Current Themes, GS on US/China, the JPM Asset Allocation, MS on Style, JPM on SAN, and more…

Bonjour,

Europe set for lower start after Wall St closed off highs Fri, with Nasdaq lower. In France, Socialist Hollande wins first round of French elections. Dutch Govt fails to agree on budget cuts over the weekend and fresh elections now look likely. Macro eyes on eurozone manufacturing and services PMI readings.

CURRENT THEMES

To summarise: US earnings strong. China economy slowing. European situation scary.

On the markets
No real conviction here. The market is still considering the better than expected US earnings and the worsening European situation. On the economic front, the US economy is not cooling down but shows some signs of moderation and the jobless numbers are still the key (next on the 4th of May). The new new thing to worry about is inflation and the more hawkish stance of some centra bankers (not Brazil obviously) and we will monitor CPI data very closely.

On France
It may still be possible that Mr Sarkozy wins the second round, but it will be very difficult. Reading the international press this morning, the feeling is that Hollande will win and it scares investors. Some articles highlight the 1/3 anti-European vote and of course most highlight the scary rise of the extreme right. And now the ugly fight will begin as both candidates will have to hunt for Mrs Le Pen voters…

On Spain
The situation is far from pretty. The recent auctions worked but concerns are still high and the banks are close to collapse. HOWEVER, JPM is upgrading SANTANDER this morning! (more below).

On China and the US
GS publishes an interesting report “How China’s cycle Affects the US Economy”. The report clearly shows the Chinese slowdown while forecasts vary widely (GS is on the optimistic side). There are no clear conclusions from this report as the effects of a better economic growth in China on the US are ambiguous. An acceleratin of growth in China means higher exports, but also an increase in commodity prices.

STRATEGY

JPM (Loeys) The J.P. Morgan View
Seven Puzzles

I just copy and paste the titles here, but there are some great articles in this piece:
Why has neither Greece nor Germany left EMU, yet?
Why has the euro not collapsed, yet, given a recession and EMU break-up risk?

• Asset Allocation –– No changes. Long equities and credit vs bonds and cash over next 3 months. Signals for next few weeks seem quite neutral.
• Economics –– No forecast changes, but weaker data bias our 2.5% Q2 US forecast to the lower 2’s.
• Fixed Income –– We recommend bearish money market positions.
• Equities –– Earnings expectations momentum favours US vs other regions.
• Credit –– We stay overweight senior financials and LTII bonds.
• Foreign exchange –– Low FX vol to stay. Focus trades on mean reversion.
• Commodities –– We expect the spread to continue to narrow and stay long Dec-12 WTI vs. Dec-12 Brent with a $5/bbl target.

MS (Parker) US Equity Strategy

Do you have style?

This piece analyses the two main styles Growth and Value and they prefer growth and they still find a large number of stocks who fit the bill at this stage of the cycle. WORTH HAVING A LOOK.

JPM (Lee) US Equity Strategy FLASH
Feedback from 9 days in Europe.
Not a fantastic report. Overall European investors are optimistic on US equities with little conviction given the fiscal cliff, the situation in EUrope and concerns over China’s growth…

EUROPEAN EQUITIES

L’Oreal Seeks Exclusive Talks to Buy Cadum, Les Echos Reports

Philips Profit Beats Estimates, Bolstered by Disposals, Savings

Vodafone Agrees to Acquire Cable & Wireless for $1.7 Billion

Nestle Agrees to Buy Pfizer’s Infant Nutrition Business for $11.9 Billion

Santander (SAN.MC, OW – €4.76, PT €6.90) (Jaime Becerril)
Beyond the cleanup there is value left – Upgrade to Overweight
We upgrade Santander to Overweight becoming our preferred and only Overweight-rated stock in the “peripheral” Europe, as we believe fears are overdone on the back of sovereign deterioration. Of these banks, SAN should benefit most from credit markets reopening and easing funding costs. Even with deep recessions in Spain and increasing turmoil in Latam, we see value in the share, making 12% RoTBV, still attractive long term.

France Telecom (NOMURA, FT FP, Upgrading to Buy, PT: €12.50) Frederic Boulan
Guidance, dividend and earnings risks are better priced in. Shares now discount overly bearish scenarii in mobile, while positioning in the stock could not be more bearish. With the full market cap to be recreated in only six years, we see significant potential upside and upgrade the shares to Buy from Reduce, with 40% total upside to our EUR 12.5 target price.

FINANCIALS
– Banco BPI 1Q net €39.3m vs est. €14.1m (may not compare – 2 ests); core tier 1 capital ratio 9.4%
Spanish banks will create real estate companies into which they can transfer property assets for a period of up to ten years with independent appraisers will run the companies and value the assets to be transferred to them, says El Pais
– Barclays plans to take an additional charge of at least £100 million for improper sales of payment protection insurance, according to the Sunday Times
– Prudential is eyeing a $500 million bid for the insurance operations of Thailand’s Thanachart Bank in the latest sign of the UK Group’s Asian expansion ambitions, says the FT
– Aviva mistakenly fires all 1,300 employees at its investment unit
– Axa France plans to start lending to companies, it is currently testing the plan with two French banks as partners and will offer the loans more widely in the second half to large French groups that are not publicly traded and small-to-medium-sized companies; reports Les Echos
– Deutsche Bankis said to plan €400 million charge on Actavis sale, says Bloomberg
– CaixaBank is to buy Itau’s stake in Banco BPI for €93 million
– BANCO SANTANDER raised to Overweight vs Neutral at JPMorgan
– Erste Bank raised to Buy vs Neutral at UBS
– Raiffeisen raised to Neutral vs Sell at UBS
– Aviva raised to Buy vs Neutral at Goldman
– Old Mutual removed From Conviction Buy list at Goldman, kept at Buy

