Thursday, December 3, 2009

Electric Central Bank

GLOBAL EQUITIES RESEARCH

Not much to dream about for today’s session but the rise of the Nikkei boosted by Mitsubishi (up 13.5%) dealing a cross shareholding with Peugeot and a weaker yen vs dollar. We still do not understand the new high reached on the S&P yesterday given the worsening macro background environment, and should explain that we were dealing with some short positions cuts following some entry from fund managers on the first day of December to play and hope an end of year rally which is far from granted for now, or at least too early and too much of a bet at this stage. But one thing for sure in the end, it made the technicals on the S&P not so looking with a fake upside exit of a market dangerously staying on its high. Ugly looking, same as the fundamentals for now. The risk being that the unwinding from easy quantitative policies driven by political pressures are too early and would trigger further economical troubles which we hardly can measure at this stage. No drama but not good looking for now.

The ECB might be the focus today and will be feared. Indeed,the main interest in Europe this week will be whether President Trichet provides any hints about the speed at which the ECB will unwind its liquidity operations at today’s press conference. Indeed the ECB is about to pull back some stimulus aid in today’s press conference. Main focus will be the one year loans, of which Dec 16th one likely to be the last round. The ECB wants to limit demand for this Dec instalment and wean banks off their dependence. Together with possible hints about phasing out 6-month lending next year, this might add to fears that the Bank will withdraw its unconventional policy stimulus too quickly. The story behind this is the weak debt situation of most European countries. If according to economists Greece bankruptcy has some good chance to be avoided, it would be unwise to write off the possibility of default altogether. If growth was persistently weaker than in the past, or markets demanded a higher return to lend to the Government, far more austere fiscal measures might be required to get the public finances on a sounder footing. Either development could make defaulting.

Bernanke will be another threat regarding the unwinding of the easy quantitative policies. Politicians are increasingly taking part to the story, and fear that the banks are just blowing another bubble thanks to the cheap funding. Bernanke found the backing of 8 Democrats and 4 Republicans among the 23 lawmakers on the panel overseeing the central bank. The banking panel holds a hearing on Bernanke’s nomination today in Washington. Some said they will support Bernanke while others said they’re leaning in his favour. Bernanke’s 4 year term ends Jan.31st. Bernanke said that there is a "strong case" for a continued role for the Fed in bank supervision , writing that the central bank brings "unparalleled economic and financial expertise to its oversight of banks." He also said that the Fed's ability to take actions including cutting interest rates without engendering sharp increases in inflation "depends heavily on our credibility and independence from short-term political pressures." The Federal Reserve has been the subject of some criticism in Congress, reflecting public anger at the costly bailouts of financial institutions. Bernanke acknowledged that the Fed "did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis." He wrote that the Fed does support measures that would ensure that "ad-hoc interventions" like the kind used last fall never happen again. In particular, Bernanke said he supports a special bankruptcy regime for financial firms whose failure would threaten the financial system . Speaking Sunday Sen. Bernard Sanders, an independent from Vermont, said he wouldn't vote to confirm Bernanke. But Sen. Lindsey Graham said on the same television program that the chairman "has done a very good job, but the Fed needs to be looked at closely in terms of its balance sheet."

The jury will be out this afternoon.

The only way to be free safely from these stimuli would be a job creation level which remains a bet until it happens. The ISM non manufacturing job component today will be closely watched in order to fine tune the employment report forecast due out tomorrow. But we already guess there is not much dream to be expected on Friday’s report. Indeed the ISM manufacturing job component did drop from 53 to 50.8, while the private sector showed through the ADP yesterday it was still destroying 169k jobs in November. The only hope being that the US job census to hire 1.4 mn workers next year will be efficient. However the answer should only come by spring, and the way things are happening it might be a long way from today, with a lot of things possibly happening. The pressure from worldwide officials about the too easy quantitative policies which is mostly used to build another bubble becomes a real concern. Most economies would hardly run on their own at this stage without stimuli, and if they did the pace would be too slow to pay the money from the interest of their debts back to investors. This is precisely the reason why any bankruptcy risk from weak countries should be seen as a real threat so much every countries have to deal with their own debt problems already.

We suggest once more to be careful, not believing in a rise for now, but the market seems unbelievably resilient for now which we see as much as you do



ECONOMIC DATA WITH IMPACT




ECB (12h45 UK time) expected to announce the end of the special loan which is expiring on Dec 16th / risk behind that story being the further weakness of Greece, Ireland, Spain, UK etc … Press Conference (13h30 UK time)

Jobless Claims (13h30 UK time)expected 480k from previous 466k / interesting ahead of the employment report tomorrow

US Q3 GDP revision (13h30 UK time) expected 8.5% from 9.5% / down in line with the GDP revision / minor as belonging to the past

ISM non manufacturing (15h UK time) expected 51.5 from previous 50.6 / should remain above the 50 growth level, to as strong as the manufacturing sector since it doesn’t profit as much of the dollar weakness / keep an eye on the job component which will be important as to fine tune tomorrow employment report forecast / interesting

Bernanke hearing (15h UK time) with a vote in the Senate Banking Committee about his extension as the Fed President

