The Dawn Patrol – 25.06.12 – On the European Summit, Germany, Spain. The JPM View, MS on the EU Summit, MS top div players.

Bonjour

Europe set for mixed open, with caution prevailing ahead of EU summit Thurs+Fri where its hoped growth compact will be finalised. Possibly involving financing for infrastructure investment + restatement of the agenda for reform. There are also hopes for plan for banking union. Meanwhile, George Soros is calling on Europe to start a fund to buy Italian and Spanish bonds, warning that a failure by leaders meeting in Brussels this week to produce drastic measures could spell the demise of the currency. Macro eyes on German GfK cons sentiment + US new home sales.

EUR/USD 1.2521. Spain 10y 6.38%. Brent 90.42

Danone exits European Food & HPC most preferred list at UBS
L’Oreal
Initiated at Overweight at Barclays

CURRENT THEMES

On the Europe Summit
This will be the key event of the week (28th and 29th) and the European leaders need to deliver on this. No more speeches of what could be done. It’s time to propose and act. The best we can hope for is a banking union, as its feasible without changes in the treaty and will show that our leaders can do something. But we’ve been through hopes and disappointment more than once with this bunch…

On Germany
Chancellor Merkel agreed to underwrite the debt of German’s 16 states in order to help the states meet constitutional budget limits. The fist German (federal govt +states) bonds will be issued in 2013. It doesn’t mean the same is true for Europe, some may interpret this as positively, but it clearly isn’t the case yet… At the same time, a poll ran in Germany, Italy, France and Spain show that 39% of Germans favor leaving the Euro, 28% of Italians, 26% of French and 24% of Spaniards.

And Mr Soros writes to Germany in the FT (Germany’s reticence to agree threatens European stability http://on.ft.com/MlMD6a). This is a very clear and interesting article showing Merkel’s resignation to say no to everything that could help Europe.

On Spain
Spain to ask formally for up to €100bn to recapitalise its banks today. European leaders will then ask Spain to act as well, and we should hear about the creation of a bad bank on the 9th of July. (Spain to ask for aid as EU fights debt crisis – FT.com http://on.ft.com/OdVtpf)

STRATEGY

JPM (Loeys) The J.P. Morgan View
Policy versus the Data. Who will win?

• Asset Allocation –– Close to home, in front of EU Summit, with defensive bias through UWs in Cyclicals and long duration in EM.
• Economics –– No major growth cuts this week, but the data flow continues to threaten.
• Fixed Income –– We recommend EM duration longs where central banks can still cut rates.
• Equities –– Lower oil are supportive of oil consumers. Within EM, we upgrade Turkey and India from neutral to overweight and downgrade Russia to UW.
• Credit –– Investors continue to like US HG as a nice balance between a risky and a safe asset: spread and underlying UST.
• Foreign exchange –– USD to gain 2.5%, trade weighted, this summer
• Commodities –– We believe US natural gas prices have started to bottom out.

MS (Bartsch) European Economics

EU Summit: Roadmap Rather than Action ready.
Talking about the European Summit, Elga ponders what could be announced. Not as bullish as the market hopes in terms of a banking union announcement: “expectations for the Summit to deliver a ‘big bazooka’ may be disappointed.

MS (Garner) Global Equity Strategy
Our top global dividends Ideas.

And another call for dividends play… using screens:
The list for Europe:: Metso, BAE Systems, AstraZenaca, Wolters, Total, Telenor, Renault, Nokian Tyres, Royal Dutch Shell, Philips, Ahold, Adecco, Roche, Reed, Statoil, BMW, ABB, Sanofi, Siemens, Sandvik, Akzo Nobel, Novartis, Tate & Lyle, SKF, Alstom, Reckitt, ABI, Sage, Ericsson, Geberit, Unilever, Pearson, Autoliv, Alfa Laval, BSkyB.

