The Dawn Patrol – 22.06.12 – On Moody’s Downgrade, Spanish Banks, Europe. MS Q&A on the Redemption Fund, Barclays Global Outlook… Bon Week End.


Markets to open sharply down today on the banks downgrade, on poor US data (Philly Fed, Citi Suprise Index). Oil prices below $90, a 25% drop since March. Macro eyes will focus on the German IFO for June, and the meeting hosted by Mario Monti with Merkel, Hollande and Rajoy before Germany beats Greek in the Euro 2012 football game. Finland, Sweden + Austria closed for the midsummer holiday.

VOLKSWAGEN added to GS conviction buy list.
AIR FRANCE – KLM to cit 5,000 jobs.
Vodafone Removed From Conviction Buy List at Goldman
Deutsche Telekom Added to UBS’s Most Preferred List
Bouygues, TeliaSonera Added to UBS’s Least Preferred List
France Telecom Removed From UBS’s Least Preferred List


RYDER: (truck rental and logistics. $2bn Mkt Cap) revised its Q2 guidance down from $1.07-$1.12 to 90-95c a share on the economic slox down.

MOODY’S DOWNGRADED THE RATINGS of 15 major banks with global capital markets operations. MS gained after markets as it was only downgraded by 2 notches. Citi, GS, J.P. Morgan, also downgraded by two notches. In Europe, Barclays, Deutsche Bank, BNP Paribas, UBS, Credit Suisse, Credit Agricole, HSBC Holdings, Royal Bank of Scotland and Societe Generale also had their ratings cut. Only Crédit Suisse was downgraded by three notches.
4 downgraded by 1 notch, 10 downgraded by 2 notches, 1 downgraded by 3 notches
It shouldn’t have a stronger market impact as this was already expected…


On Spanish Banks
The appointed banks auditors, Oliver Wyman and Roland Berger revealed their estimates yesterday and the extra capital the banks might need fall within the €100bn that Spain requested. Fernando Ranjoy added that Santander, BBVA and Caixabank don’t need assistance in the form of new capital. According to the two auditors, the requested capital is between €16bn and €62bn depending on their scenarios.

On Europe
Lagarde challenges Merkel. According to the FT this morning (IMF challenges Berlin’s crisis response –, Mrs Lagarde says the Eozone leaders need to prevent the single currency from deteriorating further by resuming bond buying by the ECB and pimping money direclty into banks.

Also, there is interview in the Guardian of Mario Monti saying Europe has “Monti signalled that the key eurozone leaders were working on a plan designed to halt the spread of debt contagion while satisfying Germany’s refusal to sanction financial irresponsibility. The plan, he said, was one of the “absolutely necessary” outcomes of next week’s summit. (Mario Monti: we have a week to save the eurozone. | Business | The Guardian


MS (Bartsch) Economics and Strategy
Investor Feedback on the European Redemption Fund
MS is running this interesting paper where it summarises its clients Q&A.
(Copied/pasted): Focus on subordination, collateral & funding costs. Concerns among investors centre on (1) the creation of a two-tiered bond market, where the ERF would become senior to national government bonds, (2) the collateral pledges, which could cause a deterioration of the Eurosystem’s balance sheet as well as deplete national assets, and (3) whether the actual funding costs would really fall meaningfully under the ERF regime, as the GCEE assumes – for both the ERF debt itself and the remaining national government debt.


GS (Weisberger) Trade Update
Recommending short position in the S&P 500.
From Business Insider:
We are recommending a short position in the S&P 500 index with a target of 1285 (roughly 5% below current levels) and a stop on a close above 1390. This morning, the Philly Fed print of -16.6, down sequentially and worse than expected, provides further evidence that weakness has extended into June. Read more:

A stressful Muddling Through

Within Europe, we prefer value-oriented and more defensive strategies. These include: exposure to the UK FTSE 100 versus the Euro STOXX 50 as well as high quality, consistent dividend payers.
Within CEEMEA, we favour Russia and South Africa and would underweight CE3. We would underweight Turkey, too, although with a more positive outlook.
In the US, we prefer defensive sectors such as Utilities, Healthcare and Energy; defensive stocks within cyclical sectors; and dividend payers.
Sell longer-dated SX5E dividend puts as the dividend market seems to be pricing excessive pessimism.
A large rally should be led by the long end; conditional bull flatteners are attractive. Short 2y*10y straddles, as a large sell-off in rates is unlikely, and long front-end spread wideners to hedge against escalation in the European crisis.
Short rates likely to be supported by expected ECB easing and abundant liquidity. Long-end rates may benefit but are already at low levels, so have more limited room for a rally. We favour the 5y sector in Europe, but the longer end in the UK (outright and cross market).


