11.06.12 – A summary of current themes… JPM View, MS on the ERF (to add to the list of European acronyms)

Buenos Dias,

Markets to open up today on the Spanish banks bailout deal by the EU and somewhat better (depends on how you look at it) Chinese economic data. Macro eyes on French IP, Italian GDP, UK inflation estimates and some Fed presidents talk in Chicago, SF and Cleveland.

CURRENT THEMES

On Spain
I guess you’ve already read it everywhere. This is rather good news for Spain as there is no further austerity measures to be imposed (the Greek and Irish politicians may be vocal on this and it may help Syriza). It doesn’t mean it’s out of the woods, but will definitely please short term investors. Watch the banks and the short term move on the government bonds which may initially tighten
The Spanish Bank Bailout: A Complete Walk Thru From Deutsche Bank | ZeroHedge http://bit.ly/LTfqgW

On France
The legislative elections’ first round show that Hollande will have the parliament’s majority.

On China
Some important data came out this week end showing that the Chinese economy is still slowing but at a somewhat slower pace. Barclays talk about a gradual stabilisation. Most data were below expectations though except very strong export data.

Event Survey Actual Prior
Consumer Price Index (YoY) MAY 3.20% 3.00% 3.40%
Producer Price Index (YoY) MAY -1.10% -1.40% -0.70%
Industrial Production YTD YoY MAY 10.80% 10.70% 11.00%
Industrial Production (YoY) MAY 9.80% 9.60% 9.30%
Fixed Assets Inv Excl. Rural YTD YoY MAY 20.00% 20.10% 20.20%
Retail Sales YTD YoY MAY 14.60% 14.50% 14.70%
Retail Sales (YoY) MAY 14.20% 13.80% 14.10%
Exports YoY% MAY 7.10% 15.30% 4.90%
Imports YoY% MAY 5.50% 12.70% 0.30%
Trade Balance (USD) MAY $16.25B $18.70B $18.43B

STRATEGY


JPM (Loeys) The J.P. Morgan View
Can the policy cavalry ride to the rescue?
• Asset Allocation
–– Our GMOS portfolio is modestly short risk via flatteners, long USD, and UW Cyclicals, but neutral overall on credit and equities. We like two diversified trades: outright long US spread product, and long EM FX funded in euros. They offer value, carry and diversification.
• Economics –– DM policy makers are running out of ammo, or are conflicted. EM policy makers have lots of ammo, which we expect them to use if needed.
• Fixed Income –– UK rate cut expectations likely to be disappointed.
• Equities –– The binary nature of the forthcoming Greek election makes us unwilling to re-instate directional longs despite a sharp position retrenchment since the beginning of May.
• Credit –– Stay OW EM $ Sovereigns vs. EM Corporates.
• Foreign exchange –– We remain short EUR/USD, GBP/USD and EUR/CHF in anticipation of further EMU stress around this month’s elections.
• Commodities –– With global growth expectations now downgraded to below trend for the year, we open an UW base metals vs. energy.

MS (Bartsch) Economics and Strategy

A Road to Euro redemption?
Elga looks at the creation of European Redemption Fund (ERF) which could be solution over the EuroBonds with no constitutional changes. The ERF would be a large pool of high quality Euro assets with a 25y lifespan. This is still opposed by the German government and there is a lack of details but it could be an interesting solution.

JPM (Matejka) European Equity Strategy

Short squeeze yes, but not the start of sustained rally; Revisiting Capex – 3-year long upcycle fading
Mislav and his team don’t think the short squeeze rally will last more than a few weeks and that Spain is not immune to a full bailout sometimes later this year. The Chinese rate cuts is a response to poor data and anticipated fed action may not achieve much.
Corporate profitability (Chaina US, Europe) is declining and will impact the capex cycle.

