22.06.12 – On the Fed (twist), Europe (bolero), JPMorgan (hustle), China (?). GS prefers their EM basket to the DM one. MS on existing home sales. JPM on EM stocks…

Bonjour,

Europe set for slight lower start after Fed extended Twist program and slashed US growth forecasts but did not opt for another round of QE. China manufacturing PMI disappointed at 48.1, after a final reading of 48.4 in May. Further euro area PMI releases due today. Benoit Coeure says ECB will discuss cutting interest rates at its next meeting. Spanish and French bond auctions today will be closely watched.

 

 

AFTER HOURS

Equities pulled back although ended off their worst levels and the decline was pretty mild in the context of the recent rally. The day pretty much ended with the Fed communiqué release as investors spent the rest of the afternoon digesting. The final conclusion on Bernanke was really a collective shoulder shrug – on the whole the Fed was mildly more hawkish than some thought but for the most part the message was right inline with expectations.

In terms of sectors, the financials outperformed (although the action was skewed by JPM – ex that stock out and the fin index was flat) and tech performed well too (helped by the super-caps: ORCL, CSCO, MSFT)

CURRENT THEMES

On the Fed
The fOMC will continue its Operation Twist by selling and purchasing another $267bn. Selling the 3y or less and purchasing the 6 to 30y maturities. It also announced it will reinvest payments into MBS. The The Fed’s forecast for growth this year is down to a range of 1.9% to 2.4%, down from 2.4% to 2.9% in April — and its April 2011 forecast that 2012 growth would range between 3.5% and 4.2%. The Fed also cut its inflation forecast down aggressively, to between 1.2% and 1.7% this year, as opposed to its forecast in April between 1.9% and 2%.
It can be interpreted as relatively dovish and we can expect some further easing if the jobs data continue to disappoint.

On Europe
In the FT (Bailout fund should buy euro debt – FT.com http://on.ft.com/MwdZp2), there is a summary of an interview with Benoît Couré, the ECB executive board member who oversees financial markets operations. He syas he’s surprised that no governemnt has askef the EFSF to buy soverign bonds to lower borrowing costs. He says, it’s not the ECB role to “fix fiscal difficulties or to help insolvent banks”. But he clearly doesn’t rule out further cuts and it will be discussed on July 5.

On JPMorgan
(J.P. Morgan Cuts Derivatives Exposure – WSJ.com http://on.wsj.com/NWfZMq) . According to this WSJ article, JPM has greatly reduced its exposure to the CDX.NA.IG.9. “ Traders believe the bank likely has taken some steps to hedge, or protect, itself against further deterioration in this index through other moves. But it isn’t clear how well-protected the bank is. The bank’s original position in this index was so large that many traders said it would be difficult to exit in a short amount of time.”

On China
The June Flash PMIs came out at 48.1 vs 48.4 for May. It’s still below the 50 threshold and it has been the case for 8 months now… Exports continue to fall at 45.9 vs 48.5 in May…

STRATEGY

GS (Moser) Europe Strategy Matters
The BRICs Nifty 50: We Prefer EM to DM.
GS is rebalancing its BRICs portfolio as it trades at a large discount to the DM one. Both baskets are dearer than the MSCI World and MSCI BRIC but offer better prospects. The note highlights the changes made in both baskets. In the DM, you’ll find: Pirelli, HSBC, SAN, Standard chartered, BHP, Vedanta, Pfizer, Mylan, Atlas Copco, Philip Morris, ABB, Swatch and Richemont and Qualcomm and many other… ATlas Copco is replacing Rolls Royce, Telenor replaces TEF… More on GS website.

MS (Agrawal) AlphaWise – Existing Home Sales
Morgan Stanley: Buy Stocks And Sell Bonds Because Tomorrow’s Home Sales Will Beat – Business Insider http://read.bi/MGzhlm
Trade Recommendation: Long S&P 500, Short 10-Year US Treasuries
Our Existing Home Sales model’s standard error is 3.8%, and we make calls when our model is 3%+ from consensus. Given the 3.1% delta from consensus, we expect a beat. We recommend going long S&P 500 and short US Treasuries going into the release.

JPM (Mowat) Emerging Markets Strategy
Key Trades and Risks
1. The easing cycles….beneficiaries of lower interest rates
2. CPI>PPI
3. China FAI slowdown
4. Lower energy prices
5. Mass market consumption
JPM is  dropping its tech OW. This call is now stock-specific.
The euro crisis has not gone away. It is not just Greece. Unfortunately the pattern of the crisis is deterioration before politicians act. The US fiscal cliff is the other key macro risk. With the lowest trailing P/E in EM Chinese equities are priced for a structural slowdown in growth.
Asset allocation:
OW: Turkey, India, South Africa, Mexico, Korea, Thailand, Philippines
UW: Russia, China, Brazil, Malaysia and CE3

OTHER STUFF

Horatio Alger Index – Business Insider http://read.bi/NRMUAs

Guest Post: Abandoning Ship – The Eurozone Is Failing At An Accelerating Rate | ZeroHedge http://bit.ly/Mj22m0

