Market Pentium

GLOBAL EQUITIES RESEARCH

The financial sector will be interesting today as JP Morgan is releasing its earnings at lunch time and also some macro background will be developed on the Retail Sales ex autos to be issued today as well as the industrial capacity utilisation on Friday. Indeed, both analysts and economists are looking at a possible business increase, with or without the stimulus impact. Not only they will be more demanding on the earnings front as to see if sales are increasing, but also the capacity utilisation on Friday will tell whether the stimulus did trigger a boost of production due to the inventories rebuild. Indeed, car builders did empty their stocks instead of producing more, which predicts some stronger Q4 GDP. As to the Retail Sales, same story, we know the auto sales were down in September following the friendly cash for clunkers effect from the two previous month, however, the ex auto component was resilient all the way through and might remain so today once more. This would tend to demonstrate that the stimulus is not only impacting the sectors it is focusing on but also spreading to other sectors, and that households spending is not that low.
The Bank of Japan unanimously voted to leave its overnight call rate target at 0.1% overnight as widely expected, and raised its economic assessment for the second straight month. However, the central bank refrained from mentioning its special liquidity steps to buy corporate bonds and commercial paper outright, which some analysts had expected the bank to discontinue as credit conditions improved. The BOJ maintained its assessment from last month that financial conditions were increasingly showing signs of improvement, and it said the economy was recovering. The Nikkei is lagging this morning on currency effect hurting exporters.
China's exports contracted at a slower pace in September than August, indicating global trade conditions are be improving, data showed Wednesday. Shipments fell 15.2% for the month (vs 20% expected), compared to a 23.4% contraction in August, marking the shallowest on-year drop in nine months. Imports also showed some flattening out, shrinking 3.5% in September on year, compared to a 17% contraction in August. As a result of these good news from Asia, the dollar lost some further ground as risk appetite is improving
Intel and possibly JP Morgan at 12 UK time should trigger a new upside rally. Indeed, the equity indices have been consolidating and trading in the same levels since Sept 16, with some downside yesterday, ready to go and reach their target from the pre Lehman levels. We did need a boost to rise further, and can not find any reason to head down more than for two days as the macro fundamental background is improving, and the lagging employment sector seems to be too much of a focus of Obama’s team to be left aside for too long. One good thing about the financials, is that the Meredith Witney comments yesterday made the results feared, which might leave the suspense more intense with some upside possibility given the previous little drop ahead of the earnings. Is the Banking sector guru right once more ? the same one who did upgrade Goldman the day before the earnings the previous quarter. Having said that, let’s be fair, she just said that the Goldman levels were fine for now and did not particularly predict any bad news. Alcoa was nice with some higher sales in addition to a loss switched into profit, Johnson eps was better but the market players were not so convinced about the increasing sales, Intel makes no doubt, things are going much better for them anyway, growing sales, nice eps and great margins
Fasten seat belts, enjoy the ride that will bring you to 1200 on the S&P and 3200 on the Eurostoxx

ECONOMIC DATA WITH IMPACT

JP Morgan (12h UK time)
Mortgage Applications (12h UK time) / previous was up 16.4%, spectacular / highest the better / minor though as weekly and volatile
Retail Sales (13h30 UK time) expected -2.1% from previous +2.7% / ex autos 0.2% from previous +0.6% / the headline is known to be bad given the bad auto sales down 34% in September, as the cash for clunkers stimulus was mostly active in July and August. Theinterestingpart being the ex auto one, as it proved to be rather resilient meaning that the non stimulus activity have been positively impacted by the economic activity pick up, showing that households are more keen on spending / should have an impact
Business inventories (15h UK time) / minor as story behind the data hard to read
Oil inventories (15h30 UK time) / minor as weekly and volatile data
Minutes of September 23ed Fed meeting (19h UK time) / minor followingChairman Bernanke's comments in a speech last week that, although policy will need to be tightened at some point, it will remain accommodative for “an extended period”.

