The Dawn Patrol – 26.06.12

Bonjour,

Europe set for flat/ slightly higher start. Spain however indic lower after Moodys yest cut long-term debt and deposit ratings for 28 Spanish banks. Focus remains firmly on 2 day meeting of eurozone leaders later this week. Macro eyes on German GfK cons sentiment, French cons confidence + US conference board confidence report. Italian bond auction also in focus.

CURRENT THEMES

On the Eurozone Draft
The FT mentions a leaked draft report to be presented at the Summit to turn the Eurozone into a closer fiscal union. According to this draft, Brussels would gain more powers and could act as a finance ministry for members of the Union. As Mrs Merkel wants more control over national budgets, this proposal is a step in this direction. The authors are Van Rompuy, Barroso, Draghi and Juncker. The draft also suggests Eurobills. (EU could rewrite eurozone budgets – FT.com http://on.ft.com/MRngJQ).

What to think of it? At this point, the Euro leaders, must do everything they can to seduce Angela…

On the Spanish Banks
Moody’s downgraded 28 banks by 1 to 4 notches as rumored… We should expect more downgrades to come in the zone. Also note that Santander’s rating LT rating was cut from A3 to Baa2 but the rating is still under review. See below in the Equities section for JPM report.

STRATEGY

JPM (Fenton) Global Commodities Research
Weaker Thrust Forces Lower Altitude on Expected Price Trajectory

In layman’s words, JPM lowers its Oil price target on wekening demand. For Brent the new target is $95/bbl for 3Q12 vs $120 before.

GS (Hutchings) Europe Luxury Goods
14th Watch Retailer Survey: Expectations positive, inventory low; Buy Richemont, Swatch

GS expects the growth momentum to continue. 77% of retails expect sales to increase and 39% expects sales growth of 5%+. Low levels of inventory. Omega, TAG Heueur and Cartier continue to leverage pricing power. 79% of retailers expect an increase in ASPs. GS reiterate buy ratings on Richemont and Swatch.

JPM (Matejka) Europe Equity Strategy
Stay UW Cyclicals – EM/Chin plays remain of particular concern.

This piece was published yesterday. Mislav is still very concerned about the macro backdrop and thinks it’s too early to take on more cyclicality in portfolios despite the tempting valuations. JPM is concerned about China… Profit margins and valuations of some sectors have been clearly extrapolated on EM growth and need to come down: Chemicals, Capital Goods, Luxury Goods as well as Food, Bevs and Tobacco.
Remain UW: Mining, Capital Goods, Autos and Luxury Goods.

OTHER STUFF

The Great Abdication – NYTimes.com http://nyti.ms/Mx0iIY Great and scary article by Paul Krugman in the NYT.

EUROPEAN EQUITIES

JPM on Spanish Banks (Jaime Becerril)
Last chance to avoid a full country rescue, remain cautions; Santander our only Overweight

JPM stress tested 14 Spanish banks under our own scenarios, leading to an expected capital deficit of €87bn for the system to reach a minimum 9.5% Core Tier I capital. With audit reviews still to be revealed, JPM considers risks are too high to get involved in Spanish banks’ equity short term and we remain cautious, keeping Santander as our only Overweight stock and a relative call in peripheral Europe. JPM believes it is too early to get involved in domestic banks – at least until toxic assets are dealt with, hopefully once audit reviews are out.

FINANCIALS
– Banco Santander
and Banco Bilbao Vizcaya Argentaria were among 28 Spanish banks cut by Moody’s last night because of the country’s sovereign debt and souring real-estate loans
At least 12 banks’ L-T ratings were junk, including Bankia, Banco Popular Espanol, Banko Sabadell and Bankinter
Nomura keeps negative stance on Greek Banks; cuts ratings- JPMorgan remains cautious on Spanish banks; Santander Preferred
– Credit Suisse may cut 60 directors and MDs at European investment banking unit, Reuters says
– Banco Santander sees Mexico IPO on Oct. 4, Chairman Botin Says
– Credit Agricole
plans to offer EU1.875B in 15-year fixed-rate loans to French local authorities via its insurance unit, Les Echos reports
– Royal Bank of Scotland Group’scomputer glitch that stopped customers from making payments and accessing money, may cost the lender “hundreds of millions of pounds,” reports Bloomberg
– Nordea Bank is raising costs on the riskier home loans that regulators have called a danger to the world’s third-biggest mortgage bond market as Denmark struggles with the worst housing market slump in 20 years
– Lloyd
’samong Citi’s Preferred Insurers

