Power

GLOBAL EQUITIES RESEARCH

A lot of important gaps have been closed yesterday which so far should be seen as another positive and welcome consolidation from sectors that could not breathe anymore such as the cyclical, techs and financials one (gap closed on the Nikkei, the Eurostoxx cash, STM, Philips, Socgen, Carrefour and partially on BNP). The resilience of the bond indices while facing some 41bn yesterday and another 31 bn today auctioned should be seen as a sign that the Fed unwinding policy is not for now. We should cross that bridge when we come to it, and for that we need a more robust economic recovery, which Q4 might tell us more about as soon as next week.

We understand the fear of the Fed easing policy unwinding, especially as the Treasury purchases program is ending this week. However, another buyer has come to the fore. US commercial banks increased their holdings of Treasuries (and agencies) substantially in Q3, and this might continue. Treasuries are liquid, zero risk-weighted assets in a financial system short of capital. Private sector loan demand is extremely soft. And the yield curve is very steep. Also, another point being that the Fed’s purchases have been a dual-edged sword for Treasuries. While they have helped to soak up supply, they have also achieved their stated aim – “to help improve conditions in private credit markets”. Ever since the buying began in March, risk appetite has grown. This, in turn, has nurtured expectations of economic recovery, inflation and eventual monetary tightening, with some likely upward effect on yields. The end of the program and the gradual withdrawal of other forms of credit easing – the Fed’s planned purchases of agency mortgage-backed securities and agency debt, for example, are due to be completed by the end of Q1 next year – will remove some of the excess liquidity sloshing around in asset markets. While it could be seen as a threat for riskier investments in term, the search for safety could prove to be a net positive for government bonds. And riskier investments will have to deal with it, which doesn’t mean they will fall. Things would just be gradually running as normal, in line with a more modest economic growth which one way or the other the Fed and US officials will keep on monitoring in order to reach their goal which is to create jobs back again. Also don’t forget China which will keep on growing fast in 2010.

In the meantime, Goldman’s downside Q3 GDP revision from 3 to 2.7% makes it even more worth it playing long ahead of the GDP data today. Indeed the data is full of random due to the inventories rebuilt unknown element which could subtract or add to Q3’s GDP, and might also be postponed to the following quarter in which case the market will be more forgiving in case of a disappointing report. On the other hand, any friendly report might be cheered given the sharp recent drop from some single stocks (see trading ideas below), as the main focus will be next week and the ISM manufacturing on Monday as well as the employment report on Friday dealing with October period, and so Q4 already. It seems that the economical pick up will be spread equally between Q3 and Q4, with Q4 profiting from a very friendly base effect as well as the inventories rebuild possible boost. An economic collapse would be surprising as the paradox is that in case of a too weak economy, there would be no rush to unwind the easy quantitative policy, one way or the other.

Indeed, we know for sure that after a strong July and August economic pace, September was more contrasted. This is what the relatively modest increase in durable goods orders and the drop back in new home sales last month indicated yesterday. About the Durable goods orders, half of the rise in headline orders was due to a jump in defence procurement, which says nothing about the strength of private demand. Excluding transport, core orders increased by 0.9% m/m, although the survey evidence suggests that might be as good as it gets. A good news is that non-defence core capital goods orders rebounded by 2.0%, which is a positive sign for fourth-quarter business investment. However, the news on Q3 was not so good. Shipments in the same category slipped by 0.2%, following a 2.2% drop in August. However, that doesn't change the view that today's report will show overall GDP expanded by more than 3% annualised. The other good news in this report is the smaller 1.0% decline in durable inventories in September, compared with a 1.5% decline the month before. Inventories are likely to make a big positive contribution to fourth-quarter GDP growth.

As to the New home sales, the disappointing survey is adding to the idea that the housing activity would drop back once the tax credit is over, such as the California’s state was picturing with the tax credit ending in August and new home sales in the west falling back from 113k to 101k. But already some rumours are spreading that the housing stimulus will be extended which could be announced as soon as next week. However, economists consider that any fall back in housing if any would be short lived given the improvement in affordability thanks to low mortgage rates and valuations.

Opening down, we should be recovering all day and get a boost from today’s GDP given the recent consolidation and the fear of the report increased by Goldman’s downside revision yesterday following the Durable Orders survey



ECONOMIC DATA WITH IMPACT


US Q3 GDP (12h30 UK time) expected 3.2% from previous –0.7% / important given the latest drop offering some upside on cyclical, techs and financial names / anything above would be cheered especially as Goldman did downgrade its preview to 2.7% from 3% / keep an eye on the inventories rebuilt, if it is small, then it should open the door to a strong Q4 which would profit from the inventories rebuilt / a 3.x% without much inventories help would be rather good news and promising for Q4

Personal Consumption (12h30 UK time) expected 3.1% from previous –0.9% / the higher the better / interesting

Jobless Claims (12h30 UK time) expected 525k from previous 531k / minor, just a weekly data, any improvement would be welcome though / employment on Friday in a week time will be the one regarding the labour sector