ICSC Chain Store sales (16h UK time) / previous was +2.1% / interesting




POSITIVE IMPACTS



PEUGEOT & MITSUBISHI MOTORS are negotiating a capital tie-up = PSA would buy a 30-50% stake ($3.4bn) in Mitsubishi (Nikkei)

SIEMENS : Q4 sales €19.71bn (19.28bn exp) / Operating €1.92bn (1.6bn exp) / Industry op. margin 6.3% (5.7% exp) / Energy 13% (11.8% exp) / Healthcare 15.4% (12.9% exp) / Order intake €18.75bn (17.11bn exp) / Dividend €1.60, unchanged & in line / Sees 2010 operating profit of €6-6.5bn (5.70bn exp)

KINGFISHER : Q3 sales £2.7bn, in line / Retail profit £227m (220m exp) /Q3 UK LFL sales +3.9% / French LFL sales -2.4%

UNILEVER is thinking of selling its Italian frozen food business in a deal worth up to €800 m (FT)

AIR FRANCE-KLM's management wants to revise the collective agreement for pilots and cabin crew, with the aim of adding €120 m to Ebit, in addition to its restructuring plan already calling for €500 m in Ebit savings (Les Echos)

AXA has successfully completed its €2.07bn capital increase / The issue was 272% subscribed, with total demand at about €5.6bn

PPR : CFAO starts trading Today (Reuter Ticker = CFAO.PA / Bloomberg Ticker = CFAO FP)

DELHAIZE expects to make an additional €300 m in annual operating cost savings by 2012

ASML and Brion Technologies extended partnership with STM for integrated lithography solutions

THOMAS COOK plans to buy Germany-based Turkey-specialist travel agency Oeger Tours (turnover of around €770 m) (FTD)

CAIRN ENERGY said that it plans a "10 for 1" subdivision of its share capital to improve the liquidity of ordinary shares

BANCO POPOLARE : The 10-for-1 rights issue at the bank's 88% unit Banca Italease will run from Dec. 7-23, with rights

tradable on the bourse from Dec. 7-16

FORTIS : UBS has cut its stake in Fortis to under 3% and held no Fortis shares as of Nov. 25

DNB NOR said that it definitely favours organic growth over M&A for time being…

TO BE NOTED : FERROVIAL & CINTRA will be suspended on Friday due to their merger and will resume trade on Monday as one Co

UK BANKS have an aggregate exposure to Dubai World of about $5bn (FT) / RBS was the most exposed of U.K. lenders, with up to $2bn owed / HSBC, STAN and LLOYDS have exposure of about $1bn each



BANK OF AMERICA said it will repay the $45bn loan provided under the TARP / BAC plans to use $26.2bn in excess liquidity and $18.8bn in proceeds from the sale of common equivalent securities / Tier1 common Capital ratio would be 8.5% & Tier1 Capital ratio 11%

SEMI CONDUCTORS : TSMC's operations will likely return to 2008 levels in the H1 2010, one or two quarters ahead of previous expectations (The Economic Daily News)



NEGATIVE IMPACTS


ALSTOM : S&P placed Alstom 'BBB+/A-2' ratings on creditWatch negative following the acquisition of T&D

UNIPOL : Moody's assigned Unipol a Baa1 long-term rating with a negative outlook.

DEUTSCHE TELEKOM is being probed by the German cartel office on suspicion it abused its market position

REPSOL expects LNG sales volumes in 2009 to be "a little less, but in line with" the 4.7bn cubic metres it shipped in 2008



TRADING IDEAS


BUY the dollar,the ECB tougher stance will bring another threat to risky assets such as emerging countries



SELL ST GOBAIN as Wendel investors day was supposely played aggressively last few days, but Wendel not in a good situation regarding St Gobain, they now sold put options last few weeks cashing 163 mn euros / Wendel owns 17.51% of St Gobain bought on higher level they have to deal with it

SELL ARCELORMITTAL / SCHNEIDER / NESTLE / L OREAL possible double top to be confirmed soon

SELL BAYER / BASF to play head & shoulder possibility

BUY MUNICH RE / GSZ vs SHORTEUROSTOXX to play double bottom possibility on these names


BUY EON / SELL EDF // BUY AXA / SELL ALLIANZ // BUY AIR FRANCE / SELL LUFTHANSA

BUY TELECOM ITALIA / SELL TELEFONICA // BUY DANONE / SELL NESTLE // BUY ENEL / SELL IBERDROLA

BUY ALTRIA / SELL REYNOLDS AMERICAN // BUY ANADARKO PETROLEUM / SELL EXXON



BROKER METEOROLOGY



HEIDELBERGCEMENT RATED NEW BUY BY BANK OF AMERICA - ML

YARA RAISED TO BUY FROM HOLD BY DEUTSCHE BANK

ORASCOM TELECOM RAISED TO BUY FROMHOLD BY DEUTSCHE BANK


DSM CUT TO HOLD FROM BUY BY DEUTSCHE BANK

TRINITY MIRROR CUT TO EQUALWEIGHT FROM OVERWEIGHT BY MORGAN STANLEY



DATA



WTI : 80,1 (0,37 %)