INDUSTRIAL/MINERS/SERVICES
The German government has filed an appeal against an EU decision that Deutsche Post be required to repay subsidies of €500 million to €1 billion, says Bloomberg
– Volkswagen says that China auto industry faces rising inventory
– BMW sees the pace of China sales easing in coming months but continues to expect double-digit sales growth in China this year, while the environment in Europe will be ‘challenging’, reports Bloomberg
– Daimlersees China premium segment growing 15-20% in 2012
– Audi’s sales chief sees China sales increasing and hopes to sell 700,000 cars a year in China later this decade, reports the WSJ
– Porsche expects record sales in 2012
– Michelin is to recall 77,775 tires produced between October 2005 and Sept 2011 due to possible air loss
– Maersk resumes its North Europe-Asia bookings last week after suspending them in March
– IAG’s BAA is said to near a £850 million Edinburgh Airport sale to GIP, according to the Telegraph
– Wendel executives may face lawsuits over alleged tax fraud, reports La Tribune
– Severstal and Acron raised to Buy at BofA
– Boliden rated New Sell at Citi, PT $SK90
– EADS cut to Neutral vs Buy at UBS
– Kinnevik raised to Buy vs Neutral at UBS
– Aveng cut to Underperform vs Neutral at BofA
– ADP added to Key Ideas at Exane; company shifting to value creation

UTILITIES/OIL/HEALTHCARE/CHEMICALS
– Amylin PharmaCEUTICALS is said to have hired advisers to canvass potential buyers after rejecting unsolicited bid from Bristol-Myers Squibb, Sanofi is said to be among companies weighing bid
– Roche is looking for alternatives after its takeover of Illumina failed, says Bloomberg
– Repsol says that it will take legal action against investors in YPF, reports the FT
– BASF says that the European chemical industry could become less competitive if the EU stiffens emissions- reduction targets
– BP says that its LNG output has fallen at its Tangguh Plant after the Indonesian earthquake and that a storm forces shutdown of its hydrocracker at Texas refinery
– Statoil unions are unhappy over pension terms, says Bloomberg
– Centrica executives warn UK government officials they may scrap plan to build new power plant if they do not receive assurances about future price of nuclear energy, reports the FT
– AstraZeneca raised to Equalweight vs Underweight at Barclays, stock price ‘appears to adequately reflect an anticipated multi-year decline in earnings’
– Novo Nordisk cut to Underweight from Equalweight at Barclays
– Essilor raised to Buy vs Neutral at UBS
– Fresenius SE Initiated at Buy at Berenberg, PT EU95
– William Demant cut to Neutral vs Buy at Goldman
– ARM HOLDINGS raised to Neutral vs Underweight at JPMorgan
– ENI rated Outperform, PT EU22.2 at Mediobanca; remains positive and stresses Eni-ex Snam discount
– Petrofac PT Raised to 2,300p vs 2,100p at Morgan Stanley, kept at Overweight

TMT
– Philips 1Q rev. €5.6bb vs est. €5.44b 1Q; Ebita €552m vs est. €439m; 1Q ebit €438m vs est. €225.4m; 1Q net income €248m vs est. €93.2m; ‘cautious about the remainder of 2012 given the uncertainties in Europe, particularly in the healthcare and construction markets, and the slowing growth rate in the global economy,’ CEO says in statement
– Vodafoneclose to agreement to buy Cable & Wireless Worldwide
– France Telecom’s tender offer for 100 million Mobinil shares has been approved by Egypt
– MODERN TIMES GROUP cut to Neutral vs Overweight at JPMorgan
– BT, TalkTalk and Deutsche Telekom are Top Picks at Jefferies
– Telefonica and KPN are Least Preferred European telecom services stocks ahead of 1Q at Jefferies

RETAIL/CONSUMER/LUXURY
Britons suffered biggest drop in discretionary spending power in more than a year last month as income growth slowed and consumers spent more on essential items such as food and utility bills, according to Lloyds TSB
– Nestle agrees to buy Pfizer’s baby food unit for $11.9b in cash; the unit had 2011 rev. $2.1b, up 15% Y/y
– Danoneis in talks to boost its Yakult stake to 28% (from 20%), reports Bloomberg
– L’Oreal is preparing to start exclusive talks to buy children’s toiletries company Cadum from Franco-British fund Milestone, says Les Echos
Buy Carlsberg, is still undervalued, Nomura says
– CAMPARI’s share underperformance offers entry point, Berenberg says; kept at Buy with PT EU6.2
– Pernod Ricard PT raised to EU95 vs EU80 at Berenberg, kept at Buy

SMALL/MIDCAPS
– National Bank of Greece 2011 net loss €12.3b vs est loss €9.29b; impairments on Greek government bonds €10.8b after tax; core tier 1 ratio at 6.3%; says will not need to request additional funds
– Binckbank 1Q net €7.94m vs est. €7.6m; 1Q adjusted profit €15.7m vs est. €15.1m; sets new targets for 2015 after achieving some of its 2013 targets
– Eurofins agrees to acquire a majority stake (52.6%) in Nihon Kankyo, transaction to complete this week, reports Bloomberg
– A2A’s Chairman says that it does not need a capital increase as the company is financially and industrially ‘sound’, reports la Repubblica
– Saras raised to Buy vs Underperform at BofA

Max Kamir

Louis Capital Markets UK,LLP
Authorised and regulated by the FSA and Banque de France
39-41 rue Cambon
75001 Paris

T +33 (0)1 53 45 10 74
E mkamir
I http://www.louiscapital.com

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