The Dawn Patrol – 16.07.12 – On Spain. Strategy pieces by MS and JPM. Some bullishness in the US economics comments.

Bonjour,

Europe set for better start. Barclays ex-COO Jerry Del Missier, FSA Chairman Adair Turner appear at UK hearing over Libor manipulation. Merkel gave no ground on Germany’s demands for more central control over euro member states in return for joint burden-sharing as the region struggles to contain the debt crisis. Oil+EUR drifted ahead of inflation + conf reports in Europe. Macro eyes on US Empire State survey.

GSK in weekend talks to buy Human Genome.
VIVENDI may start sell assets this month and Sunday Times reports it may sell Virgin Records.
G4S will report a FY 2012 loss of £35 – £50m due to its failure to deliver on its security contract for the olympic games. It represents a 8%-10% impact acc. to Bloomberg.

CURRENT THEMES

On Spain
The Spanish government gave details on its program to cut €56.4bn off its deficit through tax (€34.3bn) and cuts. Which is short of the €65bn package announced…
In the FT: Angela Merkel will face revolt over Spanish bank aid (http://on.ft.com/NCvxOI) on Thursday’s vote for the provision of up to €100bn aid to the Spanish banks.
Also, there is an article in the WSJ saying the ECB has changed its views on bonds losses. And holders of senior bonds issued by the most severely damaged Sapnish savings banks will be imposed losses. (ECB Shifts View on Bond Losses – WSJ.com http://on.wsj.com/LrzxX3).

On the Fed

STRATEGY

JPM (Loeys) The J.P. Morgan View
EM policy is saddling up.
(copy/pasted)

Asset Allocation –– Position now for EM monetary easing through EM local bonds, and wait with EM FX and equity longs until EM data and growth expectations have bottomed.
Economics –– Q2, at 1.7%, is ending up as the weakest quarter in the recovery, so far. We project a rebound for H2, on falling inflation, but only to a still below potential pace of 2.5%. EM policymakers have by far the greatest room to counteract economic weakness.
Fixed Income –– We still prefer German Bunds to US Treasuries.
Equities –– The US reporting season is delivering a positive surprise, supporting equities near term.
Credit –– Outright longs in US HG corporate and EU bank bonds combine a safe and a risky asset and thus offer good diversification against changes in the growth outlook.
Foreign exchange –– Still long dollar vs. euro.
Commodities –– We lower our 2012 copper price forecast but raise next year’s.

"Our sectoral recommendations focus on Banks and Defensive sectors such as Telecoms. Positions, price momentum, and global PMI momentum are behind these calls. The MSCI AC World Bank index has been steadily outperforming the MSCI AC World index since the end of May."

MS (Parker) US Equity Strategy
Are Expensive Defensive Offensive?

MS continues to prefer defensive names despite higher valuations as they have historically performed better despite higher valuations. Also, according to their estimates, cyclicals earnings are due to drop faster in the next 6 to 12 months and it’s these earnings revisions that will dictate the companies attractiveness.

JPM (Matejka) European Equity Strategy
Exploring the case for better performance of Europe vs the US.

Mislav argues that international investors should reduce their UW position in Europe.:
1) European valuations appear very cheap vs the US. On P/B it is trading at a 36% discount vs 25% normally. Eurozone ex Financials is at a 46% discount, record ever. European dividend yield is 2x the US one, at
highs. On cycle-adjusted P/E Europe is at a record 37% discount to US. 2) European stocks have underperformed their US peers dramatically and global investor is near record UW the region.
3) Activity momentum in Europe is unlikely to improve, but the macro differential between the two regions appears to be narrowing. This is seen in the convergence of the respective regional PMIs.
4) Trade weighted Euro is the lowest since 2003. This should help relative earnings delivery in Europe and be a constraint for the US.
5) ECB’s response is getting more aggressive. Size of ECB’s balance sheet is expanding the most compared to other central banks.

BUT: He remains cautious for now in Europe and continues to be UW cyclicals (Mining, Cap Goods, Luxury and Autos).

