Shining

GLOBAL EQUITIES RESEARCH

Gold prices hit a record high ($1043.78 /oz yesterday afternoon) and stocks rallied after a surprise interest rate rise by Australia yesterday boosted confidence that a global recovery was on track. Australia stunned the markets, becoming the first G20 country to raise rates in more than a year, saying that the risk of serious economic retraction had now passed. The Australian dollar hit a 14-month high at AUD 0.899 against its US counterpart on the news. The US dollar also dropped against most major currencies, weakened by further speculation that it could one day lose its status as the world’s reserve currency. The U.S. dollar started to decrease again vs. the euro on rumors Gulf Arab states were considering using currencies other than the dollar to trade oil. The Independent said on Tuesday that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in the trading of oil. Gold also rose sharply when denominated in other currencies, including the euro and sterling, suggesting that on top of the US dollar weakness, other factors were at play. Traders said that gold buying was widespread and not confined to traditional players. In spite of the optimism triggered by the Australian increase of 25 basis points to 3.25 %, analysts said that the real link between all the market moves was too much cheap money flooding the financial system following central banks’ efforts to stimulate the economy. Economists do not expect other leading central banks to follow Australia’s lead.Low interest rates are pushing investors to park their funds in higher-returning assets lifting the prices of gold, equities and corporate bonds, which do not usually rally at the same time.

A year ago, the world economy fell into a deep recession. Now, happily, we see financial stabilization and economic recovery. In response to the crisis, the authorities socialized most financial liabilities, launched unprecedented monetary easing and ran fiscal deficits never before seen in peacetime. In the high-income countries, support for the financial sector – via capital injections, guarantees, asset purchases and liquidity provision – was 29 % of 2008 gross domestic product. In its World Economic Outlook, the IMF forecasts the fiscal deficit of these countries at 9 % of GDP in 2009. The rise envisaged in public debt compares to that of a big war. “It worked”, as the leaders of the Group of 20 leading high-income and emerging countries claimed after their summit in Pittsburgh. One indication is the upward revision of the IMF’s forecasts since July: world output is forecast to shrink “only” 1.1 % this year and then grow 3.1 % next year. This is 0.3 and 0.6 % better than forecast in July. In the 12 months from the fourth quarter of 2009, high-income economies are forecast to expand 1.7 per cent and those of emerging Asia 7.8 %, with China up 9.2 %. But few economies are likely to see a fall in unemployment or in excess capacity over the next year. Moreover, the recovery is hugely dependent on the surge in government spending and the inventory cycle, particularly in the US. As the IMF stresses, “the main risk is that private demand in advanced economies remains very weak”. Anyway, one of the big lessons we learned in the financial crisis is that a rapid turn in financial markets can, through feedback loops, produce sudden drastic effects on the real economy in either direction. So, the current upturn in financial markets, which is set to last according to a rise in earnings and productivity, is good news for the real economy.

Yesterday, U.S. equities kept on rising. Stocks held most of their gains on Tuesday as investor anticipation mounted over the crucial Q3 earnings season. Alcoa (+3.50%) reports results today after the close, starting a parade of corporate results that will be a critical indicator of the pace of economic recovery. Commodities gained as the dollar slid to its weakest level in almost two weeks versus the euro (1.4762 EUR/USD intraday high yesterday) and fell against most other major currencies as the Australian rate hike boosted demand for higher-yielding assets. Treasury prices remained lower on Tuesday, pushing yields higher (10-year rate at 3.25 %, +3 bp), after the government drew sufficient demand at its largest-ever sale of 3-year notes, the latest leg in $162 billion in short- and long-term debt sales scheduled for this week.

Half an hour before the close, the Nikkei was up 1.25 %. Asian markets were on the upside. U.S. index futures were up this morning: DJIA +0.25 %, S&P 500 +0.29 %, Nasdaq 100 +0.22 % (05.30 GMT). European markets should be up today.



ECONOMIC DATA WITH IMPACT


Us consumer credit (20.00 UK time) August figures will look better than in recent months with a decrease of around $10bn vs. $21.6 in July, mainly due to the boost to auto loans generated by the “cash for clunkers” scheme / minor

Euro-zone second estimate of Q2 GDP (10.00 UK time) won’t alter the picture given by the provisional figures (-0.1 % QoQ, -4.7 % YoY) / minor

German industrial orders (11.00 UK time) are expected to post another monthly gain of around 1 % in August / interesting


POSITIVE IMPACTS


PPR plans to proceed with IPO of CFAO distribution unit this year, if market conditions are favourable (Sale could raise €500m)

ANGLO-AMERICAN said a recovery in nickel demand is particularly robust in China and gaining momentum elsewhere.