INDUSTRIAL/MINERS/SERVICES
– Adecco
plans to commence buyback of up to EU400m on a second trading line with subsequent cancellation of shares around mid-July 2012
– BMW will share Toyota’s fuel cell tech, reports Bloomberg; Cut to Neutral VS Buy at Citi
– GKN
’s Volvo Aero buy would improve visibility, says Credit Suisse
– Syngenta
restates its earlier figures under a new segment reporting
Daimler may leave the Formula One on Ecclestone Bribes, Bloomberg reports; PT Raised 5% to EU44 at Barclays; Kept at Underweight
– Schindler Cut To Neutral From Outperform at Exane

UTILITIES/OIL/HEALTHCARE/CHEMICALS
Global oil output capacity may climb almost 20 percent by 2020, led by gains in Iraq, the U.S., Canada and Brazil, reports Bloomberg
Berstein analysts screen 43 energy stocks under coverage for quality, growth and valuation in investor note
European utilities underperformed mkt in each of last 3 yrs, again lagging in 1Q, finally performing in-line during 2Q, BofA says
– ENI sees its Gulf operations ‘fully manned’ within days
– BP agreed to sell its stake in Wyoming natural-gas fields to Linn Energy LLC for $1.03 billion to help pay for the 2010 Gulf of Mexico oil spill
– ENEL is seeking to almost double its wind-power capacity in Romania to about 500 megawatts within 4 years
– BHP Billiton is returning workers to production platforms in the Gulf of Mexico and will resume production tomorrow, Bloomberg reports
– GDF Suez concludes its 1st liquefied natural gas sale in Thailand
– Shire
fell the most in more than nine years after U.S. drug regulators unexpectedly approved a copycat version of its second-biggest selling drug; Upgraded To Buy From Hold at Berenberg
– Croda Upgraded To Overweight From Neutral at JPMorgan

TMT
Berenberg weighs top-line growth at Telcos in coming years
– Vivendi
may have to pay EU765m in the Liberty media case, it said last night post-mk
– IMPREGILO says buyback proposal and stake sale in Ecorodovias are in line with business plan
Capital Research and Management says the percentage of voting rights it holds in KPN fell to 6.79% as of June 21
– DEUTSCHE TELEKOM’s Southeast European ambitions end with a crash crunch

RETAIL/CONSUMER/LUXURY
– Anheuser-Busch InBev’s
push to acquire full ownership of Grupo Modelo SAB is moving the beer industry into the final stages of a decade-long consolidation
– L’Oreal may buy companies in Europe to add new product categories or market share, Bloomberg reports

SMALL/MIDCAPS
– Vestas
unites its Asia Pacific and China sales business units
– Unipol’s CEO Said the company would to pay back EU250m to Mediobanca in 3 Years, FT reports
– TAG Immobilien
successfully prices EU85.3m convertible bond
– Valeo
plans to sell access mechanisms to Japan’s U-Shin
– Exmar was awarded LLOG contract for second oil-production platform
– Wessanen expects divestment of American Beverage Corporation to finalise in 4Q, to use sale proceeds to grow European activities
– Svedbergs
Raised To Buy VS Neutral at Swedbank
– Paddy Power Rated New Buy At Jefferies, PT Eu60
– Catlin Raised To Buy VS Neutral at Citi
– DS Smith Rated New Buy at Citi, PT 195p
– Ladbrokes Upgraded To Neutral From Underweight at JPMorgan
– Talktalk Upgraded To Neutral From Underweight at JPMorgan
– William Hill Upgraded To Overweight From Neutral at JPMorgan
– Nyrstar Cut To Hold From Buy at ING
– Informa Cut to Equalweight from Overweight at Morgan Stanley

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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