The (after) Dawn Patrol – 10.10.12 – On the Markets… AA ok. Ups and Downs.


Markets should open down. S&P was down on several concerns (mainly Europe and this new EU financial transaction tax) and as we’re in the Q3 season, cautiousness is the name of the game. We don’t see many buyers and Tech and Housing. Gold remains high at 1763.26 and the EURUSD stands at 1.2853. Today, we’ll watch the French and Italian IPs, the US mortgage apps and the Beige Book. In terms of auctions, it’s going to be Italy (bills) and Germany (5y).

Germany signalled it was ready to walk away from the BAE-EADS negotiating table on Tuesday and let the €34bn deal collapse. But neither the two companies, nor UK and French officials, wanted to give up on the deal before the British Takeover Panel’s deadline of 5pm London time on Wednesday for EADS to make a formal offer for BAE. (Financial Times)

Ups and Downs
PEUGEOT & FIAT downgraded to Ba3 from Ba2 at Moody’s, outlook negative. VOLKSWAGEN PREF raised to Buy vs Neutral at Citi. MAN SE raised to Buy at DBK. STGOBAIN & WENDEL cut to Neutral vs Buy at UBS. SMITH & NEPHEW rated new Sell at SocGen. LINDE & AIR LIQUIDE rated new Hold at Berenberg. EUROPEAN SOFTWARE Industry cut to Neutral vs Positive at Barclays (ATOS, TEMENOS, WIRECARD, ARM , GEMALTO – avoids SAP, SAGE, INDRA). MS prefers EUROPEAN SOFTWARE over IT SERVICES. STMICRO raised to Neutral vs U/P at Exane. This is interesting for STM… I’ll have a look.


AA: +8cAlcoa EPS $0.03, Exp. $0.00, Rev $5.8bn, Exp. $5.54. In the heavy truck and trailer market, Alcoa is lowering 2012 growth expectations (7 to 9 percent decline) in anticipation of a slowdown across all major regions. ALCOA CUTS 2012 GLOBAL ALUMINUM DEMAND FORECAST TO 6% VS 7%. CITES SLOWDOWN IN CHINA’S 2H VIEW ON GLOBAL DEMAND.

YUM: +3.5% – Yum! Brands 3Q Adj. EPS 99c, Est. 97c; Boosts Yr Forecast


On the Markets
It really feels like it’s time to take some profits where you can. This is really sentiment based. We are all aware of the current risks, or the ones that world leaders are trying to control (Europe, China, Fiscal Cliff) but now we’re entereing in the real economy with the Q3 publications. We’ve seen a flurry of profit warnings since the summer with HPQ, CAT, FDX, Metro, NKE, INTC, etc… More importantly than what the companies actually publish will be the Q4 outlook, and this is were things are really worrisome. Q3 earnings have already been reduced so expectations are already low, but Q4 and 2013 EPS expectations remain really high.
There already have been 91 negative warnings on the S&P vs 21 positive warnings. This is the worst ratio since 1Q09.

In terms of sentiment indicators, the put to call ratio is low, the VIX is low, apprently the skew on the DJ Euro STOXX index is at its lowest level and CFTC data show that both on Treasuries and Nasdaq the speculative positioning is 2 standard deviations… Which means that investors are very long both credit and equities…

After the rallye we’ve had, it may be time to take the profits where you can.

On Europe
It seems that the markets don’t expect Rajoy to tap the ESM before early November, and the urgency is evaporated. I don’t know what it really means for Spain, but with the Elections coming (Euskadi and Galicia on the 21st and Catalunya on the 25th of Nov). This must be the reason why Rajoy waits.


JPM (Abouhossein) Global Investment Banks
IB revenues to surprise above high expectations – OW IBs over credit banks
We now estimate FICC revenues will rise 2% QoQ in 3Q (prev -10%), due to strong credit trading in September and strong rates performance in the first half of 3Q partly offsetting a seasonal slowdown in FX. We believe credit trading was helped by credit spreads tightening in 3Q (by 70bps in iTraxx Europe to 86bps). In Commodities, the seasonal slowdown will likely have been offset by a rise in prices in Q3 (crude up 7%, gold up 11%). On a YoY basis, we now estimate FICC revenues +27% on a low 2H11 base.

NESTLE (MS, Khoo) Raising Estimates, Stay OW.
Raising organic growth estimates
– see upside to ‘Nestlé Model’ medium term. We have revised our group LFL assumptions to slightly above the upper end of Nestlé’s 5-6% long-term guidance in 2012-15. This is driven by increased EM momentum, particularly in Zone AOA (with larger scale in China ), as well as continued strength in its most important global categories – Coffee, PetCare and Nutrition. We now forecast Zone AOA organic growth of 10-11% (vs. 7% previously). Our estimates are now ~4% above consensus

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


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