Goldjob

GLOBAL EQUITIES RESEARCH

Disappointing finish from the US with a sell-off from financials (from +1.6% to –1.5%) as well as materials and energy sectors (from +1% to –0.1%) probably on some profit taking post FOMC ahead of the so feared Employment report out tomorrow. Indeed what became a relief after the lower than expected ISM non manufacturing survey which would prevent the Fed from acting in a hawkish way became a fear right after the meeting with a worry that the employment report would be bad.

Better than expected ISM manufacturing job component should lead to some better employment report on Friday. The current 175k job destruction consensus seems to us, and to most of strategists too pessimistic. We should head closer to the 150k job destruction level. Not saying this is a dream, and even more it might take 3 to 4 months before we get some hiring on the labour sector. Only then, bear and sceptical players will have to admit things might be running on their own, and should also welcome the possibility for the Fed to gradually end its easing quantitative policy. While bull players will be delighted and sit comfortably on long positions for a run which might send the Eurostoxx on much higher level, driven by healthy fundamentals this time, which justify some unvisited territory up there. The intervention of the very reactive lately Goldman strategist (if any) could well support the indices for today, as they are more pessimistic than the street consensus and used to adjust when approaching big events (last month’s Employment report and Q3 GDP) according to very fresh data out a few days before providing leading indications.

Anyway, the favourable monetary policy backdrop and the improvement in the economic data that have fuelled the rally should persist over the next few quarters. It is not surprising after the tremendous run up in asset prices since the spring that investors were now looking to take money off the table. They have an excuse. The cyclically-adjusted price/earnings ratio for the S&P 500 touched 20 in October, well above the long-run average of less than 15. It was below 12 in March. The spread of US 7-10 year, BBB-rated corporate bonds over Treasuries also dropped to 2.75% – just three quarters of a percentage point above the average of the past decade. The spread was nearly 8% last December. Further more, the trailing price/earnings ratio for the MSCI Emerging Market Equity Index reached its highest level last month (19) since 2000. And the spread of the JP Morgan Global Emerging Market Bond Index over Treasuries touched 3%. Although that was 1.5% above the all-time low reached at the height of the credit boom, it was nearly 6% less than the peak seen a year earlier. But the US should continue to record some decent rates of growth for a while as the full effects of the fiscal stimulus come through, the inventory cycle turns positive and investment picks up.

What comes out from the FOMC meeting last night is the renewed commitment to keep interest rates at “exceptionally low levels” for an “extended period” and to continue buying mortgage-backed securities until the end of Q1 2010, which should be market supportive and a boost to growth. The only change is that the Fed now intends to buy $175bn in agency debt, slightly less than the $200bn it previously had pledged to purchase. This is not the first step towards implementing an exit strategy for quantitative easing. The Fed was careful to explain that the reduction is because there simply isn’t enough of this debt out there that the Fed can snap up without distorting the market. Putting the reduction in perspective, the Fed originally pledged to buy $1,750bn of various securities, so that $25bn reduction in the target for agency debt equates to slightly less than 1.5%. What’s more telling is that this latest statement makes no reference to the recent surge in many commodity prices, particularly crude oil. Overall, any change in the Fed’s policy stance is still a long way off. Quantitative easing won’t be put into reverse until the Fed has finished buying mortgage-backed securities at the end of Q1 2010. Assuming that the Fed first starts to shrink the amount of excess reserves held by commercial banks through large scale reverse repo operations, then interest rates hikes will be even further off.

We would take opportunity of an opening weakness to refuel long positions. Some signs of employment improvement should be seen through the temporary workers hiring (Adecco earnings better today + message sent by the head of budget from the White House last Tuesday), as well as longer hours worked, notwithstanding the possibility to see a much better survey which remains very volatile. As such, productivity today is interesting. A too high productivity is usually leading to job hiring process



ECONOMIC DATA WITH IMPACT


Bank of England (12h UK time) / expect more monetary fireworks from the Monetary Policy Committee. With the previous extension to its quantitative easing (QE) programme now complete and the economy still weak, we expect it to announce another £50bn of asset purchases over the next three months.

ECB (12h45 Uk time) should leave rates on hold at 1%, and should not announce any significant change in its policy of providing loans to the banking sector. The Bank might scale back its liquidity provision in the next few months. But the impact of this would be limited given that banks are now demanding fewer loans from the ECB anyway.