SANTANDER's Brazilian unit will start trading today on the Sao Paulo Stock Exchange (Ticker : SANB11) & on the NYSE (Ticker : BSBR) / Santander sold 600m shares at a price of 23.5 reais a piece ($8bn) & is likely to be the biggest offering ever seen in Brazil

SIEMENS would be in talks to acquire Solel Solar Systems for $400m (Calcalist Newspaper)

DBK is expected to pay about €1bn for the stake in Sal. Oppenheim vs €1.5bn expected according FAZ

ING : Julius Baer agreed to buy the Swiss private banking assets of ING for SFR520 m / Deal adds 10% to Julius overall private client assets / Deal expected to be EPS neutral in 2010 & strongly accretive from 2011 onward / The deal leaves Tier1 ratio of about 16%

FRENCH BANKS will have reimbursed state aid in short while (Top French Presidency aid)

CREDIT AGRICOLE plans to restructure its EMPORIKI unit & aims to return to profitability end 2011 / Emporiki plans to inject €1bn of tier 1 & is already showing first signs of recovery…

BNP is "working on different options" to grow its private banking biz in the US through Bank of the West (CEO of Wealth Management)

BRITISH AIRWAYS said it would cut the equivalent of 1,700 staff in the UK & was planning a 2-year freeze on basic pay for cabin crew

ADECCO said AXA holds 5.2% of its capital (from 3.3%)

MICHAEL PAGE said market conditions improved in Q3 but reported Q3 gross profit of down 41.8% / Net cash at 30 Sept. £138m





NEGATIVE IMPACTS



E.ON-SIEMENS : Some of Europe's biggest industrial companies may need to raise tens of bn of € because of a proposed regulatory crackdown on "OTC" derivatives (FT) / E.ON said it could have to raise €7.5bn in new credit lines or extra cash reserves if proposals from the European Commission were passed / SIEMENS would need more than €1 bn in new credit lines or cash.

AIR FRANCE : Sept. passenger traffic down 3.7% / Load factor 81.9% / September cargo traffic down 17.2%, load factor 66.1% (up 2.2 points) / Said market conditions are similar to those prevailing before the summer and unit revenues remain under pressure

SAINSBURY : Q2 LFL sales ex-fuel/vat +5.4% (5.6% e) / Expects market growth to slow in the coming months due to lower inflation

METRO : Otto Beisheim Group is placing a stake of up to 5.2% in Metro from its shareholding in a private placement to national and international institutional investors

BANESTO : 3M net profit €144m (160m exp) / Non-performing loan ratio 2.59% from 1.17% yoy / Plans €450m bond issue

VIVENDI would like to sell its 20% stake in NBC Universal, but is concerned it may not get the right price (Bloomberg)

LANXESS will remain active in the conso of the industry (CEO) / No comment on rumours it would be interested in Clariant = "In the ST, we focus on €100 m targets” / Separately, he said that It will be very difficult to quickly pass rising input costs onto the market

ALSTOM-AREVA are among companies said to face EU penalties over collusion in EU & Japanese markets for electric-power transformers / SIEMENS, ABB, TOSHIBA, HITACHI & FUJI ELECTRIC are also quoted



TRADING IDEAS


BUY PHILIPS to play island reversal possibility

BUY AHOLD / L OREAL /ARCELORMITTAL /RENAULT / CARREFOUR on double bottom possibility

BUY FRANCE TEL / NOKIA / ERICSSON / ROYAL DUTCH / TOTAL / ENI to play upside trend



BUY AIR LIQUIDE / SELL LINDE // BUY TOTAL / SELL REPSOL // BUY ROCHE / SELL SANOFI // BUY PHILIPS / SELL ASML // BUY EXXON / SELL CHEVRON


