Trigger

GLOBAL EQUITITES RESEARCH

Today is an appetizer of this week's events. Johnson & Johnson, then later after the close Intel earnings will open the heavy earnings festival this week from the US where both analysts and economists will try and read the increase on volumes if any. Tomorrow's JP Morgan, Goldman, Citigroup & IBM on Thursday as well as GE and BOA on Friday will make this week a thrilling one, that should bring some answers to those who are wondering why the market keeps on rising. Also the Retail Sales tomorrow will be very interesting as well as the industrial production on Friday and its capacity utilisation level.

Indeed, the capacity utilisation data on Friday will be more of a focus than usual. According to some economists, an important element is the financing gap, or internal cash generation relative to capex. The gap was negative in Q2, i.e capex has fallen to levels where businesses can finance current levels of spending entirely out of cash flow. In fact, in Q2, corporate America generated enough cash to boost capex by 15% without any external funding. In Q3-Q4 cash is likely to grow even faster given the expected profit gains. So, businesses have the funds to invest, what they lack is incentive and confidence. The incentive is closely tied to issues of capacity. At present; capacity is all too plentiful with utilization rates at record lows. However, we believe that the trend has reversed and utilization will rise notably in coming quarters as production rises to catch up with demand. When considering the prospects for business investment, it is also important to compare current investment to the level of depreciation. Normally, about 80% of capex spending goes towards replacement of depreciating equipment and software. Now that capex has contracted by slightly more than 20%, business spending is hardly keeping up with depreciation. Not all businesses need to cut capacity, and this may prompt some to boost spending sooner than is generally expected. Before firms start adding to their capital stock, they will need to add to their labor pool in order to maintain the type of production gains needed to restore a balance between supply and demand. Current and future profits gains should provide the means to pay for additional labor. That will be the focus of the 2010 year.

Especially as Obama is working very hard on getting the job sector back on track. The clock is ticking, and most of the political successes will be linked to the ability to rebuild jobs, and so, will be judged on the economic recovery intensity. With the end of the legislative year fast approaching in the US, policymakers have begun to debate additional stimulus measures more seriously. AlreadyPresident Obama said in his weekly radio address that he was "working closely with my economic team to explore additional options to promote job creation ." But there has been a flurry of activity. White Houseofficials have said Obama is looking at extending jobless benefits and health-care subsides for unemployed workers through 2010. Also under consideration is an extension or expansion of the $8,000 tax credit for first-time home buyers.Zandi of Moody's Economy.com, whohas worked closely with Pelosi, suggested there might be a two-pronged approach. He said Congress should pass the extension package bythe end of the year at a cost of roughly $100 billion. This would include extending jobless benefits, health-care subsidies, the homebuyer tax credit and a provision to allow Fannie Mae and Freddie Mac to continue to finance larger mortgages. Then, early in 2010, if theeconomy is not gaining traction, another package should be put in place. This proposal should include additional aid to states, more money for mortgage modifications, expanding the housing tax credit to all buyers, and credit for small businesses.The total cost -- another $100 billion.

Interesting day playing on highs when approaching earnings and intense economic data surveys for the week, which should not let the market fall asleep in these levels.We still expect some much higher targets, the one of the pre Lehman fall, and any downside should be seen as an opportunity to reinforce so much the virtuous circle is in place, in addition to a tail wind blowing from worldwide officials and buying flows fitting with appetite for riskier assets.


ECONOMIC DATA WITH IMPACT


The October German ZEW survey (10.00 UK time) should reveal a further modest rise in investor sentiment to about 60, from 57.7 in September, continuing the general upward trend seen over the last 11 months. At its current level the headline index is already pointing to a rapid acceleration in GDP growth.

Johnson & Johnson (lunch time)

Intel (after the close)


POSITIVE IMPACTS


METRO ismore skeptical of any merger of its Kaufhof department store chain with Karstadt of Arcandor (Handelsblatt) / Instead, it may be looking to sell Kaufhof because it doesn't fit in its international strategy

WPP is in advanced talks to acquire India's BioQuest Solutions (livemint.com)

FIAT’s car sales in Western Europe in September will increase 14.8% from the same month last year while overall market is expected to grow 9.3% (IHS Global Insight) / Fiat's market share is expected to rise to 8% from 7.6% the previous year.