OTHER STUFF


Apple likely to focus on iOS, Mac at WWDC – MarketWatch http://on.mktw.net/OfxDan
http://www.businessinsider.com/euro-open-june-10-2012-6

 

EUROPEAN EQUITIES


FINANCIALS
Fund Managers are pushing banks to initiate changes in long-term incentive practices
– Credit Suisse lifts Spanish Banks Capital Deficit Est. to EU50b
– Axa
being the largest foreign insurer faces a possible subordination to Spain
Banco Santander says Spain’s request for bank bailout is positive
– RSA is not interested in acquiring Groupama Assets, Echos Says

INDUSTRIAL/MINERS/SERVICES
– IATA doubles loss forecast for European airlines, sees threat to global profit; carriers in Europe may lose $1.1b this yr vs March forecast for a $600m loss, says Bloomberg
French industrial production stagnated in April, says Bloomberg
– Volkswagen andPorschemay be able to complete their planned integration after German officials ruled the deal wouldn’t face taxes says Bloomberg; it is looking at taking stake in Navistar, says Bloomberg
– Rolls-Royce may invest in Thailand
– Fiat Industrial wants to expand in U.S., Bloomberg says
– Eurotunnel
said it had gotten the approval to acquire SeaFrance, the Figaro says
– Airbus to Maintain 2012 Sales Target of 600-650 Aircraft, says the WSJ
– Henkel Raised To Buy From Hold at SocGen
– Thales Raised to Neutral vs Sell at UBS

UTILITIES/OIL/HEALTHCARE/CHEMICALS
– ABERTIS INFRAestructuras’ Chairman said it was not possible for it to raise its bid for Brisa, Bloomberg reported
Petra Energy and Bourbon are in talks on Oil-Field work, says Bloomberg
Sanofi’s Lantus helps 50% more patients to reach blood sugar target
– Novo Nordisk’sstudy onexperimental insulin appeared to reduce the rate of dangerously low night-time blood sugar levels more than Sanofi’s Lantus, Bloomberg; sees no FDA advisory panel review needed for the new long-acting insulin degludec
– Roche’s Genentech gets approval for use of Prejeta in certain types of breast cancer
– Novartis’sSandoz unit head said it won’t make biosimilar acquisitions, from Reuters; announces positive LT data for MS Drug Gilenya
– Solvay will Invest EU155m in Chinese Epichlorohydrin Plant; the plant should become operational in 2H 2014
– BP wants to pay less than $15b to resolve penalties, damages from Deepwater Horizon spill, FT reports
– Syngenta to divest North American Fafard Peat Unit
-Buy Actelion, Macitentan Peak Sales Underestimated, UBS Says
– Enel
PT Cut to Eu3.6 VS Eu3.8 at Goldman Sachs; Kept at Neutral
– E.ON PT Raised to EU18 vs EU17 at Morgan Stanley

TMT
French Industry Minister favours German Telecom merger
– Telefonica
will sell almost half of its stake in China Unicom (Hong Kong) Ltd. for about 1.13 bn euros to reduce debt
– KPN is likely to announce a spin off decision in 2 weeks to help fend off America Movil bid, FT reports
– Technicolor board has rejected a second offer from JPMorgan Chase at 1.90 euros a share for a 30% stake, Les Echos reports
– France Telecom plans to buy the rest of Dailymotion, Les Echos Says
Ericsson Cut To Sell From Hold at Berenberg
– Samsung Electronics Initiated Buy At Berenberg
UBM Upgraded to Overweight from Equalweight at Morgan Stanley

RETAIL/CONSUMER/LUXURY
– Europe and China will cooperate over food security and safety, rural development and organic farming, says Bloomberg
– Diageo
is considering listing its shares in on a stock exchange in one of the developing regions (Hong Kong) to help expand globally, says Bloomberg
– Barry Callebaut
announces investment in Vermont facility and is to acquire assets from Batory Industries in Illinois to add ~60k tons of production capacity
– Luxottica
says revenue from Armani license could exceed EU200m/yr
– Nestle Cut To Hold From Buy at SocGen
– Tate & Lyle Raised To Hold From Sell at SocGen

SMALL/MIDCAPS
– Independent News Chairman quits Board after AGM’s defeat
– AQUARIUS will suspend operations at mine operated with Anglo American Platinum at end of this month, says Bloomberg
Neste Oil‘s Naantali refinery is back in normal operation following the completion of a scheduled major maintenance turnaround
– Straumann Raised to Neutral vs Sell at Citi
Imagination Technologies Cut To Sell VS Hold at Berenberg
– Capital & Counties
PT Raised to 260p vs 210p at Morgan Stanley

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