Place Your Bets

GLOBAL EQUITIES RESEARCH

Next week will be important and thrilling as it will bring some fresh news which should impact fund managers decisions. Indeed the ISM to be released as soon as on Monday will tell whether the little drop from 55 to 52.7 was a little and healthy consolidation from the sharp rise from the previous month which sent the index on some 55 level (consensus is 53). As such, it will tell whether the more contrasted September economic activity was due to the sharp rise from July and August, cash for clunkers and Tax credit or not. Also the employment report will be as important as usually, with once more some possible positive impact as we are not yet in a period where employment is expected to get better (6/12 months lagging time), meaning any improvement at this stage would be very much cheered. Employment being the big need to make sure the economic activity pick up will be sustainable, so we find US consumption back on the scene, so important to the GDP (70%).

Talking about employment, October’s surprise fall in German unemployment is encouraging, although it is probably too soon to call the end of the labour market downturn. The fall of 26,000, which pushed the unemployment rate down to 8.1% from 8.2%, was the sharpest since August 2008 and the fourth in a row. While earlier data were flattered by statistical changes, that does not seem to have been the case this month. Together with the moderate rise in consumer confidence over recent months and recently announced income tax cuts, this is good news for the consumer sector. Admittedly, there are clouds on the horizon. Unemployment might well rise further as subsidies under the ‘Kurzarbeit’ scheme expire – note that surveys of employment still point to further job cuts to come. And there is no guarantee that cautious German consumers will spend the money gained from income tax cuts. Nonetheless, signs of improvement in the labour market support the view that Germany’s economic recovery will help the Euro zone. We still think the US recovery will be stronger

Japan's unemployment rate fell for the second straight month as companies gained more confidence in the stimulus-fuelled global recovery but prices continued to tumble, underscoring weak demand at home. The jobless rate stood at a seasonally adjusted 5.3 percent, down from 5.5 percent last month. A recent survey by Nikkei financial daily showed that major Japanese companies plan to hire 29 percent fewer graduates next spring than they did this year.

In the meantime, we might be ready for a new upside rally triggered by the friendly US GDP survey yesterday. Indeed, the good news is that the 3.5% annualised rebound in Q3 US GDP confirms that the most severe and longest recession since the 1930s is over. The economic growth should continue at this pace for another few quarters, as pent up investment demand is released, inventories are being restocked and the boost to infrastructure spending from the fiscal stimulus continues. The consumption increased by 3.4% in the Q3, boosted by a 22.3% surge in spending on durables, which mainly reflects the jump in vehicle purchases stemming from the Cash for Clunkers scheme. But that was a one-off surge, which my well have brought forward some sales that would otherwise have happened in Q4, putting even more pressure on the next quarter macro events (starting next week). Residential investment rebounded by an impressive 23.4%, perhaps boosted by the temporary tax credit for first time buyers (which is extended. That was the first gain in homebuilding in nearly 4 years. Both exports and imports rebounded strongly, by 14.7% and 16.4% respectively. The relatively modest contribution from inventories, which added only 0.9% to overall growth, is predicting some brighter days for Q4.

Island reversal possibility on the Nikkei (bull), which could find a reason through the (temporary ?) strength of the dollar following the better than expected GDP. Would we find a logic back on the currency ? with the yen weakening in line with the Japanese economy doubts while the dollar should be boosted by the strong US recovery which should last another few quarters (at least)

Wherever we head mid term, the current rally should remain for more than a couple sessions anyway.



ECONOMIC DATA WITH IMPACT


Personal Income & Personal spending (12h30 UK time) expected flat and –0.5% from previous 0.2% & 1.3% / interesting, would be nice to see higher income and higher spending for the economic recovery sustainability

PCE (12h30 UK time) expected 0.2% from previous 0.1% / minor as inflation is not the focus for now

Employment cost Index (12h30 UK time) expected 0.4% from previous 0.4% /not the focus for today / minor



POSITIVE IMPACTS



SANOFI :Q3 Sales €7.4Bn (7.435 exp) / Q3 Op income €2.955Bn (2.919 exp) / Q3 EPS €1.71 (1.61 exp) / Predicted adj EPS ex items to grow by around 11% (10% exp)

ACS : 9M sales €12.06 Bn / 9M EBITDA €1.09Bn (1.08 exp) / 9M net pft €1.79Bn (1.73 exp)

SANDVIK : Q3 Net sales SEK 16.6Bn (16.8 exp) / Q3 Pretax loss SEK523M (944m exp) / Order intake SEK17.2 Bn (16.5 exp)

SSAB : Q3 Sales SEK6.94Bn (5.78 exp) / Pretax loss SEK1.1 Bn (1.2 exp) / Demand for steel showed some sign of recovery / Cost saving program proceeding faster than expected