POSITIVE IMPACTS



TELENOR : Q3 Rev NOK24.3Bn (24.19 est) / Q3 EBITDA NOK8.52Bn (7.39 est) / Op. pft NOK4.5Bn (3.5 est) / PTP OK5.69Bn (4.40 est) / EPS NOK2.11 (1.83 est) / Cut CAPEX guid to 13% (13-15% est) /

SOLVAY : Q3 Sales €2.235Bn (2.2 est) / REBIT €285M (211 est) / Net pft €160M (116 est) / DIV €0.9 / Sees FY Op lower than 08

DBK “confirms Oct 21 Preliminary results” : Q3 Revenue €7.2bn / NII €3.13bn (€2.8bn exp) / PTP €1.3bn (In line) / Tier1 capital 11.7% Sept-end – Core Tier1 8.1% / Loan Loss prov €544m (653m exp) / Well prepared for challenge opportunities

ACERINOX : 9M net loss €236M (235 est) / Sees Steel price improving in Q1 2010

RANDSTAD : Q3 Sales €3.178 (3.1est) / Underlying EBITDA €93.4M (87 est) / In many mkt recovery still fragile / Need to keep an eye on costs in coming quarters in view of increased pressure on gross margin

ALSTOM : H1 Sales €9.68Bn (9.54 est) /H1 Orders €7.134Bn (7.8 est but very anticipated) / Op pft €828M (827 est) / Net €562M (590 est) / Confirms outlook / Sees orders improving in H2 / Bidding for Areva T&D still ongoing

ENI : Q3 Operating Profit €3.12bn (2.99bn exp) / Adj Net Profit €1.15bn (1.11bn exp) / Hydrocarbon Output 1.68m BOEPD / Sees FY Output unchanged from 1.797m boep in 2008 & gas sales in line with 2008, below planned 4casts due to eco crisis

ABB : Q3 Sales $7.91Bn (7.815 est) / Orders $7.1Bn (7.16 est) / Net $1bn (in line) / 09 and 2010 guid. remains uncertain

LUFTHANSA : Q3 Rev €5.936Bn (6.06 est/ Op pft €218M (54 est) / Net €184M (Loss 45M est) /Q4 to be challenging

NOVO NORDISK : Q3 Sales DKK12.51Bn (12.73 est) /Op pft DKK3.81Bn (3.6 est ) Net pft DKK2.76Bn (2.65 est) / Confirms guid/

ROCHE's partner Ipsen announced Taspoglutide met its primary endpoint in the first Phase III clinical trial.

LLOYDS : (FT reports) Alistair Darling is to give Lloyds the go-ahead to market-test its ambitious plan for a £25bn refinancing in a clear sign that the chancellor is willing to release the bank from the govt ‘s toxic asset insurance scheme

KBC said it retains confidence in its bancassurance strategy and reported “good progress” in discussions with the EU Commission. Separately Co reiterated it doesn’t plan to sell shares to repay the state aid

VEOLIA : EDF expected to raise VEOLIA stake to 15% from the current 4% by mid 2010 according Henri Proglio (La Tribune)

DIAGEO ‘s CEO said Co may use its cash to boost its dividend if the U.K. company’s preferred takeover tgts don’t come up for sale at the right price.



NEGATIVE IMPACTS



FRANCE TEL : Q3 Sales €12.686 (12.811 est) / EBITDA €4.558 (4.58 est) / EDITDA margin 35.9% (35.7 est) / CAPEX €1.207 (1.375 est) / Confirms outlook / Sees no improvment in Q4 Sales / 2010 outlook depends on when consumer spending recovers … / To continue to make selective acquisitions / Keeps div distribution policy /

BASF : Q3 Sales €12.80Bn (12.83 est) /Q3 EBIT €971M (997 est ) Q3 Net pft €237M (413 est) / Sees Q4 sales at Q3 level /Faster integration of CIBA negativly impatcs 09 earnings / Unlikely to earn cost of capital in 2009

AXA : 9M Revenues €68.1bn (68.36bn exp) / Life savings €42.7bn (43.1bn exp) - P&C €20.5bn (In line) - APE €4.5bn (4.6bn exp) / Says improvement in markets gives it a more favorable environment for its business

DASSAULT SYSTEM : Q3 Sales €291.7M (298.5 est) / EPS €0.32 (0.34 est) / Confirms EPS & Op. Margin targets

FIAT : MEDIOBANCA said that it would sell its remaining 0.65% stake in FIAT

SUEDZUCKER said its target to lift operating profit by 55% this year and to keep sales stable will be “harder to achieve.”

