This is Not It

GLOBAL EQUITIES RESEARCH

This might be it for the Michael Jackson new album, and for the equity indices this week, but things should be different next week as we will enter a new and fresh period which will tell more about the economy pace and its

sustainability. Yesterday's drop was a bit of everything, but mostly some doubts that the rally could further resume, taking any excuse of any rumours (conflict about the end of the tax credit period in the Senate, bank of America housing

exposures requiring more capital before giving government's money back, higher yields levels, etc...) in an empty trading activity to initiate some short positions or cash some profits. Understandable, and why not.

How could we move on the upside or on the downside for now ? The latest huge rally, which no longer seems to be a

bear market one given the percentage of the run, found an explanation through an increase of liquidity, or at least a no longer credit crisis and a 29 crisis so granted avoided. For that, Fed and worldwide officials did a good job and seem to

have won the battle in avoiding the worse. As such, equity indices not only reversed their non stop deleveraging downside spiral, but also anticipated some recovery which seems now granted. This is what the earnings releases have been

reflecting, or should we say confirming after the macro data provided some clues all Q3 long, such as in Q2. So, any reason for a further rise at this stage would be difficult to find, as we should now head higher for further brightening

fundamental facts and no longer propelled by some rebound from a too sharp drop such as the one we attended when cash was supposed to be king and the end of the world soon coming.

Why would we collapse now ? Most players find the market is losing speed, which we agree, and would be very sensitive

in case some disillusion was to happen, which is not happening yet, and even the other way around. Indeed the Existing home sales last Friday reminded that few September weaker macro data were more of a pause before resuming their recovery trend more than a reversal, which obviously the equity indices would play with a higher beta given the current "high" levels. After some weaker news on the housing market in recent days, September's US existing home sales figures show that the recovery is still in place. The 9.4% jump in sales to 5.57m in September, from 5.09m the previous month, more than reversed the surprise fall in August and leaves sales at a 26-month high. The pending home sales index suggests that sales may soon increase to around 5.80m. Economists estimate that around 30% of the increase in sales since January is due to the tax credit for first-time buyers, which may yet be extended beyond November (or not). Even if the credit isn't extended, low mortgage rates and much improved valuations should mean that any post-credit fallback is temporary. The recent increase in sales is reducing the inventory overhang - the months supply of homes for sale fell from 9.3 to 7.8, which is very important as we soon approach the usual common 5/6 months levels which, when playing on the 11 months levels, were to be not seen before years ... This, obviously, is supporting prices. Overall, the housing recovery is well on track, with or without the tax credit facilities.

Another reason for collapsing would be that the Fed and worldwide officials did create a new bubble ready to blow anytime. The steep rebound in stock markets and currencies of emerging markets, particularly those that export commodities used by industrial China, has raised fears some of the same drivers of the most recent crisis are again developing. Many economists say a prolonged period of low interest rates in the US, combined with huge savings in China and elsewhere, helped create a sea of liquidity that led to an unsustainable run-up in real-estate prices and ultra-low yields on credit. This is sure, and this is part of the winning plan from the Fed, which used any possible tools with an unlimited budget to avoid a 29 crisis revival after the Lehman mistake to make liquidity conditions flow back to normal. However we find too soon to sell the market for such a reason, as it seems that the celebration time is far from over in term of newsflow. Selling to play a bubble would be equivalent as when most players were selling because the upside rally was too much for what we were getting from the real economy. So far, things are going the right way, until they are not, but the real economy is gradually coming back on its feet. And we think too many people are looking for the coming failure that would send us to the floor before the economy is able to really run on its own. The unwinding is clearly the risk, but we should cross that bridge when we come to it, and it may well be in another 10% rise target, and it also may well happen to occur fine for months or years ...

It will soon be one month over of the important new Q4, and still no thunder storms or earthquakes from the economical side which would trigger a prompt equity sell-off. September was announced as the worst month ever for equity indices, statistic played with the sharp first Sept day drop, October was supposed to be the one of crashes (29 /87 / 98 / last year), but during that time one has to admit that both micro and macro fundamentals proved to be better, while the banking and housing sectors, both reasons for the crisis, are getting cured. Today's consumer confidence will be interesting, but not as much as the ISMs data with the manufacturing one on Monday telling more about October activity, providing clues about Q4, especially after the previous September month data weakness which followed the sharp rebound from August and brought a lot of hope that the rally is soon ending. It will keep on moving as soon as next week, and we believe it could bring some further upside surprises which this time the market will listen to since we will be talking about a new and fresh period of economical time. In the meantime, the current consolidation should be seen as welcome and the beginning of a passing through from a sponsored financial market and economical activity to a self running one.