Jobless Claims (13h30 UK time) expected 522k from previous 530k / the lower the better / interesting at a time when employment is a focus with the Job component improving and the non farm payrolls tomorrow

US Productivity (13h30 UK time) expected +6.5% from previous 6.6% / the higher the better / a high productivity is usually leading toward a pick up in hiring which would be good as to make the economic recovery sustainable / interesting

ICSC Chain Store sales (16h UK time) / previous was up 0.1% / the higher the better / interesting as to measure whether US consumers are back on the scene / minor for today focus employment report tomorrow



POSITIVE IMPACTS



SOFTWARE AG : Q3 sales 213.6 m (176m exp) / EBIT 56.4m (43m exp) / Raised its FY EBIT margin forecast to 25-25.5% (24.8% exp) + the revenue forecast to between €835m and 845m (750m exp)

DEUTSCHE TELEKOM : Q3 revenue €16.26bn (16.28bn exp) / Ebitda €5.53bn (5.35bn exp) / FCF €3.3bn (2.5bn exp) / Germany better &n T-Mobile in line / Confirmed outlook

MUN RE: Q3 Gross Premiums €10.35bn (€10.24bn exp) / Operating €1.21bn (€1.15bn e) / Investment income €2.24bn (€1.95bn exp) CR 93.4% (94.3% exp) / Sees FY Gross prem. €40bn-€42bn (€40.7bn e) / Plans to buy back shares worth €1bn by next AGM (Apr.10)

WACKER CHEMIE : Q3 sales €987m (983m exp) / Ebit €83m (50m exp) / “Cautiously optimistic” for 2010

DEUTSCHE POST : Q3 revenue €11.2bn (€11.85bn exp) / EBIT €231m (€140m exp) / Sees 2009 Adj EBIT at least €1.35bn (€1.2bn exp) / Sees €1bn cost saving by end-2009 from end-Q2 2010 previously

ADECCO : Q3 revenues 3.72 bn (3.69bn exp) / Operating €127 m (69m exp) / Said market conditions have improved during the Q3

HOCHTIEF is planning a stock market floatation of its subsidiary Hochtief Concessions (Dow Jones)

LEGRAND raised its operating margin guidance for the FY to 17% from 14% before (14% exp)

STM : CEO said the worst of the crisis is behind the company / For the Q4, it expects a turnover between of $2.4 bn and $2.7 bn, which represents growth of between 5% to 12% from the Q3 (2.42bn exp) (Les Echos)

FIAT : Chrysler said it will break even in 2011 and reduce net debt to $4 bn in 2014 from $8 bn end 2009 (Strategic plan yesterday)

DELHAIZE : Q3 Sales €4.89bn (€4.88bn exp) / Ebit €228m (€221m exp) / Sees FY ebit ex-fx rising 1%-4% vs 0%-3% previously ABERTIS : 9M Ebitda €1.89bn (1.83bn exp) / Sees trading above views

SAS : Q3 revenue SK 11.1bn (11.5bn exp) / PTP SK114m (-400m exp) / Will present results of talks with Unions later Today



CISCO : Q1 sales $9bn (8.74bn exp) / EPS $0.36 (0.31 exp) /Set a $10bn share buyback / Sees Q2 sales up 1 to 4% yoy (-1.3% exp)



NEGATIVE IMPACTS



NORSKE SKOG : Q3 rev. NK5.03bn (5.24bn exp) / Ebitda NK 642m (592m exp) / Net loss NK418m (-230m exp) / few signs of upturn

SWISSCOM has been fined SFR220m for its broadband pricing policy that resulted in disadvantages for its rivals (Swiss watchdog)

CAP GEMINI : Q3 sales €1.95bn (2.04bn exp) (LFL -9%) / Confirmed FY operating mgin of about 7% / Sees similar sales decline in Q4

LAGARDERE : 9M sales €5.82bn (5.87bn exp) / Kept 2009 outlook / Q4 revenue decline could be less marked than 9M

SUEZ ENVIRONNEMENT : 9M rev. €8.92bn (In Line) / EBITDA €1.5bn (€1.47bn e) / No Sign of recovery / Confirmed guidance

C&W : H1 revenue £1.86bn (1.92bn exp) / EBITDA £463 m (454m exp) / CWI Ebitda guidance revised down to $880-900m / FY dividend 9.50p with +12% in interim dividend to 3.16 pence