POSITIVE IMPACTS
ASML : Q3 sales €555 m (€525 m e) / GM 34.4% / Q3 bookings value €777 m (€ 637 m e) / New machine bookings 27 units (21 exp) / End-Q3 backlog €1.35bn (1.20bn e) / Better ASP for for new system €23.4m /Sees Q4 sales €550m (535m exp) with GM of 37%
RIO TINTO : 3Q iron ore output ahead of market exp. / Raised its production guidance for iron ore this year by between 5 and 7.5% Said it saw early signs of recovery in some key markets / China Sept. iron ore imports up 30% from August
BURBERRY : Q3 revenue £343m (328m exp) / H1 retail comparable store sales growth of 2%
VIVENDI : The board is expected to meet this week, with analysts expecting it to ditch plans to buy GVT after Telefonica’s counterbid
BRITISH AIRWAYS expects the U.K. economy, its most important market, to recover by the middle of 2010 (Finanz und Wirtschaft)
GDF SUEZ : Nabucco gas pipeline consortium members OMV and RWE said they welcomed the interest of any French companies wanting to join the group as a shareholder… They did not name any specific companies
ACCOR expects a strong improvement in the performance of its hotels in China next year
ENI said it had signed a contract to develop an Iraqi oil field from which it had walked away, accepting a lower fee for enhanced terms
DBK : The Dutch govt is unlikely to find an alternative to selling its ABN assets to DBK before the Oct. 19 deadline (Neelie Kroes)

INTEL : Q3 sales $9.39bn (9.05bn exp) / GM 57.6% (54.5% exp) / EPS $0.33 (0.27 exp) / Sees Q4 sales $9.70-10.5bn (9.5bn exp) with Q4 margin at 62% plus or minus 3% / Comfortable with analysts' estimates of about 10% growth in global PC shipments next year
CSX (No. 3 U.S. railroad) : Q3 revenue $2.3bn, in line / EPS $0.74 (0.71 exp) / Believes the "worst of the recession is likely behind us"
TSMC targets revenue growth of at least 20% in 2010 (The Economic Daily News)
NEGATIVE IMPACTS
CREDIT AGRICOLE will in the coming days announce the sale of €3bn super-subordinated bonds to repay French state (La Tribune)
DANSKE BANK's credit losses may peak this year but more are coming in 2010 (CEO)
EADS : Air France KLM, seeking to preserve cash, may ask Boeing & Airbus to delay deliveries of some aircraft on order (La Tribune)
AIR FRANCE is planning further bond sale (La Tribune) / La Tribune reiterating that AF is facing heavy losses on the operating level…

TRADING IDEAS

BUY BNP ahead of US financials earnings Today .
BUY TOTAL lagging (div 1.13 Total Nov 14th) & BUY EON /ARCELORMITTAL on double bottom possibility
BUY NOKIA / ERICSSON / FRANCE TEL / EDF / ROYAL DUTCH / ENI to play upside trend
SELL GSZ to play Head & Shoulder possibility

BUY AHOLD / SELL UNILEVER // BUY CARLSBERG / SELL PERNOD // BUY BAYER / SELL AKZO // BUY ACCOR / SELL SODEXO // BUY EON / SELL RWE // BUY NESTLE / SELL DANONE // BUY ERICSSON / SELL ALCATEL // BUY TOTAL / SELL REPSOL // BUY QUALCOMM / SELL JUNIPER


BROKER METEOROLOGY
SANOFI............................... RAISED TO NEUTRAL FROM SELL............................... BY UBS
UCB............................... RAISED TO NEUTRALFROM SELL............................... BY UBS
DTE............................... STARTED AT BUY............................... BY ING
NORSK HYDRO............................... RASIED TO HOLD FROM SELL............................... BY CITI
GLAXO............................... RAISED TO BUY FROM NEUTRAL............................... UBS

METSO............................... CUT TO NEUTRALFROM BUY............................... BY ML
TELE 2............................... CUT TO UNDERWEIGHT FROM EQUALWEIGHT............................... BY MS

DATA

WTI : 73,0 (0,88 %)
Eur/$ : 1,4780 (0,05 %)
$ /Yen : 89,96 (-0,18 )
10 Yr US : 3,35 ( -2,6 bp)
10 Yr Euro : 3,18 ( -2,2 bp)

Indices : US close ; Europe close
SOX : 1,40 %;2,02%
S&P :0,44 %; 0,61 %
DOW: 0,21%; 0,47 %
NAS :-0,01%; 0,57%