GSK ‘s CEO said the company’s traditional core market of prescription drugs in developed countries may slip to 25% of total sales (FT)



TRADING IDEAS


BUY SOC GEN to play reweighting tomorrow, earnings on Wednesday

BUY BNP on thegap which will be closed soon (51.12/51.60 ) earnings next Thursday should be good

BUYARCELORMITTAL with a buy opportunity with an island possibility (Nippon Steel lift forecast this morning)

BUY PHILIPS / STM / CARREFOUR which closed their gap

BUY ACCOR to play buying opportunity after five sessions down, off 15% from the top levels, very US related and should profit from the GDP

BUY AIR FRANCE which retraced heavily on the downside, nice recoevry to expected, crash soon forgotten, good KLM synergies

BUY LAFARGE (-17% from its top levels) killed one more time yesterday on New home sales figures

BUY E.ON to play reversal Head & Shoulder possibility



BUY UNILEVER / SELL NESTLE // BUY RENAULT / SELL DAIMLER // BUY ANGLO GOLD / SELL BHP // BUY REED ELSEVIER / SELL PEARSON



BROKER METEOROLOGY



ANGLO AMERICAN RAISED TO OVERWEIGHT FROM EQUALWEIGHT BY MORGAN STANLEY

IBERDROLA RENOVABLES RAISED TO NEUTRAL BY BANK OF AMERICA – ML

EDP RENOVAVEIS RAISED TO BUY BY BANK OF AMERICA – ML

DEUTSCHE BOERSE RAISED TO OUTPERFORM FROM MARKETPERFORM BY BERNSTEIN

ING RAISED TO EQUALWEIGHT FROM UNDERWEIGHT BY MORGAN STANLEY



DATA


WTI : 77,3 (-2,63 %)

Eur/$ : 1,4728 (0,15 %)

$ /Yen : 90,36 (0,26 )

10 Yr US : 3,41 ( -0,38 bp)

10 Yr Euro : 3,26 ( -1,1 bp)


Indices : US close ; Europe close

SOX : -2,80 %;-1,78%

S&P :-1,95 %; -1,11 %

DOW: -1,21%; -0,46 %

NAS :-2,67%; -1,74%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -4,00 %; -3,49 %

ENERGY : -3,15 %; -1,97 %

FINANCIAL : -2,93 %; -1,95 %

HEALTHCARE : -1,53 %; -0,48 %

TECHNO : -1,91 %; -1,26 %

TELECOM : 1,48 %; 1,56 %

INDUSTRIAL : -2,56 %; -1,64 %

UTILITIES : -1,13 %; -0,06 %



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:


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 : Inditex (€0.50)

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) / Master Card (BMO)

Dividend :

Events: DuPont Annual investor meeting



Wednesday

Results :EU \\ Adidas / Aviva interim / Bureau Veritas / Cisco Systems / Clariant / Gazprom / Grifols / JCDecaux sales / Rhodia (BMO) / Sampo / Scor / SocieteGenerale (BMO) / StatoilHydro (BMO) / Total

US \\ Cisco (AMC) / Comcast / Garmin (BMO) / Qualcomm (AMC) / Time Warner (BMO)

Asia \\ Nissan Moto (AMC)

Dividend : Ashmore Group (GBp 9,266667)

Events:Cardinal Health



ECONOMIC DATA PREVIEW



Watch in the United-States the advanced release of the GDP (annualized) for the third quarter (12.30 GMT). The recession ended in the third quarter, as showed by the rebound in capital spending in the industry and services sectors, as well as the rise in US household consumption (70% of the American GDP) over this same period. As a matter of fact the US GDP should rise by 3.5% in the third quarter, a level which should be consolidated at the fourth quarter.



Watch in the Euro zone the economic confidence for October (10.00 GMT). After reaching an historical low at 64.6 in March 2009, the euro area economic confidence index should rise for a seventh consecutive month in October to reach 83.2 its highest level since September 2008. 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.



Watch in the Germany the Unemployment for October (8.55 GMT). After surprisingly slightly decreasing in September, German unemployment should slightly rise from 8.2% to 8.3% meaning the same monthly rate than the three last month



ECONOMY


United-States: Durable goods orders rose in September.

After strongly rebounding in July rising by 4,8%, the fastest increase since July 2007, US durable goods orders declined by 2,6% in August. However this very volatile index increased in September by 1% as forecast. This improvement was indeed expected as the orders sub index of the ISM manufacturing indicator reached 60.8 in September. Half of the rise in headline orders was due to a jump in defence procurement but the good news is that non defence capital goods orders rebounded by 2% which is an encouraging sign for investment business at the Q4. Meanwhile excluding transportation orders which dropped by 0.4% in August, ending three consecutive up months , increased by 0.9% in September.



United-States: New home sales unexpectedly dropped in September.

New home sales surprisingly dropped from 417 000 in August to 402 000 in September (forecast 440 000) or -3.6%. Existing home sales dropped at the fastest pace since March 2009.Indeed despite the low mortgage rates and interest rate and despite the fact that less and less job are destroyed in the United-States the unemployment remained high (9.8%) in the United-States. Household gain in purchase power from the economic revival plan will not immediately go into the financial circuit as household are firstly reimbursing their debts, spending will be the second step.