POSTBANK : Q3 NII €579m (€586m exp) / Pretax Loss €59m (€-33m exp) / Took charges of 158m on structured credit product / Loan Provisions €173m / Trading Loss €139m (€ -66m exp) hit by €-56m on CIT / Confident on sustained 13%-15% after-tax ROE mid term

BNP : Q3 revenue €8.63bn (€10.43bn exp) / Gross operating €4.63bn (€4.05bn exp) / Net €1.3bn ( €1.2bn exp) helped by €277m FORTIS Risk Charge €2.3bn (In Line) / Tier1 10% vs 9% End-June / Expects cost of risk to remain at high level / No Specific guidance

ZURICH FINANCIAL : Q3 Gross Written Premiums $13.04bn ($12.66bn exp) / Operating $1.5bn ($1.6b exp) / CR 96.9% (96.6% exp) ROE 11.6% / Solvency position 209% end-Q3 (200% exp) / Well positioned for the future

CBK : Q3 Trading Income €659m (€421m exp) / Operating profit €120m (€-100m exp) / Net loss €1.05bn (€-700m exp) / Core Tier1 just under 11% / Can’t rule out setbacks in H2 / Can’t repay Soffin participations from 2012



QUALCOMM : Q4 revenue $2.69bn (2.74bn exp) / EPS $0.48 (0.52 exp) / Operating margin fell to 22.2% from 40% / Sees Q1 sales $2.55-2.75bn (2.84bn exp) + EPS $0.54-0.58 (0.55 exp)



TRADING IDEAS


BUY LAFARGE ahead of results tomorrow and ALLIANZ on Monday

BUY SOC GEN to play spec & BUY SAP / ST GOBAIN to play a rounding bottom

BUY RENAULT / SCHNEIDER / AEGON / ENI / TOTAL / FTE on double bottom possibility



BUY DELHAIZE / SELL AHOLD // BUY GSZ / SELL GAS NAT // BUY RENAULT / SELL PEUGEOT // BUY ENI / SELL BP // BUY SALZGITTER / SELL THYSSEN // BUY LOCKHEED MARTIN / SELL HONEYWELL



BROKER METEOROLOGY


MAN SE ADDED TO ANALYST FOCUS LIST BY JP MORGAN

LOGICA RAISED TO NEUTRAL FROM SELL BY UBS

BANK OF IRLAND RAISED TO NEUTRAL BY UBS


TOTAL CUT TO BUY FROM STRONG BUY BY S&P RESEARCH

DSM CUT TO NEUTRAL FROM BUY BY NOMURA

SCOR CUT TO HOLD FROM BUY BY CITIGROUP

LUKOIL CUT TO UNDERPERFORM FROM OUTPERFORM BY CREDIT SUISSE



DATA


WTI : 79,8 (0,53 %)

Eur/$ : 1,4850 (-0,08 %)

$ /Yen : 90,46 (0,39 )

10 Yr US : 3,51 ( -1,33 bp)

10 Yr Euro : 3,32 ( 5,5 bp)


Indices : US close ; Europe close

SOX : 0,62 %;1,91%

S&P :0,10 %; 1,14 %

DOW: 0,31%; 1,26 %

NAS :-0,09%; 0,88%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : -0,12 %; 1,49 %

ENERGY : -0,25 %; 0,96 %

FINANCIAL : -1,36 %; 0,57 %

HEALTHCARE : 1,02 %; 1,55 %

TECHNO : 0,62 %; 1,52 %

TELECOM : 0,38 %; 0,97 %

INDUSTRIAL : -0,11 %; 1,22 %

UTILITIES : 0,56 %; 1,31 %



TO BE COMING



Today

Results : EU \\ Abertis / Adecco / Altana / BNP Paribas (BMO) / Cable & Wireless / Capgemini sales / Delaize (7.00 BST) / Deutsche Boerse / Deutsche Post / Deutsche Postbank / Deutsche Telekom / Commerzbank / Fortis / Invensys / Lagardere / Legrand / L’Oreal / Man Group (BMO) / Maurel & Prom sales / Metropole TV (M6) / Muenchener Ruck / Old Mutual (BMO) / Skanska / Suez Environnement sales / Telecom Italia / Unilever (BMO) / Wendel / Zurich Financial (BMO)

US \\ Cardinal Health (BMO)

Asia \\ Activision Blizzard / Bridgestone / El Paso / Pioneer / Sara Lee

Dividend : Rolls-Royce (GBp 6)

Events: Coach AGM / Man Group analyst meeting


Friday

Results : EU \\ Assicurazioni Generali / British Airways interim / CNP / Eiffage sales / Hannover Re / Hermes International / Italcementi / Lafarge