ERSTE BANK : Q3 NII €1.336bn (1.27bn exp) / Risk costs €557m (538m exp) / Core Tier1 6.5% Q3-end / No guidances for 2009

GERMAN BANKS : Germany wants to establish itself as a market for financial products that conform with Islamic law “seeing great interest from investors in Islamic countries” / Separatly CBK, HYPO must pay back state aid as soon as conditions allow (Eco min)

RIO TINTO : Ups 09 CAPEX goals from $2.5bn to at least $5Bn / 9M debt -42% at $22.3Bn / Cost reduction on track ($2.5Bn)

WPP :Q3 Rev £2.007Bn (2.02 exp) / Q3 LFL rev –8.7% (-9.1% exp ) /

LLOYDS may start its fundraising by Nov. 4, as CEO and his advisers begin detailed consultations with investors about the plan (FT). Daily Telegraph wrote that the rights offer could be priced at 30 pence a share.

SOCIETE GENERALE : CAC reweighting, SOC GEN weight will increase to 4.35% from 3.56%



NEGATIVE IMPACTS



BELGACOM : Q3 rev €1.48Bn (1.47 exp) / Q3 EBITDA €494M (483 exp) / Interim DIV €0.4 (0.50 exp) / Confirms FY guid

ALCATEL : Q3 Rev €3.69Bn (3.91 exp) / Adj Op loss €11M (-8 to -14.4 exp) / Net loss €182M (-252 exp) / Reafirms guidance.

RENAULT : Q3 rev €8.1bn (8.74 exp) / Q3 Global vehicules sales +0.8% on Yr / Reaffirms sees Positive FCF In FY 2009 as exp / Sees increase mkt shr in Europe in FY 2009

FERROVIAL : 9M Revenue €9.05bn (€9.11bn exp) / EBITDA €1.946bn (€1.96bn exp) / Construction EBITDA down 19.3% / Bottom line hit by capital loss on Gatwick sale / Net debt €22.2bn at end-Sept

CARREFOUR : A Taiwanese court has rejected an appeal by Carrefour against a fine for misleading advertisements,

SIEMENS : Deutsche Bahn is threatening the cancelling of a tender for 300 IC and ICE trains due to high price demands (Handelsblatt)

EADS : weaker $ very painful /benefits from good hedging rate to end eventualy / Made “big” mistakes with A400M / Aims to deliver as many aircraft in 09 as in 08

LINDE Should report Q3 Sales €2.9 bn vs 2.91 bloom expectations and Q3 Op pft €615M vs 628 bloom expectations (german press)

UBS is likely to show ongoing client outflows in the third quarter even as it reports a narrower quarterly net loss next week.

NOKIA : Samsung Electronics said it sold a record of 60.2 M phones in July-September quarter, with its mkt shr rising to 20.7%.



TRADING IDEAS


BUY NIKKEI INDEX on island reversal possibility + Dollar recovery which for ones fits with stronger US data (weak Yen good for exporters)

BUY BNP ahead of results next week that we believe will be very good.

BUYARCELORMITTAL with a buy opportunity with an island possibility still / BUY ADIDAS ahead of results next week

BUY PHILIPS / STM which closed their gap // BUY ACCOR to play upside trend now & BUY PINAULT on double bottom possibility



BUY SALZGITTER / SELL THYSSEN // BUY STM / SELL INFINEON // BUY REED ELSEVIER / SELL PEARSON / BUY LOCKHEED MARTIN / SELL HONEYWELL



BROKER METEOROLOGY



E.ON RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY HSBC

FORTIS RATED NEW BUY BY DEUTSCHE BANK OF AMERICA – ML

PEUGEOT RAISED TO OVERWEIGHT FROM NEUTRAL BY HSBC

RENAULT RAISED TO HOLD FROM SELL

SOLVAY RAISED TO BUY FROM HOLD BY ING

NOVATEK ADDED TO RUSSIA FOCUS LIST BY GOLDMAN SACHS

LLOYDS RAISED TO NEUTRAL FROM UNDERWEIGHT BY EXANE

BHP BILLITON RAISED TO BUY FROM HOLD BY ING

LOGITECH RAISED TO NEUTRAL BY GOLDMAN SACHS

DASSAULT SYSTEMES RAISED TO NEUTRAL FROM SELL BY UBS

DEXIA RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN

SEB (SEBA SS) RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN

SWEDBANK RAISED TO OVERWEIGHT FROM NEUTRAL BY JP MORGAN

INTESA SANPAOLO RAISED TO BUY FROM HOLD BY CITIGROUP


TOMTOM CUT TO NEUTRAL BY UBS

NOVO NORDISK CUT TO HOLD FROM BUY BY CITIGROUP



DATA


WTI : 80,0 (3,47 %)

Eur/$ : 1,4843 (0,14 %)