OTHER STUFF

The Most Important Charts In The World – Business Insider http://read.bi/M24T3d

EUROPEAN EQUITIES

FINANCIALS
– Barclays
tried to shield executives from scandal, WSJ reports
– HSBC
Holdings and the U.S. Justice Dept. are near a settlement to resolve a criminal probe into laundering of drug-cartel and other money, the Wall Street Journal reported
– Standard Chartered expects ‘mild’ recovery in China in Q3
Buy Allianz, Citi says ahead of Capital Markets Day

INDUSTRIAL/MINERS/SERVICES
– Airbus
&Boeing are walking an increasingly fine line between generating cash and stoking an airplane glut, reports the WSJ
– Fiat plans to expand 500 range of small cars into broader family of models including small SUV, FT says
– G4S
sees loss of GBP35m-GBP50m on Olympics contract; Cut to Hold From Buy at Jefferies, PT 285p; Cut to Neutral VS Buy at UBS
– Glencore receives the approval for the Viterra purchase by Canada
– Siemens
is to enter Japan Thermal-Power market, Nikkei reports
– Rolls Royce Removed From Bofaml’s Europe 1 List
– Syngenta
Raised To Buy VS Neutral at Citi; Cut To Neutral From Buy at Nomura
– Yara Cut To Reduce From Neutral at Nomura

UTILITIES/OIL/HEALTHCARE/CHEMICALS
– GlaxoSmithKline
is nearing a deal to acquire Human Genome Sciences for about $2.8 billion in cash after pursuing the U.S. biotech company for three months, Reuters reported
– ROYAL DUTCH SHELL’sdrilling rig shows no damage according to coast guard; Shell & Exxon are set to sign the Algerian shale gas pacts, reports the WSJ
– BASF Raised to Buy From Neutral at Nomura
– BHP Rated New Overweight at Barclays, PT A$42
– DSM Raised to Buy From Neutral at Nomura
– Givaudan Cut To Reduce From Neutral at Nomura

TMT
– Univeral
and EMI are to discuss divestments to seal the deal, reports the NYT
– Nokia
cuts the price of Lumia 900 Windows phone to $49.99, says WSJ
– Smiths Group
Raised To Buy From Hold at Berenberg

RETAIL/CONSUMER/LUXURY
– AMADEUS’
shareholders do not want the company to reduce debt are it borrows at an avg yield of ~4%, lower than many European countries
– Conforama plans to open large outlet in Paris, says Le Figaro
– Carrefour Raised To Buy From Sell at Berenberg
– Metro Raised to Neutral VS Sell at UBS
– Swatch
Cut To Neutral VS Buy at Citi

SMALL/MIDCAPS
– Energiedienst Holding
Half-Year Net Eur 45.9m; Ebit rose 25% to Eur 55.2 mln; Electricity sales 1H up 18.3% to 4,878 mln kwh; Gross capital expenditure 1H Eur 27 million; CEO says pressure on margins are increasing due to rising competition, expiring supply contracts, lower wholesale prices
– Imtech buys Van Stappen & Cada, no price given; Acquisition to boost EPS immediately; Van Stappen & Cada annual rev. ~EU3m; Imtech paying cash
– Fomento de Construcciones & Contratas has been granted more time to reach an agreement with lenders to refinance debt at its Cementos Portland Valderrivas cement unit, Expansion said
– Nobel Biocare
names Oliver Walker as CFO, reports Bloomberg
– PagesJaunes will allocate cash flow to repay debt from 2013, reports Bloomberg
– Unipol Gruppo Finanziario will begin selling today 1.1 billion euros ($1.4 billion) of new shares as part of its plan to merge with Fondiaria-SAI
– Serco
wins GBP37m contract to oversee probation work, reports Bloomberg
– WMF’s second-biggest shareholder Andreas Weissenbacher says management board has been favouring private-equity firms over other shareholders
– Clariant
Raised To Buy From Neutral at Nomura
– Gerresheimer
PT Raised to Eu45 VS Eu40 at HSBC
– Premier Oil
PT Raised to 530p VS 455p at HSBC, Stays Overweight
– Rockhopper Exploration Cut
To Equalweight at Barclays
– Workspace Group
Rated New Buy At Deutsche Bank

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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