ECONOMIC DATA WITH IMPACT



US markets will open at 13.30 BST this week.

US Case Shiller index (13h UK time) / the higher the better / minor

US Consumer Confidence (14h UK time) expected 54 from previous 53.1 / little drop in gasoline prices and equity indices rebound might have boost confidence / minor



POSITIVE IMPACTS



MICHELIN : Q3 sales €3.75bn (3.72bn exp) thank to better price mix & better volume / Kept its target of positive FCF in the H2

CAP GEMINI : Wipro, India's No. 3 software services exporter, reported better-than-estimates, as it won new outsourcing contracts and pressure on fees eased…

KPN : Q3 revenue €3.33 bn (3.41bn exp) / EBITDA €1.33 bn (1.32bn exp) / Confirms outlook for 2009, 2010 with 2010 div. of €0.80

AKZO NOBEL : Q3 revenue €3.64 bn (3.68 bn exp.) / EBIT continuing operations, excluding incidentals €391 m (363 m exp) but Ebitda margin 10.7% (14% exp) / Interim dividend €0.30 (0.40 exp) / Does not forsee quick recovery / Kept mid-term targets

THYSSENKRUPP will present a proposal on Nov. 26 to the supervisory board on the payment of a dividend for fiscal 2009 / According to “Die Welt” it will pay a dividend of at least €0.30 a share for fiscal 2009 despite steep losses and extensive job cuts

BP : Q3 replacement cost profit $4,98bn (5.43bn exp) / Production 3,917 mboe/d (3.867 mboe/d exp) / Quarterly dividend, to be paid in December, is 14 cents per share ($0.84 per ads) / Refining margins look set to remain weak

FIAT : Chrysler is about to unveil a product roadmap that relies heavily on vehicles from Fiat, while abandoning many of its own models / The plan, due to be revealed Nov. 4, involves the reintroduction of Alfa Romeo & the 500…

ALSTOM is expected to sign a contract for French rail operator to buy 100 trains, in a deal that could eventually lead to the purchase of up to 1,000 regional trains / The deal for 100 trains would be worth just under €1 bn…

ENAGAS : 9M EBITDA €515.5m (€515m exp) / Net €217.4m (216.5m exp) / Conf. call at 0900 UKT

DASSAULT SYSTEMES & IBM signed an agreement under which Dassault plans to acquire IBM's sales and client support operations for its product lifecycle management software application portfolio for $600 m in cash

NOKIA unveiled its 1st cell phone developed with China's 3G techno, saying it would aim to sell lower-priced handsets at higher volumes

FRENCH BANKS : As expected, France's lower house of parliament rejected a plan to impose a 10% tax on bank profits in 2010 after deputies accidentally approved the measure during a first round of voting last week and a second round was staged



NEGATIVE IMPACTS



RENEWABLE ENERGY : Q3 sales NK2.16bn (2.02bn exp) / Ebitda NK429m (492m exp) / Net loss NK1bn (83m exp) / Sees further contractual adjustments for wafers in 2010 if the present weak market continues / Sees same price decline from Q3 to Q4…

NORSK HYDRO : Q3 rev. NK13.3bn (15.8bn exp) but operating loss NK793m (-351m exp) / Considers further restructuring measures

PUBLICIS : Q3 revenues €1.05 bn, in line but organic growth down 7.4% (-6.9% exp) / Said that revenue will decline less in Q4 than in Q3 + confident FY margin will not drop more than 2% / Hopes for slight organic growth next year…

BAYER : Q3 sales €7.39 bn (7.58bn exp) / EBITDA before special items €1.5bn (1.47bn exp) / Net €249m (308m exp) due to restructuring charges / Sees special charges for restructuring at around €350 m vs €250 m before / FY forecast confirmed

BBVA : 9M NII €10.22bn (10.26bn exp) / Net Profit €4.18bn, in line / Net Income €1.38bn (1.32bn exp) / Bad Loan ratio 3.4% vs 3.2% in June / Core Capital ratio 8% vs 6.9% in June / Conf call at 0830 UKT

VERBUND : 9M sales €2.45bn / Q3 Ebit €269m (289m exp) / Says FY result to be slightly lower than previous year

SIEMENS : Talks between Areva & Siemens over their JV Areva NP have stalled over price & contractual terms (Les Echos) / SIE wants to sell its 34% stake in the JV back to Areva so it can ally with Rosatom in the nuclear field / The stake is worth about €2 bn