US \\ AIG / Electronic Arts

Dividend : IBM ($0.55)

Events: Energias de Portugal investor day



Monday

Results : EU \\ Allianz / Ciments Francais / Euler Hermes / Puma / Veolia Environnement sales

US \\ InterContinental Hotels

Asia \\ HTC

Dividend : Applied Materials ($0.06) / Exxon Mobil ($0.42)

Events :



Tuesday

Results : EU \\ Arkema / Barclays / CGGVeritas (BMO) / Credit Agricole (AMC)HSBC / Intesa Sanpaolo / Imperial Tobacco / Mediaset / OMV / Terna / TF1 / Yell Group

US \\ Applied MaterialsAsia \\ Hutchison

Dividend :

Events:



Wednesday

Results : EU \\ Abengoa (BMO) / E.On / Henkel / Holcim (BMO) / ING (BMO) / Sainsbury (BMO) / Swisscom (BMO) / Swiss Life / UniCredit

Dividend : BP (GBp 9,457778) / Du Pont de Nemours ($0.41) / Home Retail (GBp 5,222222) / Telefonica (€0.50)

Events:Logitech investor day / Monsanto investor day / SAP at echEd Shanghai event / Annual Healthcare Conference at Credit Suisse



ECONOMIC DATA PREVIEW



Watch in the United-States the weekly release of initial jobless claims and continuing claims (13.30 GMT). Initial jobless claims and continuing claims are both expected to slow down as the virtuous circle : investment–employment–consumption is progressively taking place in the United-States.



Watch in the Euro area the European Central Bank announces rates for November(12.45 GMT). The European Central Bank should leave its refi rate unchanged in November, but as the inflation should get back in positive territory in November and should get close to 1.6% in January and 2% at spring 2010, the ECB will react before the “disaster” will happen. Consequently the Frankfurt institute will most likely increase its rate by 25 bp in December 2009 or at the latest in January 2010.

Watch in the United-Kingdom the Bank of England announces rates for November(12.00 GMT). The Bank of England which cut its leading rate in February by 50bp, followed by another 50bp cut in March reaching 0.50% an historical low. The Bank of England will keep its leading rate at 0.50% in November.



ECONOMY


United-States: The ISM non manufacturing unexpectedly declined in October but remained at a consistent level

The ISM non-manufacturing index unexpectedly declined from 50.9 in September to 50.6 in October (forecast 51.5). This slight decline was led by a fall in inventory at 43.0 (prior47.5) and employment at 41.1 (prior 44.3) the exact opposite of what happened in the manufacturing survey. Meanwhile Business activity rose from 55.1 to 55.2 and new orders rose from 54.2 to 55.6. Despite this slight decline the ISM non manufacturing remained at a consistent level and a similar drop has been seen in July which has been reversed the last month. After over cutting capital spending, US companies are investing again, not only in the manufacturing sector but also in services showing that private motors are now taking over public motors.



United-States: Status quo for the Fed Fund rates in November

Conscious of the gravity of the situation, the Fed has been very reactive in maintaining its leading rates at between 0 and 0.25% since December 2008. The maximum has been done in order to save the economy of Uncle Sam, consequently: cutting further the Fed funds rates will be useless and the Fed Fund rate will remained unchanged in November. Nevertheless, after being very accommodative, the Fed will have to lead the recovery to compose with the return of higher consumer prices. Consequently the Fed will be forced to increase its fund rates. At this time, Ben Bernanke confirmed that the Fed will not adopt such a policy as long as unemployment does not drop significantly, and will not commit itself into a phase of tough monetary tightening in order not to penalize the recovery. This is why we anticipate Fed fund rates to rise to 0.5% in spring 2010 and reach 1.75% in a year from now.



Euro area: Sharp drop of producer price index in September

Producer price index fell by 0.4% in September(prior +0.5%) pulling the annual rate down from -7.5% to -7.7% YoY. The level of producer prices remained very close to July release at -8.4% YoY the lowest rate since the beginning of the statistic. This drop was mainly led by the drop of energy prices from a year ago making a negative contribution to costs. Nevertheless even without energy PPI dropped by 4.3% YoY. Looking at the breakdown intermediate goods prices dropped by 7.3% and consumer good prices by 2.7% while energy prices dropped by 17.6%. As PPI inflation tends to lead core CPI inflation by around a year the trend decline should last in the coming months