Eur/$ : 1,4877 (0,04 %)

$ /Yen : 90,64 (0,06 )

10 Yr US : 3,53 ( 0,75 bp)

10 Yr Euro : 3,35 ( 2,9 bp)


Indices : US close ; Europe close

SOX : 2,59 %;2,23%

S&P :1,92 %; 1,54 %

DOW: 2,08%; 1,78 %

NAS :2,42%; 2,12%



DJ Stoxx US Sectoral Indices : US close ; Europe close

BASIC MATERIALS : 2,86 %; 2,15 %

ENERGY : 1,63 %; 1,74 %

FINANCIAL : 2,37 %; 0,94 %

HEALTHCARE : 1,68 %; 1,36 %

TECHNO : 2,18 %; 2,09 %

TELECOM : 1,24 %; 1,22 %

INDUSTRIAL : 2,71 %; 2,13 %

UTILITIES : 1,72 %; 1,49 %





TO BE COMING



Today

Results : EU \\ Kingfisher trading statement / Siemens (BMO) [Americas] \\ Bomardier

Dividend : Nike($0.27)

Events: Siemens annual analyst meeting / Delhaize investor day / Merck & Co guidance call / NH Hoteles EGM / Starbucks analyst conf / TNT analyst day / Volkswagen EGM


Friday

Results :

Dividend :

Events: Randstad Analyst day / Rexel Investor day / Volkswagen EGM



Tuesday

Results : EU \\ Tesco interim

US \\ Kroger Co / Texas Instruments Mid-quarter update

Dividend : Baxter International ($0.29)

Events : 3M Company 2010 Outlook Meeting / Global Industries conf at Bank of America-ML



Wednesday

Results :

Dividend :Land Securities (GBp 7) / Wal-Mart Stores (€0.2725)

Events: Swiss Re investor day



Thursday

Results : US \\ National Semiconductor

Dividend : FedEx ($0.11) / Tme Warner ($1.00)

Events:Prudential investor day







ECONOMIC DATA PREVIEW



Watch in the United-States the ISM non-manufacturing composite for November (15h00 GMT), After reaching 50.9 in September, above 50 for the first time since August 2008, the ISM services index reached 50.6 in October. After over cutting capital spending, US companies are investing again, not only in the manufacturing sector but also in services. Therefore we anticipate a new rise in the ISM services index to 52 in November, the highest for two years.



Watch in the Euro area the ECB monetary policy meeting and decision on the refi rate for December (12h45 GMT). Despite the fact that GDP in the euro zone remained very low (precisely -4.1%YoY), and despite the high level of the euro, the ECB will keep its refi rate unchanged in December at 1%. This decision will be most likely be justified by the fragile recovery as revealed in particular by the last IFO, INSEE or PMI surveys. Moreover as the inflation should reach + 1.5% during the first quarter 2010, the ECB will most likely increase its refi rate. One more time the ECB will shoot itself in the foot and the economic recovery will remained soft./JB



ECONOMY


United-States : Fed Beige book

“Reports from the twelve Federal Reserve Districts indicate that economic conditions have generally improved modestly since the last report. Consumer spending was reported to have picked up moderately since the last report, for both general merchandise and vehicles. Manufacturing conditions were said to be, on balance, steady to moderately improving across most of the country, while conditions in the nonfinancial service sector generally strengthened somewhat, though with some variation across Districts and across industries. Residential real estate conditions were somewhat improved from very low levels, on balance, led by the lower end of the market. Most Districts reported some pickup in home sales, though prices were generally said to be flat or declining modestly; residential construction was characterized as weak, but some Districts did note some pickup in activity. Commercial real estate markets and construction activity were depicted as very weak and, in many cases, deteriorating. Financial institutions generally reported steady to weaker loan demand, continued tight credit standards, and steady or deteriorating loan quality.”



United-States : job destruction dropped to a lowest since July 2008 according to the ADP employment report.

After reaching -736 000 in march 2009 job destruction as per the ADP employment private report improved for an eight consecutive month to reach -169 000 (forecast -150 000) in November the “best result” since July 2008. After over laying off companies are now back to economic fundamentals confirming the soft recovery in the United-Sates. This data is a positive indicator of the upcoming employment report due Friday 4th of December. Job destructions which had reached 190,000 in October (US employment report) “the best result” since August 2008, should dropped sharply to 100,000 in November. Nevertheless, as the US recovery is not strong enough and still at its early phase, the unemployment rate should increase in the coming months, and this until the beginning 2010 to at least 10.5%. Significant improvement in the labour market should occur at spring 2010 and will be followed by an increase of the Fed fund rate.



Euro area : Producer price index remained deeply negative in October

After dropping by 0.4% in September producer price index rose by 0.2% (forecast +0.0%) in October led by the rise in energy prices. From a year ago producer prices remained deeply in negative territory at -6.7% YoY (forecast -6.8% YoY) and showed a very slight improvement since September data at -7.6%YoY a negative base effects are progressively fading due to the rise in energy and commodity prices. The core producer price index revealed very low passing from

-4.2% in September to -3.9% in October

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