The Dawn Patrol – 24.09.12 – On this week’s data, on Europe, on the US economy, on TV series. MS on AAPL. JPM’s view and European strategy.

Bonjour,

Hope you enjoyed your week end. Markets should open slightly down as EU leaders continue to argue on the Banking Union. Gold at ^1761.63, EURUSD at 1.2945. Today, tired eyes will watch the German IFO, the Chicago Fed Nat’l activity and the Dallas Fed Manf. activity.

AAPL. After one week end with the iPhone 5, I can confirm, it’s a real nice piece of technology. It’s very well designed, the screen is great and it’s fast. Is it worth upgrading? Not from an iPhone 4s… MS has a piece out this morning and apparently the supply chain gives some bullish signals. MS increases its numbers to reflect bullish iPhone and iPad mini sales. The current target price is $720, but Katy Huberty is ready to move to $960. Main catalyst: China where China Unicom is expected to launch the iPhone 5 in December.

SYNGENTA raises sales target to $25b by the end of the decade (vs Earlier target was at over $22b)
BAE SYSTEMS has warned it will walk away from its proposed 35bn tie-up with EADS if the deal waters down its special relationship with the Pentagon.
Cost of Leaving Greece Rises for CRÉDIT AGRICOLE http://t.co/rwrYaS5j
EDF is in talks to sell a near-30% stake in the Hinkley Point project and is thought to be negotiating with a handful of Chinese state giants, including China Guangdong Nuclear Power Corporation Sunday Times
CGGVeritas to Buy Fugro’s Geoscience Division for EU1.2B Cash
FT says XSTRATA investors oppose retention scheme : BlackRock and L&G balk at cost of generous payments
Barron’s sees Facebook overpriced target at $15 : Facebook has a business model in need of a radical change and a still-rich $61 billion market value. What’s not to “like”? Plenty. Facebook Is Worth $15 – Barrons.com http://on.barrons.com/Qtpy4J

Ups/Downs:

AAL cut to Neutral vs Buy at BofAML whereas First Quantum + Novatek raised to Buy, PUB cut to Neutral at HSBC, VTB cut to UW at Barcap, MS reiterate OW on VOD, CBK cut to Reduce at Nomura, RBS reiterated OW at Bernstein, JPM likes WOS.

CURRENT THEMES

On the data to watch
The coming week’s macroeconomic agenda is dominated by business and consumer sentiment releases, with a sprinkling of US housing data to add variety. Key releases in Europe include the German IFO business climate survey. In the US, there will be focus on consumers with two sentiment surveys up for publication as well as latest personal spending and income figures. Durable goods orders and Chicago PMI are also due, as well as the final readings of UK and US 2Q GDP.

On Europe
Something’s cooking in Spain. Several articles were published over the week end arguing that Spain is in talks with EU officials about a sovereign aid package.
Der Spiegel said that the ESM could be leveraged and could reach €2tn to save countries. So far, the Finns are reluctant to approve such a possibility.
And finally BBG writes a story saying European leaders are struggling to overcome a crisis-fighting stalemate as they face discord over a banking union, foot-dragging by Spain and Italy on financial aid and Greece’s on-going debate on how to meet bailout commitments

On the US economy
There is a long article by a group of senior fellows at Stanford’s Hoover institution in the WSJ. They really don’t like what is going on in the US with the escalating debt levels. They don’t like the government’s policy nor the Fed’s QE. Their advice: “The fixes are blindingly obvious. Economic theory, empirical studies and historical experience teach that the solutions are the lowest possible tax rates on the broadest base, sufficient to fund the necessary functions of government on balance over the business cycle; sound monetary policy; trade liberalization; spending control and entitlement reform; and regulatory, litigation and education reform. The need is clear. Why wait for disaster? The future is now.
Shultz, Boskin, Cogan, Meltzer and Taylor: The Magnitude of the Mess We’re In WSJ.com http://on.wsj.com/SNs2aM

On TV Series.
Showtime’s Homeland and AMC’s Breaking Bad won awards at the Emmy awards. Homeland is a bit slow and the plot seems too obvious to be true… Breaking Bad is just amazing…

STRATEGY

JPM (Loeys) The J.P. Morgan View
Weak Economy vs. strong liquidity. Who Wins?

Asset allocation –– Strong liquidity, heavy supply of safe assets, high risk premia, defensive positioning by end investors, and a QE focus on reducing downside risk are not technicals but are true fundamental drivers of the risk rally that trump weak economic growth, in our view.
Economics –– Q3 global growth remains as soft as Q2, confirming bottoming process, but not yet a rebound. Only rising order/inventory ratios and rallying markets hint at rebound into Q4, we believe. We nudge up 2013 Euro area growth from 0.2% to 0.3% on improved financial conditions.
Fixed Income ––Position on wider swap spreads in Treasuries, Bunds and UK.
Equities –– Stay long value stocks in Europe, commodity sectors globally, UShousing sensitive sectors within the US, and US against EM.
Credit –– Stay long credit spreads across the US HY and EM sovereigns and corporates and we expect further spread compression.
Currencies –– New FX forecasts, with weaker dollar into year-end. Commodities –– We think agriculture prices have peaked and will move lower from here. Open a short in the GSCI agriculture index.

JPM (Matejks) Europe Equity Strategy
4-year long global profit margin upcycle is fading implications.

Mislav is getting scared. He flags the risk that European corporates have reached peak margins and the rally will soon end. In particular, companies that benefitted from EM growth need this to start again, oterhwise, bye bye margins. Stay cautious on capital goods as companies are cutting capex.
“We have been bullish on global profit margins for almost 4 years, seeing a sweet spot of low input costs and robust EM driven topline and pricing power. This backdrop is reversing, with the following implications: 1) Margins drive activity. One never saw economic weakness before margins peaked. If margins are starting to move lower, the medium term risk-reward for stocks is deteriorating; 2) Profits drive capex. Capex cycle was muted, but still one of the bright spots. Remain cautious Capital Goods (ABBN, SIE, SKF, ATCOA, ALFA); 3) Consensus expects EPS delivery next year to be driven largely by margin expansion. This is unrealistic, especially for EM plays, in our view (we downgraded Chemicals to UW recently). We continue to fade the Mining rally, remain bullish on Dax, and have a preference for Eurozone over the US. We reiterate 28 stock core holdings list – names in the report.”

 

OTHER STUFF

France wants Greece to get more time: French prime minister Jean-Marc Ayrault has said Greece should be given more time to meet the terms of its international bailout, in the clearest call yet by a leading eurozone country for an easing of the stringent conditions attached to the €174bn rescue package. (Financial Times)

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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