The Dawn Patrol – 02.06.12 – On Xstrata, China PMIs, Europe. RCUBE on EM debt. The JPM view, GS on the EU summit, MS’ country quant model…

Bonjour,

Markets remain positively oriented following the EU summit and ahead of the ECB meeting on Thursday. Asia remains strong as well despite the disappointing HSBC PMIs for China this morning. Macro eyes on French, German, Italian and SPanish PMIs. France to sell bills.

Linde said it will buy Lincare Holdings Inc., a homecare health company, for $4.6 billion.
Vivendi plans to seek a buyer for its $8.1b stake in Activision Blizzard, Bloomberg reports; Raised To Buy VS Neutral at Goldman
Akzo Nobel Cut To Underweight VS Neutral at JPMorgan
Kuehne + Nagel Cut To Underperform VS Buy at Bofaml
Buy Carlsberg as it is ‘Considerably Undervalued,’ Nomura Says

CURRENT THEMES

On Xstrata (From LCM)
* Sunday Times : Glasenberg is considering all options — from walking away from the merger to changing its structure so that he could push it through and ignore Qatar’s demands. He could do the latter by switching from a “scheme of arrangement” to a traditional takeover.

* This week Glasenberg is expected to hold showdown meeting with Ahmad al-Sayed, chief executive of Qatar Holding .

* Press continues to note surprise of both Glencore (and Market) of Qatar late stance towards merger (terms).

* Thoughts : I just can’t see Glasenberg being dictated to (again) , the fact that XTA-GLEN moved on executive remuneration is a big deal … therefore I was pleased to see Sunday Times suggest there is possibility of tender vs scheme (always the case, but now being studied as a viable option).

On China PMIs
Sunday’s PMI came at 50.2 for June, vs 50.4 for May, but were slightly better than expected (49.9 expected).
The HSBC manufacturing PMI released this morning came out at 48.2 vs 48.4 for May… The export data and new orders were disappointing.
Let’s not be too bearish on these data, the pro growth measures have just been implemented and will take time to impact the data…

On Europe
The market really liked this Euro summit. I haven’t kept a close monitoring of market’s reaction following each European summit, but it’s probalby the first one where the market reaction is so positive. Usually the markets rises before the summit on high expectations and then falls on the actual outcome. Let’s keep our bullish hats for the short term. First, because, sometimes, it feels good and, second, because we should have some good news on the ECB front as well this Thursday.

Below in the strategy segments, you’ll find some comments from large banks top strategists. Basically, what the EU leaders did is good, but only seen as a first step of a long process.

RCUBE

RCUBE’s team believe the Spanish banks solution agreed on by the European leaders on Friday minimises the risks in the short term, but concerns remain high. On the earnings front, they highlight how the recent data are negative wherever we look and notably in the US and in the BRICS. The upturn seen in the beginning of the year was one of the reasons for RCUBE to add to equities. It’s no longer the case, but they don’t cut their position. Credit remains the favourite asset class (already exposed through iTraxx Xover, and the EMBI ETF). Now RCUBE adds to EM credit via the EMLC US ETF which tracks EM debt in local currency.

STRATEGY

JPM (Loeys) The J.P. Morgan View
Mini steps to Euro Federalism

(Copied/pasted)
• Asset Allocation –– Buy euro bank bonds as they benefit the most with the ECB as the new bank regulator and potential TARP money from the ESM.
• Economics –– Q2 likely the weakest quarter this recovery, at 1.4%, but Q3 still looks like sub 2% for the world. UK growth is cut by 1/4% this year and next.
• Fixed Income –– Long duration in EM, OW German Bunds cross-market.
• Equities –– Near-term upside should benefit countries and sectors where positions are more depressed, i.e. Euro area equities and banks globally.
• Credit –– Eurozone banks look to be the relative winner from the EU summit. We go long € financial bonds in the GMOS portfolio.
• Foreign exchange –– Dollar moves into a range post the Brussels EI summit, but we retain a number of hedges against renewed euro weakness.
• Commodities –– Hot weather in the US is pushing up corn and US gas prices.

extract: What did the EU Summit deliver? Here is a top-level view….Overall, if 10 is what is needed to save EMU, and zero is where we started the week, then one could say we moved to 2 –– a meaningful step, with many more to be taken, and a risk of sliding back when the details need to be filled in.”

GS (Pill) European Views

Results of the EU Summit – An important step in the ‘Long March’ rather than a ‘Great Leap Forward’
In this short paper, Hugh summarises where he’s been positively surprised: sens of urgency, the direct recapitalisation of Spanish banks, the Irealnd situation being re-examined and the increased flexibility for EFSF/ESM funding uses.
However he didn’t like the lack of commitment towards dtronger fiscal or political integration and the lack of news towards the European FDIC.
He then gives his visions of the next things to come… (stronger integration)
All in all, as the title says, GS sees these steps as the first of a long process, but are clearly not enough to solve the European crisis…

MS (Carr) European Equity Strategy
European Country Quant Model

MS still favours the Core vs Periphery and Germany is top country with Sweden dropping to second. Belgium saw strong improvement this month rising 6 places to #5 thanks to strong earnings momentum. Finland dropped the most on a poor score in Earnings and Profitability.

