTRIAL : -1,38 %; -1,19 %

UTILITIES : -0,88 %; -0,64 %



TO BE COMING



Today

Results :Air-France KLM traffic / British Airways traffic / EDF energies nouvelles

Dividend :Acerinox (€ 0.10) / Comcast ($ 0.0675)

Events :



Tuesday

Results : Tesco (BMO)

Dividend :

Events:



Wednesday

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

Dividend : Kingfisher (GBp 2,138889) / WPP (GBp 5,766667) / General Dynamics ($ 0,38) / Medtronic ($0.205) / Monsanto ($0.265) / Verizon ($0.475) / AT&T ($ 0,41)

Events : E.On capital market day



Thursday

Results : Pepsi (BMO) / Marriott International

Dividend :

Events:



Friday

Results :LVMH sales / Givaudan sales / Lufthansa traffic / Givaudan sales

Dividend : Oracle ($ 0.05)

Events:Telefonica investor day



ECONOMIC DATA PREVIEW



In the United-Stateswatch the ISM services for September(15.00 GMT) expected to rise and to reach for the first time for just a year the level of 50 confirming the rebound of investment in the United-States.



ECONOMY



United-States: Jobs destructions and unemployment rate increased in September

US employment report showed a rise of job destructions from 201 000 in August to 263 000 in September. Deception is huge as August figures at -201 000 was the “best performance” since August 2008. Nevertheless September figures needs to be putted in perspective as jobs destruction reached 519 000 in April and 741 000 in January. Meanwhile unemployment rate rise again to reach 9.8% but the increase was only by 0.1% and the rate remained below 10%. It is important to remind that job destructions and the rise of the unemployment rate are unfortunately logical. Indeed companies will create jobs only after two substantial consecutive quarter of growth, meaning at spring 2010. In the mean time job destruction will last but should slow down and the unemployment rate should oscillate around 10%.The good news being that the Fed will not rise its Fed funds before the unemployment will drop significantly, which will consolidate the US recovery.