GS (Burgstaller) Europe: Automobiles: Opportunity in volatility; Volkswagen to Conviction Buy
VOLKSWAGEN Conviction Buy; 12m PT €261
We focus on near-term returns, reducing our investment horizon to reflect market volatility and uncertainty, but still see substantial upside in the sector. We add Volkswagen to our Conviction Buy List, and upgrade Nokian to Buy and Michelin to Neutral.
GS believes VW is one of the best positioned global automotive companies with a portfolio of desirable brands across a wide range of price points.

– UBS lowered 2 steps by Moody’s
– Deutsche Bank lowered 2 steps by Moody’s
– Credit Agricole lowered 2 steps by Moody’s
– BNP Paribas lowered 2 steps by Moody’s; BNP says Moody’s didn’t sufficiently weigh ‘Important Elements’
– Credit Suisse cut 3 levels by Moody’s; it says Moody’s change won’t have material effect
– RBS is likely to receive only a small premium over its book value instead of the originally planned GBP350m premium, reflecting the branches’ failure to hit the targets outlined in an agreement with Santander, FT says; Cut one grade by Moody’s; RBS sees the impacts of Moody’s downgrade as manageable
– SocIETE GenERALE cut one grade by Moody’s

– Tenaris is to expand its U.S. operations by an investment of approximately $1.5 billion
– Ryanair’sCEO will sound out antitrust officials in Brussels on his EU694m bid for Aer Lingus
– Air France sees EU900m in savings from job cuts, reports Les Echos
– Renault open to study options to support European car market
– Porsche says that the Boxster is to remain its cheapest car
– Volkswagen Added to Conviction Buy List at Goldman
– Nokian Renkaat Raised To Buy VS Neutral at Goldman
– Michelin Raised To Neutral VS Sell at Goldman
– Royal Vopak Cut To Neutral VS Buy at Goldman
– Michael Page Cut To Underperform VS Neutral at Credit Suisse
– SSE Cut to Underweight From Neutral at HSBC
– Skanska Reinstated Underperform at BofAML

– Bayer and Johnson & Johnson fail to win approval to market blood thinner Xarelto as treatment to prevent heart attacks and strokes in patients with a common heart ailment
– Novo Nordisk is about to start Phase 3 development of Semaglutide, says no further clinical activities with once-weekly version of liraglutide, the active component in Victoza, expected
– Clariant aims to increase its EBITDA margin
– Statoil delays its decision on Snohvit’s expansion
– Det Norske Oljeselskap appoints Alexander Krane as its new CFO

– KPN will begin sale of Belgian mobile-phone unit next month; Dutch Government says it is following developments at KPN closely; KPN asks shareholders not to take action on America Movil bid; CEO wants wants to continue talks with Slim’s America Movil on a “broad, operational cooperation”; sell KPN volatility, ING says, sees EU6.5 a bottom
– VIVENDI’s Universal Music Group’s bid for EMI Group’s recorded music business would expand digital distribution of songs; it has until July 3 to answer EU, reports Reuters
– Telenet’sclients can terminate contracts free of charge Oct. 1
– Vodafone Removed From Conviction Buy List at Goldman
– Deutsche Telekom Added to UBS’s Most Preferred List
Bouygues, TeliaSonera Added to UBS’s Least Preferred List
– France Telecom Removed From UBS’s Least Preferred List
– Schibsted Initiated Sell At Berenberg, PT Nk170

– Dixons may close about 60 U.K. stores over the next four years, reports the FT
– InterCont Hotels a long research tactical idea: Morgan Stanley

– Impregilo’sboard studies Primav’s offer to buy 19% of Ecorodovia
Consob questions Fondiaria-SAI accounts from 2011
– Moneysupermarket Raised To Buy VS Neutral at Citi
– Playtech Cut To Neutral VS Buy at Goldman
Overweight Micro Focus,Cheapest in EU Software, Barclays Says
– Redrow PT Raised to 165p From 135p at HSBC, Stays Overweight



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