The Dawn Patrol 21.09.12 – On Spain, Italy and France. JPM’s Lee is very bullish. MS on VIV and TF1. I’ll be queuing for the iPhone 5.

Hola,

Markets to open up as Spain is being talked into asking for aid by EU officials (according to the FT). We’re still in the bull market, JPM is getting super bullish, this week was just a pause. The French Apple stores employees are on strike. Option expiries across Europe today. Our eyes will be on:
9:00 Spain mortgages, 9:30 Dutch house prices, 10:30 UK public sector borrowing, (NO TIME) Spain trade.

Enjoy your Week End. Remember to exercise.

Ups/Downs

(see below for the MS calls on Media).
Bernstein reiterate OW on ROG – JPM like Trucks (SCANIA & VOLVO) and downgrade NG/PSON upgraded to OW at Exane (watch the pair vs REL) – UBS raise NOVO to Buy – VOD pt raised to 200p vs 195p at Barclays – MS move to EW on AKZA, VIV as they think that the best of the performance in the share price may already be behind us, keep reiterate Buy on ASML – DB rate GOOG, Aol, Priceline and AMZN Buy, Hold on Facebook and Ebay. Nomura on Utilities : Keeps bearish sector view, outlook for generation unattractive, regulated stocks preferred.

Long (GAS NATURAL, NATIONAL GRID, REE, SNAM, TERNA) vs ( EDP, ENEL, FORTUM, IBERDROLA, SSE)

The boards of Glencore and Xstrata were holding last-minute meetings on Thursday to review the final details of the companies’ planned $80bn combination. While the board of Xstrata could reveal as soon as Friday whether it will recommend Glencore’s offer of 3.05 shares of the commodities trading house for each of the miner’s, people close to the talks said an announcement was not likely to be made until Monday, the final deadline given by regulators.

Publicis agrees to buy LBI Internation for EUR 416m

Syngenta is offering EUR 16.00 in cash for each Devgen share. The bid is supported by a number of major shareholders holding around 48% of all shares. The offer represents a 70% premium to yesterday’s closing price.

Daimler will save 1bn at Mercedes – FTD

BP says US Gulf Drilling near Pre-Macondo levels

EU may probe Microsoft over new tablet software – Almunia

Deutsche Bank could cut thousands of jobs in Germany

iPhone 5 maps outrage as sales begin: As the new phones go on sale today, criticism is already rife over errors in Apple’s replacement for the Google Maps app (it’s really bad).

AFTER HOURS

ORCL: flat at 16.30. Oracle 1Q Adj. EPS 53c, Est. 53c. 1Q adj. rev. $8.21b est. rev. $8.42b

S&P ended the day essentially unchanged (off less than 1 pt) after having bounced ~10 pts from the morning lows. WTD the index is off very small (~40BP) and remains not far from recent multi-year highs. Today was a bit busier on the news front (flash PMIs, NSC/BBBY earnings, Spain auction, etc) but overall trading trends haven’t really changed a whole lot in the last few days.

If there was one reason behind the lift it was prob. the Philadelphia Fed (at 10amET) and the FT article “EU in talks over Spanish rescue plan” which also helped to lift the Euro against the dollar in the afternoon. Despite the relatively flat close, cyclical sectors underperformed more defensive sectors. While Industrial weakness (-1 %) was directly tied to cautious comments from NSC and FDX, Financials (banks in particular) took a breather also (although ended offer their lows). Note that homebuilders continued to work today in continuation from last weeks MBS purchase announcement (Fed QE) as well as positive housing eco data (see yesterdays existing home sales).

Treasuries sold off in the afternoon after rallying early on due to a multitude of risk-off headlines (US companies cautious on 3Q earnings and Spain bank audits). Much of the afternoon sell off came after the 10y TIPS auction tailed 8bps on very weak demand. Commodities were mostly weaker today, with gold, copper, crude, and grains trading in the red, while silver and nat gas showed strength

CURRENT THEMES

On Spain
According to the FT, we culd see Spain ask for help next week. European authorities are working behind the scene to pave the way for a new Spanish program so they can get in the bond buying program. Spain to remain in the headlines as the Moody’s review is to published soon as well as the Oliver Wyman and co report on the Spanish banks. Come on Spain!

On Italy
There rumours last night that Monti increased its budget deficit forecasts and it will probably exceed 2.6% of GDP vs Italy’s forecasts of 1.7…

On France
How come we still get such low yields vs Italy??? French PMIs were really bad. As the FT notes, France debt is ‘only’ 89% of GDP vs 123% fopr Italy. But in terms of deficit, France runs a primary deficit of 2.2% vs a surplus of 2.9% for Italy. Time to play Italy against France…

STRATEGY

JPM (Lee) US Portfolio Strategy.
We See a “melt-up” into Election Day.
S&P 500 to EXCEED 1495 short-term…. market’s base case is Obama victory

Here is the summary by Business Insider (http://read.bi/SdaoT7).
Global economy is turning (or less bad)” – Despite the lagging European and Japanese economies, JP Morgan’s economists see global growth picking up in the second half of 2012 driven by easy monetary policy in the emerging markets and a tailwind in inventory trends.
We see a US durable goods boom larger than 1990s” – Durable goods spending as a percentage of GDP is a whopping three standard deviation below its long term average. The rebound will be fueled by US housing starts, which are coming back.
Corporate are the incremental buyer of equities” – Corporate cash balances are still high and share buybacks are surging. Furthermore, US equity profit margins are benefiting from a secular shift toward sale from foreign sources.
High-yield markets tell us fair value P/E > 15X” – Equity risk premiums are high. A 15 multiple on the S&P 500 would get you to 1,600.
Beta chase into year-end” – Fund managers are way under-exposed to stocks, and they will rotate their assets in.
No contrarian sell signals yet…” – Major sentiment indicators continue to show that investors are bearish on stocks.
15% chance of a fiscal cliff” – The market is pricing in overblown fears of the fiscal cliff.

EUROPEAN EQUITIES

TF1 (MS; Julien Rossi) UW, PT €7.35
Our o p ex and p ricing analysis indicates that the benefits of TF1’s 2013 cost savings plan will likely be diluted by the defensive investments and p rice deflation resulting from growing competition. Meanwhile, media buyers expect austerity will put a damper on ad budgets again in 2013. We stay UW.

VIVENDI (MS, Patrick Wellington). EW, PT €14.40 to €16.25 | Negative RTI
With a base case sum of the parts of €16.2 and Vivendi saying that it is not envisaging a break up , we think that the best of the performance in the share price may already be behind us.

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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