The Dawn Patrol – 23.07.12 – Philips strong results. On Spain, Greece, the Fed and Earnings. GS and MS on Earnings. JPM View and JPM Europe more cautious…


Markets to open down following poor Asian performance overnight, concerns coming back over Greece, EUR/USD down to 1.2098. Today, we’ll watch the Eurozone consumer confidence and France and Germany to uction some bills.

Koninklijke Philips Electronics Rev. EU5.892b vs est. EU5.582b ;2Q Net EU167 Mln vs. est. EU104ml; 2Q Ebita EU450m; Ebit EU338m vs. est. EU215m ; says overhead-reduction plan on track, continues on path to achieve 2013 financial targets.


On Spain
With the yield back above 7% on Valencia asking for Madrid’s help and the risk of further downgrade by Moody’s there are growing fears that Spain lose its market access. BUT the latest Moody’s review started mid June, and since then we’ve had the European summit (unconvincing?) and Spain has boosted its austerity program, so it’s hard to say what will be Moody’s decision, but the market is not pricing a downgrade.

On Greece
While many travel to Greece for their holidays, the Troika’s delegation will arrive in Athens tomorrow and there are growing concerns that Greece exits the Euro. The Euro is at an 11y low against the Yen and at 1.2098 against the USD.

On the Fed
Article in the FT (Bleak jobs outlook raises heat on Fed – in which John Williams (Fed member) declares that the US will make little progress on jobs until the Fed eases further.

On Earnings
Some comments below by MS and from GS… (and below chart from Barclays).


GS (Kostin) US Weekly Kick Start

Earnings season disappointments driven by top-line misses
120 S&P 500 companies have reported 2Q earnings results and four key themes have emerged so far: (1) More top-line weakness than bottom-line; (2) Revenues hurt by weak foreign demand and FX exposure; (3) Margins compressing for the third consecutive quarter; and (4) Overall earnings results slightly positive due to Financials. Year/year EPS growth is tracking just 2% vs. 2Q 2011. Next week 173 firms or 37% of S&P 500 market cap will report, including the largest Energy stocks and almost half of Industrials and Health Care market cap. AAPL reports Tuesday and is expected to contribute 4% of 2Q S&P 500 EPS and 22% of Info Tech earnings.

MS (Parker) US Equity Strategy
Q2 Earnings: Just over a lowered bar.

110 S&P 500 companies, representing 30% of market capitalization, have reported Q2 2012 earnings. Aggregate earnings are tracking 4.8% ahead of consensus (2.4% ex Financials) driven primarily by financials, with the sector benefitting from lower provisioning due to a general improvement in credit and higher mortgage refinancing fees resulting from near record low interest rates. Revenue (ex-Fin) is missing estimates by (0.3%), hurt by a stronger USD and a challenging macro environment.

JPM (Loeys) The J.P. Morgan View
Stay Short Cash

Asset Allocation –– Stay short cash. Cash pays near zero; the world is long; central banks are only printing more and are moving towards negative rates. Asset price inflation rules. Cash is the one asset you should underweight.
Economics –– US growth lowered again to 1.4% in Q2 and 1.5% in Q3.
Fixed Income –– Meager return on cash favors carry trades.
Equities –– Next week’s flash PMIs will be crucial in assessing our Cyclical vs.Defensive equity sector call. Stay UW for the moment.
Credit –– Greater policy room-to-maneuver keeps EM credit attractive.
Foreign exchange –– EUR remains the better funding currency.
Commodities –– Supply concerns are pushing up oil prices while demand for base metals remains subdued. Stay OW energy vs. base metals.
Being underweight cash and investing in better-yielding assets remains the best investment strategy. End investors and corporates remain quite long cash, while continued monetary and easing, through rate cuts and QE, will only add to the world’s stock of cash. Clearly cash pays close to nothing in most markets and we now find that some central banks are moving towards paying negative interest rates on reserves. Our economists expect the ECB to make this switch by October (see today’s GDW), but do not see this Fed moving this far.

JPM (Matejka) European Equity Strategy
Reality Check – many red flags emerging.

Despite the bounce, many variables are not following the typical risk on script:
1. Bond Yields have not mioved up.
2. Cyclicals haven’t outperformed.
3. Spanish bond yileds are at new highs.
4. Soft commos up 29% (inflation)
5. EPS revision remain negative.
6. S&P 500 up 9% ytd suggesting already elevated hopes as GDP is being revised down.
7. Stocks do better in positive rather than negative real rates.




Julius Baer Group 1H IFRS Net SF176m, Up 19%; Tier 1 Ratio 23.6%; 1H IFRS EPS up 26% to SF0.90.; 1H pretax SF266.4m vs est. SF233.3m; op. income SF863.1m vs est. 859.5m; 1H adj. net SF221.4; 1H cost-income ratio 70.4%; has no exposure to Greece, Portugal, Spain; Bank also says it has marginal exposure to Italian sovereign debt and no exposure to Ireland.