EUROPEAN EQUITIES

FINANCIALS
– EU
Financial-Services firms may spend EU33.3b over next 3 yrs to comply with regulators’ new rules, says FT
– The Bank of England’s leading dovish policymaker has called for at least £50bn of fresh quantitative easing, says FT
– UniCredit
has completed 60% of its liquidity needs for 2012, CEO says
– Credit Suisse
’s board backed CEO Brady Dougan in his dispute with the Swiss National Bank about the lender’s capital levels
– Deutsche Bank
said to move steel derivatives to CME, reports Bloomberg; Cut to Sector Perform at RBC Capital, PT EU38
– BNP Paribas says Moody’s failed to account for its lowered liquidity needs, in particular at Italian unit Banca Nazionale del Lavoro, reports Bloomberg
– Lloyds
may cut price to Clinch Branch sale, reports Bloomberg
– Premafin
’sboard said there was no room for talks with funds on Fondiaria, reports Reuters
– Old Mutual
Resumed Equalweight At Morgan Stanley, PT 177p
– Allianz Added to Conviction Buy List at Goldman Sachs
– Hammerson Raised To Overweight VS Equalweight at Morgan Stanley

 

INDUSTRIAL/MINERS/SERVICES
– Saint Gobain’s CEO Pierre tells Le Figaro that Europe must make a “quantum leap” in terms of budgetary and financial cooperation
– Airbus timetable of delivering A350 by 1H 2014 is “challenging” but “achievable,” FT reports
– ENI
’s KrisEnergy signed agreement to farm-out 50% stake in offshore exploration blocks in Vietnam with Eni Vietnam
– Renault plans to accelerate replacement of low-cost models, which represent a third of all sales and three-quarters of growth prospects, Les Echos reported
– BMW
and Toyota agree on expanding their cooperation as BMW can benefit from Toyota’s experience in hybrids, fuel cells and automotive electronics, while Toyota can benefit from BMW’s experience in light materials, Bloomberg reports
– Anglo American and Codelco are seeking to extend their negotiation window, as the mining titans seek a deal to end a bitter dispute over coveted copper asset, reports Reuters

UTILITIES/OIL/HEALTHCARE/CHEMICALS
– Gazprom Neft made a bid for 50% TNK-BP stake, reports Bloomberg
– GlaxoSmithKline’sCEO, also head of Europe’s pharmaceuticals association, is seeking to “ring-fence austerity cuts” to prevent any disruption to the flow of drugs in Greece and Spain, Reuters reported
– Royal Dutch Shell
evacuated 360 staff members from its Gulf of Mexico operations yesterday as Tropical Storm Debby was upgraded
– Statoil says Oseberg East, South Output had to halt due to strike
– EDF
is to extend the life of U.K. Nuclear plants by 2 Yrs, reports Bloomberg
– Fortum
Initiated Buy At ING, PT Eu17.50
– Verbund Initiated Sell At ING, PT Eu17
– Lundin Petroleum Rated New Buy at Citi
– Cairn Energy
Neutral at Citi


TMT
– Royal KPN
’sbreakup does not interest America Movil who is confident it will succeed in getting the targeted 27.7%, reports Bloomberg
– BT’s third attempt to have its competitors share in the cost of reducing its GBP3b pension plan deficit, by making them pay higher charges for their use of its phone lines, has been rejected by the U.K. Competition Commission, FT reports
– Deutsche Telekom is to cut 1300 Jobs in Bonn by 2015, reports Bloomberg
– TDC sets Up HeyMobile service aimed at SE Asia Calls, this low-price service aims to compete with Lebara, which had 3% of Danish mkt in 2010, reports Bloomberg
– Vodafone Reinstated at Overweight at Barclays; PT 190p
– Vivendi
’sBoard met this weekend to discuss strategy

RETAIL/CONSUMER/LUXURY
– Anheuser-Busch Inbev said it was near to a deal to buy the rest of Modelo, reports the WSJ
– Danone exits European Food & HPC most preferred list at UBS
– L’Oreal
Initiated at Overweight at Barclays
– HENKEL
Initiated at Overweight at Barclays
– Beiersdorf Rated New Underweight at Barclays
– Reckitt Benckiser
Rated New Underweight at Barclays

SMALL/MIDCAPS
– Fondazione Monte Paschi signed accord with all its financial creditors on ~EU1b debt restructuring
– Ocado may buy a warehouse dedicated to stocking non-food products in an effort to loosen ties with its main supplier Waitrose
– Pescanova says it will list Acuinova Chile on the Santiago stock exchange, selling as much 49% of the unit
Kraus-Maffei Wegmann’s shareholder wants Rheinmetall merger
– Ablynx says Ozoralizumab results show excellent safety
– SHL Telemedicine
gets FDA approval for marketing SmartheartTM
– Cove Energy Cut To Underperform VS Hold at Jefferies
– Uponor OYJ Upgraded to Neutral from Sell at Goldman Sachs
– Halfords Cut To Underweight From Equalweight at Morgan Stanley


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