LUFTHANSA is alarmed over Air Berlin's domestic expansion plans in Germany / Air Barlin’s competition on the key Hamburg-Frankfurt route could eat into Lufthansa's core business and could negatively affect its returns on this high-volume route (FTD)

TELECOM ITALIA is planning a bond issue of up to €2 bn (Corriere della Sera)



TRADING IDEAS


BUY E.ON / QUALCOMM / CARREFOUR


BUY ANGLO GOLD / SELL BHP // BUY REED ELSEVIER / SELL PEARSON // BUY ENI or BP / SELL ROYAL DUTCH // BUY GSZ / SELL EDF // BUY PUBLICIS / SELL LAGARDERE // BUY BAYER / SELL AKZO // BUY VISA / SELL MASTERCARD



BROKER METEOROLOGY



NESTLE RAISED TO BUY FROM HOLD BY DEUTSCHE BANK

PERNOD RICARD RAISED TO BUY FROM NEUTRAL BY NOMURA

HOME RETAIL RATED NEW OVERWEIGHT BY BARCLAYS CAPITAL

SCHNEIDER ELECTRIC RAISED TO OUTPERFORM FROM UNDERPERFORM BY BERNSTEIN

THOMAS COOK RATED NEW OVERWEIGHT BY HSBC

BANCO POPULAR RAISED TO MARKETPERFORM BY KBW


RENAULT CUT TO UNDERWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY

INBEV CUT TO NEUTRAL FORM BUY BY NOMURA

GAZPROM NEFT CUT TO NEUTRAL FROM BUY BY GOLDMAN SACHS

MERCK KgaA CUT TO HOLD FROM BUY BY RBS

MARKS & SPENCER RATED NEW UNDERWEIGHT BY BARCLAYS CAPITAL

NEXT RATED NEW UNDERWEIGHT BY BARCLAYS CAPITAL

ERAMET CUT TO NEUTRAL FROM BUY....................... BY NOMURA



DATA


WTI : 78,8 (-1,24 %)

Eur/$ : 1,4891 (0,10 %)

$ /Yen : 92,12 (-0,06 )

10 Yr US : 3,54 ( -1,33 bp)

10 Yr Euro : 3,35 ( 0,6 bp)


Indices : US close ; Europe close

SOX : 0,33 %;0,16%

S&P :-1,17 %; -0,95 %

DOW: -1,05%; -0,93 %

NAS :-0,59%; -0,49%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -2,00 %; -1,62 %

ENERGY : -1,58 %; -0,93 %

FINANCIAL : -2,27 %; -1,58 %

HEALTHCARE : -1,12 %; -1,08 %

TECHNO : -0,31 %; -0,28 %

TELECOM : -1,39 %; -1,22 %

INDUSTRIAL : -1,11 %; -1,11 %

UTILITIES : -1,31 %; -0,62 %



TO BE COMING



Today

Results : EU \\ Aegis / Akzo Nobel / Banco Bilbao Vizcaya Argentaria / Banco Espirito Santo / Bayer / BP / Daimler (3Q final details) / Enagas / Klepierre sales / KPN / Norsk Hydro / Petroleum Geo-Services / Publicis / Reckitt Benckiser / Renewable Energy / Saipem / Svenska Cellulosa / Vestas Wind

US \\ Ernst & Young / United States Steel / Visa

Asia \\ Canon / Honda Motor / Tata Steel

Dividend :

Events: Pfizer analyst & investor / SAP TechEd Vienna event



Wednesday

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:



Thursday

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 :

Events : BHP Billiton AGM / Nordea Bank



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 :

Events :Pernod Ricard AGM



ECONOMIC DATA PREVIEW



Watch in the United-States the Conference Board Consumer confidence for October (14.00 GMT) Despite the rise in unemployment in the United States, this advanced indicator of household consumption should progress in October to reach 54.5. This rise will be led by the US recovery, the rebound in the stock markets, not to mentioned low interest rates and weak consumer prices.



ECONOMY


United-States: The Dallas Fed manufacturing activity index is declined at a slower pace in October

The Texas factory activity declined at a slower pace in October according to the business executives responding to the Texas Manufacturing survey. Indeed the Dallas Fed manufacturing activity dropped by 3.3% in October (forecast -0.5%) after declining by 6.4% in September. This is the smallest drop since October 2007 confirming the national rebound of the US industry as shown by the ISM manufacturing index and more globally the rebound of the US economy.