GDF SUEZ : The Belgian government agrees to extend the lifetimes of its 3 oldest nuclear reactors by 10 years

NOVARTIS agreed to pay $200 m to acquire the rights to sell Vanda Pharma’s new schizophrenia drug Fanapt in the US and Canada

SWEDISH BANKS’ credit losses in Sweden are unlikely to be as high as feared as corporate bankruptcy has not risen as much as had been feared by many analysts and the economy is recovering faster than expected (Dagens Industri)

SWEDBANK’s $2.1 bn rights issue was over 180% covered (Reuters) despite concerns over its exposure in the Baltic region

AEGON will make $650 m in additional regulatory capital available to US operations / Between Q308 and Q209, released €3.3 bn of capital from its businesses

NATIXIS (Yesterday) : BPCE plans to start repaying financial aid from the French state with the sale of super-subordinated bonds / BPCE will only repay part of the €4bn it received from the state

BAE SYSTEMS won a 3-year contract to service Typhoon fighters sold to Saudi Arabia / The deal could be worth £500m (Telegraph)

ITV intends to make an offering of approximately £120 m of senior unsecured convertible bonds due 2016 / Coupon of between 4.00-4.75% / Remains on course to outperform the TV advertising market & on track to deliver the substantial cost savings set out

SEMI CONDUCTORS : Prices for DRAM climbed 13%in September as manufacturers of electronic devices stepped up procurement in preparation for the year-end shopping season (the Nikkei)



NEGATIVE IMPACTS



LLOYDS would have to pay as much as £2bn to end its participation in the govt program aimed at insuring troubled assets (Bloom)

DBK’s CEO said that “while the worst of writedowns on securities and loans for leveraged buyouts may be over as markets stabilize, loan defaults still pose a risk”

LUFTHANSA : A setback in booking by private travelers is worrying Lufthansa (Handelsblatt) / Moreover, Lufthansa, on average, earns 20% less on passengers than before the crisis."

VIVENDI's shares risk becoming a value trap despite trading at deep discounts to purer-play European media & telecom Co (WSJ)

INBEV is in talks with CVC Capital Partners about providing a vendor loan to the PE firm to reach an agreement over the sale of its Central & Eastern European ops (A vendor loan is offered by the seller to the buyer when there is a mismatch between the value at which the seller wants to sell & what the buyer can pay / It will be non-cash paying which means that InBev won't receive interest on the loan)

ENEL is prepared to delay a decision on the sale of a stake in its renewable energy business until next year.

FRAPORT : Passenger numbers fell 4.7% at Frankfurt airport, in September and air freight fell 5.4%



TRADING IDEAS


BUY BNP / SOC GEN ahead of US financials earnings starting this week + end of capital increase period Today (1 for 10) for BNP.

BUY TOTAL lagging (div 1.13 Total Nov 14th)

BUY EON /ARCELORMITTAL / BIOGEN on double bottom possibility

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

SELL GSZ to play Head & Shoulder possibility



BUY BAYER / SELL AKZO // BUY ACCOR / SELL SODEXO // BUY EON / SELL RWE // BUY SAINSBURY / SELL TESCO // BUY NESTLE / SELL DANONE // BUY HOLCIM / SELL LAFARGE // BUY BMW / SELL DAIMLER // BUY ERICSSON / SELL ALCATEL // BUY TOTAL / SELL REPSOL


BROKER METEOROLOGY


PHILIPS RAISED TO BUY FROM HOLD BY RBS

COMMERZBANK RAISED TO NEUTRAL FROM UNDERPERFORM BY NOMURA

UK SOFTWARE SECTOR RAISED TO OVERWEIGHT FROM NEUTRAL BY CITIGROUP

UK REAL ESTATE RAISED TO NEUTRAL FROM UNDERWEIGHT BY CITIGROUP


FITCH PLACES HEIDELBERGCEMENT’S ‘B’ IDR ON RATING WATCH POSITIVE


PENNON CUT TO NEUTRAL FORM UNDERWEIGHT BY CREDIT SUISSE

UK PHARMA SECTOR CUT TO NEUTRAL FROM OVERWEIGHT BY CITIGROUP

UK FOOD SECTOR CUT TO UNDERWEIGHT FROM NEUTRAL BY CITIGROUP


GOLDMAN SACHS CUT TO NEUTRAL FROM BUY BY MEREDITH WITHNEY


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 :Johson & Johnson / Intel

Dividend :Abbott Laboratories ($0.40)

Events :BNP Paribas end of subscription time / Procter & Gamble AGM / SAP at TechEd Phoenix show



Wednesday

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



ECONOMIC DATA PREVIEW



Watch in the Germany the ZEW index for October (10.00 GMT). After declining to 39.5 in July, stopping eight consecutives months of progression, the ZEW index, jumped to 56.1 in August and again in September to 57.7, its highest since April 2006.In October, we anticipate a small correction of the ZEW index which should slow to 57.

Watch in France the Consumer price index for September (7.45 GMT). Consumer prices should drop from +0.5% in August to -0.1% in September and should remained very weak at -0.2% from a year ago.





ECONOMY





No economic data relased