DJ Stoxx US Sectoral Indices : US close ; Europe close
BASIC MATERIALS : 0,34 %; 0,56 %
ENERGY : 1,22 %; 1,48 %
FINANCIAL : 0,74 %; 0,30 %
HEALTHCARE : 0,37 %; 0,59 %
TECHNO : 0,29 %; 0,65 %
TELECOM : -0,21 %; -0,22 %
INDUSTRIAL : 0,04 %; 0,48 %
UTILITIES : 0,55 %; 0,31 %
TO BE COMING

Today
Results :Casino sales / Burberry trading statement / BAE Systems interim / Diageo / Rio Tinto Production report / Alleanza Assicurazioni / ASML (BMO) / Abbott / Xilinx / JP Morgan (BMO)
Dividend :British Land (GBp 6.5) / Smith & Nephew ($ 0,060667) / Tomkins ($ 0,038889)
Events :

Thursday
Results : Carrefour / Accor / Suedzucker / Nokia / Pearson / SABMiller trading statement / Baxter International / Tandberg / Suedzucker / Google / Roche / AMD / Wyeth / Citigroup / Goldman Sachs (BMO) / Safeway / Google / IBM / Coca Cola
Dividend :
Events: Procter & Gamble shareholders meeting

Friday
Results : Atos Origin / Bank Inter / Gazprom / Bank of America - ML / General Electric / Halliburton / Sony - Ericsson
Dividend : Santander
Events : British Oncology Pharmacy Association Annual Symposium

Monday
Results : LVMH sales (AMC) / Sulzer sales / Soitec / Transgene / Apple / Texas Instrument (AMC) /
Dividend :
Events: Abengoa EGM

Tuesday
Results :Iberdrola Renovables / ST Micro (After US close) / Swedbank / Yara International (BMO) / San Disk / Caterpillar (BMO) / American Express / Bank of New York Mellon / Du Pont de Nemours / Pfizer / United Health / Yahoo ! / UnitedHealth / United Technologies / SanDisk /
Dividend :
Events:Soc Gen end of subscription time

ECONOMIC DATA PREVIEW
Watch in the United-States the retail sales for September (13.30 GMT). After dropping by 0.2% in July stopping two consecutives months of increase, US retail sales rose by 2.7% in August. Nevertheless, as the cash for clunkers program ended, retail sales should decline by 1% in September. This should be confirmed by the high number of job destruction in the retail sector (precisely 39,000 in September). Excluding transport, after increasing by 1.1% in August, retail sales should rise by 0.2% in September.
Watch in the Euro area the Industrial production for August (10.00 GMT). Euro area industrial production is expected to rise from -0.3% in July to +0.8% in August which will be in phase with the September final PMI manufacturing released at 49.3. Meanwhile from a year ago industrial production will remained weak at -15.8% YoY


ECONOMY

Germany: The ZEW index declined fallfor the first time in a year
After declining to 39.5 in July, stopping eight consecutives months of progression, the ZEW index, jumped to 56.1 in August and rise again in September to 57.7, its highest since April 2006. After strongly increasing a slight correction occurred in October and the ZEW index declined to 56 (forecast 58.8). Nevertheless this point should not make a trend and the ZEW index should rise again in the coming month led by the slight economic recovery and by the stock market rebound.

France:Deflation is deepeningin September
YoY consumer price index dropped for a fifth consecutive month in September, precisely by 0.4% in September after declining by 0.2% in August. Meanwhile ex food and energy inflation is still there, indeed the core CPI reached +2.0% YoY in September meaning that there is no generalisation of the deflation in the Euro area. It is important to notice that from a month ago consumer price index dropped from 0.2% with and without volatile products. Looking at the breakdown, prices in services dropped by 0.8% in September and prices in the car sector are still strongly decreasing (-1.9% in September and -2.5% YoY). The main issue is the following: if the deflation has a positive impact on household purchase power in the short term if the trend last it will increase jobs destruction meaning less revenues and finally a reduction of household purchase power. And this is not over as October should revealed a sixth consecutive month of deflation. In 2009 France inflation should reached +0.1% YoY and +1.5% YoY in 2010