BROKER METEOROLOGY


FORTIS RAISED TO BUY FROM HOLD BY ING

VALE RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS

KINGFISHER RAISED TO BUY FROM NEUTRAL BY UBS

KINGFISHER RAISED TO EQUALWEIGHT FROM UNDERWEIGHT BY MORGAN STANLEY

INTERCONTINENTAL HOTELS RAISED TO BUY BY CITIGROUP

IBERDROLA RENOVABLES RAISED TO OVERWEIGHT FROM NEUTRAL BY JP MORGAN

EDP RENOVAVEIS RAISED TO NEUTRAL FROM UNDERWEIGHT BY JP MORGAN

HARMONY GOLD RAISED TO BUY BY NOMURA

PENNON RAISED TO OVERWEIGHT FROM NEUTRAL BY HSBC

SEVERN TRENT RAISED TO NEUTRAL FROM UNDERWEIGHT BY HSBC

SGS RAISED TO NEUTRAL FROM SELL BY GOLDMAN SACHS

SEB SA RAISED TO BNUY FROM NEUTRAL BY UBS

RENTOKIL RAISED TO BUY FROM NEUTRAL BY GOLDMAN SACHS

LATIN AMERICAN STOCKS RAISED TO OVERWEIGHT FROM UNDERWEIGHT BY CITIGROUP

NAFTOGAZ RAISED TO NEUTRAL FROM UNDERWEIGHT BY HSBC


SUEZ ENVIRONNEMENT CUT TO HOLD FROM BUY BY CITIGROUP

ENDESA CUT TO NEUTRAL FROM OVERWEIGHT BY JP MORGAN

EMERGING ASIAN STOCKS CUT TO NEUTRAL BY CITIGROUP

ANGLOGOLD CUT TO NEUTRAL BY NOMURA

GOLD FIELD CUT TO NEUTRAL BY NOMURA

SMITH & NEPHEW CUT TO NEUTRAL FROM BUY BY UBS

ROBERT WALTERS CUT TO SELL FROM NEUTRAL BY GOLDMAN SACHS

NORTHERN FOODS CUT TO HOLD FROM SELL BY CITIGROUP


DATA


WTI : 71,6 (1,33 %)

Eur/$ : 1,4703 (-0,13 %)

$ /Yen : 88,72 (0,24 )

10 Yr US : 3,25 ( -0,74 bp)

10 Yr Euro : 3,16 ( 3,4 bp)


Indices : US close ; Europe close

SOX : 2,07 %;2,36%

S&P :1,37 %; 1,73 %

DOW: 1,37%; 1,66 %

NAS :1,71%; 1,80%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 2,30 %; 2,67 %

ENERGY : 2,19 %; 2,27 %

FINANCIAL : 1,11 %; 1,85 %

HEALTHCARE : 0,81 %; 0,95 %

TECHNO : 1,91 %; 1,91 %

TELECOM : 1,12 %; 1,13 %

INDUSTRIAL : 1,25 %; 1,79 %

UTILITIES : 0,66 %; 0,63 %





TO BE COMING



Today

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



Monday

Results : Philps

Dividend :

Events:



Tuesday

Results :Johson & Johnson / Intel

Dividend : Abbott Laboratories ($0.40)

Events:BNP Paribas end of subscription time / Procter & Gamble AGM



ECONOMIC DATA PREVIEW



Watch in the Euro areawatch the final release of the GDP for the second quarter (10.00 GMT), expected to confirm the preliminary release at -0.1% QoQ,- 4.7% YoY, confirming that the euro area reach a bottom floor at the first quarter and is progressively recovering.

Watch in Germany the factory orders for August(20.00 GMT), expected to pursue their rise trend but which should remained very weak from a year ago around -19.9% YoY. Nevertheless the hardest is coming in Germany meaning transforming a technical rebound into a real recovery.



ECONOMY



United Kingdom: Industrial production unexpectedly decreased in August

After increasing in June-July around at respectively +0.6% and +0.5%, UK industrial production unexpectedly dropped in August by 2.5%, the sharpest drop since June 2002. Looking at the breakdown we see a strong fall in oil&gas (from +0.2% to -9.4%), mining and quarrying (from -0.4% to -7.3%) and finally in manufacturing production from +0.7% to -1.9%. From a year ago industrial production passed from -9.3% YoY to -11.2%YoY. The fall of industrial and manufacturing production add to the weak recovery in UK, means that a return to positive overall GDP growth at the third quarter remained now uncertain