This piece may be useful for Top Down selection…

EUROPEAN EQUITIES

FINANCIALS
– Barclays’ Chairman Marcus Agius plans to resign after the bank was fined record 290m pounds ($454m) for trying to rig interest rates; Buy Barclays as the price reaction it ‘harsh on size of fine alone’ says UBS
– BNP Paribas may narrow a 40b-euro funding gap in Italy and Spain by moving some loans in those countries to deposit- rich Belgium, reports Bloomberg
– Credit Agricole’s Emporiki Draws interest from 3 Greek banks, reports FT; Co. is talking with potential suitors including Kepler Capital Markets for brokerage unit Cheuvreux, Reuters reports
– L&G will begin offering loans to U.K. housing associations, reports FT
– Aviva fired dozens of senior managers after carrying out a review of its business, it may sell its American division, worth more than GBP1b ($1.5b), Bloomberg reports
– Banco Santander’s Latin American business will have double digit growth in net income until 2015, El Pais reported
– Credit Suisse Rated New Sell At ING, PT Sf15.1
– UBS Rated New Hold at ING, PT Sf11.6
– Old Mutual Removed From UBS’s EEMEA Key Call List
– Julius Baer Rated New Buy At ING, PT Sf39.3

INDUSTRIAL/MINERS/SERVICES
– Linde said it will buy Lincare Holdings Inc., a homecare health company, for $4.6 billion.
– Airbus’plant in Alabama will employ 1,000 workers, reports Bloomberg
– Fiat Industrial’s truck unit Iveco plans to shut down five plants in Europe by the end of 2012 because of the economic crisis in the region, CEO says; Fiat may be poised to rise to €5 as Chrysler’s North America growth offsets the group’s sluggish performance in Europe
– Volkswagen recalls some 2012 model Audi Q5 vehicles
– BMW decided to abandon its venture with Peugeot following the French carmaker’s accord with General Motors
– Vestas is considering putting itself up for sale after having entered into debt restructuring talks with lenders, Sunday Times reported; Association is to attempt to gather small Vestas shareholders to consolidate their votes and increase influence, reports Bloomberg
– Glencore’sCEO may abandon a planned merger with Xstrata if he considers the price too high, Bloomberg reported
– Bouygues signed a EU232m Ivory Coast highway-concession contract
– Dockwise increases its stake in Fairstar to 80.4% from 60.4%
– Thales’ Alenia Space is seen to win €700M worth of orders, Bloomberg says
– Kuehne + Nagel Cut To Underperform VS Buy at Bofaml

UTILITIES/OIL/HEALTHCARE/CHEMICALS
The French government is considering a new freeze on gas prices, Les Echos reported
China State Grid Corp. has offered to buy the Spanish government’s stakes in Spain’s electricity network operator Red Electrica and Enagas, its natural gas grid, El Mundo reported
– Fresenius failed in its EU3.1b bid to buy Rhoen Klinikum after its attempt to gain at least 90% of the hospital operator’s stock was foiled by Asklepios Kliniken
– Roche was ordered to pay $18m to former accutane users
– GlaxoSmithKline’s Zofran IV Dosing may cause abnormal heartbeat, FDA Says
– AstraZeneca has cash for more acquisitions, reports FT
– Veolia Water UK is owned at 10% by the China’s State Administration of Foreign Exchange
– GDF Suez completes the purchase of International Power
– Statoil shuts down production at its Gullfaks A oil platform in the North Sea following a pipeline leak, reports Bloomberg
– Total seeks exchange listing in Shanghai, reports WSJ
– Akzo Nobel Cut To Underweight VS Neutral at JPMorgan
– Cenovus Raised To Hold From Sell at SocGen
– Polyus Added to UBS’s Most Preferred List
– POLYMETAL added to UBS’s Most Least List
– Solvay Cut To Neutral VS Overweight at JPMorgan
– Suez Environnement PT Cut 10% to Eu9 at Barclays

TMT
– Vivendi plans to seek a buyer for its $8.1b stake in Activision Blizzard, Bloomberg reports; Raised To Buy VS Neutral at Goldman
– Ubisoft will remain “vigilant” regarding any possible acquisition targets that may arise, CEO Yves Guillemot says to Les Echos
– Vodafone examines McLaren Formula One Team Sponsorship as deal expires at end of 2013 racing season, FT reports
– Deutsche Telekom may quit German Payment Venture, Bloomberg reports
– Portugal Telecom extends its maturity on credit lines by 2 Yrs to 2016
– ITV PT Cut to 85p VS 104p at Morgan Stanley, Stays Overweight

RETAIL/CONSUMER/LUXURY
– Inditex’s approval for its venture with Tata has been deferred by the Indian Foreign Investment Promotion Board, Times Says
– Danone PT Cut to Eu55 VS Eu57.50 at ING, Stays Buy
Buy Carlsberg as it is ‘Considerably Undervalued,’ Nomura Says
– AB Inbev Raised to Buy From Hold at SocGen

SMALL/MIDCAPS
– Rhoen-Klinikum sees takeover process having a negative impact on earns
– Finmeccanica‘s CEO wants to focus on core business to improve competitiveness, reports FT
– Brembo sees its 2012 revenue rising by as much as 10%, Bloomberg reports
– Impregilo will gain EU550M from Ecorodovias stake sale
– IVG reduces its debt by EU320m through scheduled repayment
– NH Hoteles is defining a plan to close down temporarily or definitively loss making hotels in Spain, reports Bloomberg
– Imtech signs private placement for EU100m
– MDxHealth says in filing to Euronext it raised EU10m to fund expansion of U.S. sales team and to run and expand commercial laboratory in the country
– Capital & Counties Cut To Underperform at Credit Suisse
– Brunello Cucinelli Rated New Neutral At Nomura, PT Eu12.80
– Avocet Mining Cut To Neutral VS Overweight at JPMorgan
– Bucher Industries Raised To Buy VS Neutral at UBS
– Chemring PT Cut to 330p VS 420p at Credit Suisse, Stays Neutral

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