$ /Yen : 91,05 (0,25 )

10 Yr US : 3,49 ( -1,14 bp)

10 Yr Euro : 3,32 ( 6,6 bp)


Indices : US close ; Europe close

SOX : 2,15 %;1,53%

S&P :2,25 %; 1,64 %

DOW: 2,05%; 1,40 %

NAS :1,84%; 1,52%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 4,05 %; 4,04 %

ENERGY : 2,43 %; 1,97 %

FINANCIAL : 3,91 %; 2,53 %

HEALTHCARE : 1,06 %; 0,52 %

TECHNO : 1,99 %; 1,37 %

TELECOM : 0,62 %; -0,11 %

INDUSTRIAL : 2,19 %; 2,09 %

UTILITIES : 0,93 %; 0,56 %



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:


Monday

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 : Inditex (€0.50)

Events: Pernod Ricard AGM



Tuesday

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 : DuPont Annual investor meeting



Wednesday

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

US \\ Ford (BMO)

Dividend :Ashmore Group (GBp 9,266667)

Events: Cardinal Health



Thursday

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

US \\ US car sales / Kraft Fodds (AMC) / Master Card (BMO)

Dividend :

Events:Coach AGM / Man Group analyst meeting



ECONOMIC DATA PREVIEW



Watch in the United-States the personal income and personal expenses for September (12.30 GMT). For September, we anticipate that household personal income up 1%, mainly led by the decline in job destruction and by the rise in wages. Meanwhile, household expenses which increased by 1.3% in August the sharpest rise since October 2001, should regress by 0.5% in September. This mainly due to the fall in retail sales in September impacted by the end of the cash for clunkers program.



Watch in the Euro zone the first estimation of the inflation for October (10.00 GMT). The deflation will still hit the euro area in October but to a smaller extent due to the rise in energy prices and commodities Consequently we anticipate the consumer prices index to be - 0.1%YoY in October. Nevertheless, it should get back to positive territories to reach 0.9% in December and 1.5% at the beginning of 2010.





ECONOMY


United-States: The GDP rose by 3.5% at the third quarter

After declining by 0.7% at the second quarter, the US GDP rose by 3.5% at the third quarter, meaning 0.5% more than the consensus forecast. Looking at the breakdown the US GDP was firstly boosted by the sharp rebound of household consumption rising by 3.4%(annualized) meaning its best performance since the first quarter 2007. Better, after fourteen quarters of decline, residential investment rise by 23.4% at the third quarter, the highest progression since the second quarter 1986. Meanwhile company’s capital spending is recovering. Indeed after six consecutives quarter of fall, equipment and software investment rise by 1.1% at the third quarter. If this rebound remained limited it open the way to the virtuous circle : growth-investment-employment-consumption. In addition the last ISM new order index are reaching very encouraging levels in regards to future productive investment. It is important to notice that the GDP rise at the third quarter has not been artificially boosted by foreign trade or by a massive restocking. For the future the very encouraging ISM (manufacturing and services) data; the Fed low interest rate, the under evaluated dollar not to mention the $ 450 bn upcoming public investment will boost the US GDP in the coming months. In such condition we that after falling by 2.2% in 2009, the US GDP will rise by 2.8% in 2010.



United-States: Initial jobless claims and continuing claims declined last week

Initial jobless claims declined slightly last week from 531000 to 530 000. This figures are confirming that the labour market is slowly recovering as after over laying off companies are now matching more closely economic fundamentals. On the other hand continuing claims declined sharply last week from 5 945 000 to 5 797 000. This is the sixtieth consecutive reduction of continuing claims confirming that the hiring process is progressively recovering in the United-States. Nevertheless has employment is a lagging indicator of the activity the unemployment rate should rise in the coming month to stabilize around 10% till the beginning of 2010.



Euro area: Sharp rise of the economic confidence in October

After reaching an historical low at 64.6 in March 2009, the euro area economic confidence index rose for a seventh consecutive month in October to reach 86.2 its highest level since September 2008 meaning just before the Lehman brother fall. Indeed, the euro zone economy is recovering as showed by the sharp rise in French business confidence indicator which reached its highest mark since September 2008, and by the seventh consecutive rise the IFO index in Germany in October. As the economic sentiment index is the best leading indicator of the Euro area GDP this suggest that the GDP should decline at a much slower pace at the third quarter 2009.



Germany: Unemployment surprisingly declined in October

German unemployment dropped unexpectedly from 8.2% in September to 8.1% in October its level of March 2009. The fall of 26 000 was the sharpest since August 2008 and will boost in the short term household consumption. As employment remained a lagging indicator of the economic activity we cannot say to soon that this is the end of the labour market downturn and unemployment should rise in the coming month to reached 9.4% in 2009. It should stabilise at this level in 2010.