Eurozone banks have cut their US assets by more than a third since the start of the financial crisis, according to a FT

AXA & ALLIANCE may be interested in Fondiaria’s assets

BARCLAYS will seek a Chairman from outside the company

CNP Assurances will keep seeking candidates for chief executive as candidacy of Caisse des Depots et Consignations former head Augustin de Romanet has aroused opposition, Le Figaro reports

Deutsche Bank management and supervisory boards may set aside $300 million to $1 billion for potential costs related to Libor probe, Handelsblatt reported

Julius Baer and the Bank of China are to cooperate on product distribution


Banco Sabadell Resumed At Neutral at Nomura; PT Eu1

Caixabank Cut To Reduce From Neutral at Nomura

Fonciere DES Regions Cut to Hold From Buy at ING; Rated New Hold at ABN, PT Eu65



Eurotunnel 1H rev. EU473m ; 1H Net Income EU5.24m ; Ebitda EU205m vs est. EU224m ; says euro-region debt crisis makes it difficult to assess economic outlook


ArcelorMittalagrees to clean up Indiana waste, Bloomberg reports

ENRC is close to reach an agreement to buy out Gertler, reports Bloomberg

PEUGEOT CITROEN’s CEO meets Prime Minister Jean-Marc Ayrault

Rolls-Royce says 787 engine part has a ‘reduced service life’


Buy ABB,Low Expectations Present Opportunity, Citi Says

EADS Cut to Sector Perform VS Outperform at RBC

Porsche Raised to Market Perform From Underperform at Bernstein



TNK-BP, BP Plc’s Russian venture with a group of billionaires, will consider a proposal from the U.K.-based company to pay $1 billion in dividends in the coming week, says Bloomberg

Eni & Rosneft, signed an agreement on financing a joint exploration of fields in the Black Sea and the Arctic Barents Sea

FRESENIUS signs a definitive agreement to acquire U.S.-based provider of transfusion technology for blood collection, separation, processing, from TPG, Maverick Capital

GlaxoSmithKline’s $3 billion transaction proposition, to be financed with debt and/or cash, is credit negative for GSK because the co. already has other cash calls that will weaken its finances, according to Moody’s

Novartis wins U.S. approval for Afinitor in breast cancer

Suez Environnement’s United Water is to sell regulated water ops in Ark. for $28.6m to Algonquin Power’s Liberty Utilities in deal to close in 4Q, Bloomberg reports


Actelion Cut to Equalweight from Overweight at Barclays

Enel PT Trimmed to Eu3.7 VS Eu3.8 at Goldman; Kept at Neutral

Enel Green Power PTCut to EU1.85 at Goldman; Kept at Buy

Fortum Raised to Buy from Hold at Berenberg; PT Cut to EU18



Koninklijke Philips Electronics Rev. EU5.892b vs est. EU5.582b ;2Q Net EU167 Mln vs. est. EU104ml; 2Q Ebita EU450m; Ebit EU338m vs. est. EU215m ; says overhead-reduction plan on track, continues on path to achieve 2013 financial targets.

Telenor’s Grameenphone 2Q revenue nk1.67b; 2Q EBITDA declines to Nk863m; 2Q EBIT nk606m; 2Q CAPEX nk275m; Added 1.66m subscribers in 2Q, taking total to 39.29m


NOKIA isin secret talks with European operators on exclusive partnerships to create support for smartphone using Microsoft’s Windows 8 platform, FT reports

Universal Music Group‘s plan to acquire EMI Music is facing doubts by European antitrust regulators, the WSJ said


Tele2 Raised To Buy VS Hold at Deutsche Bank



Tesco scales back targets for opening hypermarkets, “Lifespace” shopping malls in China, as like-for-like sales growth disappoints, FT says


Associated British Foods Cut to Neutral from Outperform at Exane

Danone Cut To Hold From Buy at SocGen

Hugo Boss Assumed Buy at UBS, PT EU90

Kingfisher Cut to Neutral From Overweight at JPMorgan

Buy Next, Citi Says Ahead of Update; Ups PT to 3,700p vs 3,300p



BinckBank 1H Net EU12.4 Mln; Adj. net profit in FY12 Q2 € 12.2 million; Co says if market conditions don’t improve difficult to maintain 1H 2012 profit level


THOMAS COOK puts its insurance unit up for sale, reports Bloomberg


Abcam Cut To Add From Buy at Numis

Banesto Cut To Neutral From Buy at Nomura

Exmar PT Cut 6% to Eu8.3 at Exane; Kept at Outperform

IG Group Cut to Neutral VS Buy at BofAML

Buy Kuoni, Sell-off is Overdone, Citi Says

Lottomatica PT Raised to EU18.1 vs EU17.4 at Nomura; Kept at Buy

Mercialys Cut To Hold From Buy at ING

Stagecoach Raised To Buy VS Hold at Jefferies

Sanoma Cut To Reduce VS Neutral at Swedbank


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