EUROPEAN EQUITIES

FINANCIALS
– SocGen d
owngrades selected European real estate stocks
Italy Regulator Gives Conditional Approval to Unipol Merger
– Deutsche Boerse to see ‘Strong‘ 2Q on Euro-Area Woes, says Berenberg
– ALLIANZ expects premium income from emerging markets or growth markets to account for 34% from current about 11%, reports Bloomberg
– Axa says that the executive committee member Dacey is leaving the group
– Swiss Life Raised To Buy at Deutsche Bank
– Credit Suisse PT Cut to CHF22 vs CHF23 at Morgan Stanley
– Sampo Added To Esn Blue Chips Top Picks

INDUSTRIAL/MINERS/SERVICES
– Xstrata
is reviewing the Frieda River Copper Mine in Papua New Guinea
– Zodiac Aerospace family shareholders agree on a non-selling agreement
– Air France-KLM
may cut about 5,000 jobs, Les Echos Says
– Airbus sees 30 A380 Superjumbo sales this year, reports Reuters
– Audi
names Scott Keogh president of U.S. Unit
– Peugeot’s supervisory board says Varin has ‘Complete Support’
– TNT Express
received a recommended offer from UPS at EU9.50 a Share; UPS says offer period ends Aug. 31.
– Holcim may make acquisition provided target fits company’s strategy; Raised to Overweight From Underweight at HSBC, PT SF71
DSV Rated New Neutral at HSBC, PT DKK120
– CRH Raised to Overweight From Underweight at HSBC, PT EU16
– Lafarge Raised to Overweight From Neutral at HSBC, PT EU52
– Kuehne & Nagel Rated New ‘Underweight’ at HSBC, PT SF96
– Evraz Raised To Neutral VS Sell at Citi
– Thales Raised To Buy VS Neutral at Citi
– BAE Cut to Neutral VS Buy at Citi
– EADS Removed From Citi’s Most Preferred List, Thales From Least
– ASML Initiated at Outperform at Bernstein; PT EU58
– Seadrill Raised To Overweight From Neutral at HSBC

UTILITIES/OIL/HEALTHCARE/CHEMICALS
Barclays cuts PTs for befiners by avg 31%
– Sanofi fails to win backing of FDA panel for its drug semuloparin to prevent blood clots in chemotherapy patients
– RWE said on Wednesday it would postpone a start up of its large oil fields in Libya, still awaiting an agreement with local authorities on the structure of the venture, reports Reuters
– Rhoen closes at 5.5% discount to offer ahead of acceptance
Fridman meets with London institutions on BP’s Venture Stake, reports the FT
– GDF Suez faces new opportunities thanks to S/T uncertainty, says Berenberg; total solar unit is likely to close as Photovoltech is in “economic difficulty,” Les Echos Reports
– Bourbon gets EU420M of new banking loans for growth
– Shell Cut To Neutral VS Conviction Buy at Goldman
– Statoil Raised To Neutral VS Sell at Goldman
– Wood Group Raised To Neutral From Underweight at HSBC


TMT
– KPN
says that German talks have failed and that it is exploring multiple options; Cut to Neutral VS Buy at UBS
– Portugal Telecom plans to sell EU250m of bonds to retail investors through the branches of 5 banks
– Nokia PT Cut to EU1.2 at JPMorgan; Kept at Underweight
– Tele2
Cut To Underperform VS Neutral at Credit Suisse
– TeliaSonera
PT Cut to SKr49 vs SKr51 at Morgan Stanley
– Mediaset
PT Cut to Eu1 VS Eu1.27 at Goldman; Kept at Sell

RETAIL/CONSUMER/LUXURY
– Hennes & Mauritz
may start using the Chinese currency to buy its clothes to protect its purchasing costs, the Wall Street Journal reported
– LVMH
’s Hublot Chairman sees U.S. sales rising
– Arcelik
Raised To Buy From Hold at ING
– Carlsberg Raised To Hold From Sell at ING

SMALL/MIDCAPS
– Technicolor
’s shareholders approve the resolutions relating to the offer proposed by Vector Capital
– Invensys shareholders may want 300p/Shr Offer, UBS Says
– AEERL ID
’s stake were risen by the Irish billionaire O’Brien
– Tom Tailor will pay EU150m in cash and 6m new TTI GR shares tp acquire the German fashion retailer Bonita
– Montea plans to finance EU20m portion of four purchases announced today and valued at EU51.5m with new stock, reports Bloomberg
– Panalpina Rated New Underweight at HSBC, PT SF88
– Havas Raised to Overweight From Neutral at HSBC, PT EU5.30
– Cewe Color
Rated New Buy at Deutsche Bank
– Ellaktor Cut To Neutral VS Buy at Citi
– Intermediate Capital Rated New Buy at Deutsche Bank
– Bellway Cut To Neutral VS Buy at Goldman
– Dignity Cut To Neutral VS Buy at Goldman
– Ansaldo PT Raised to Eu7.9 VS Eu7.8 at Goldman; Kept at Neutral

 

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