The Dawn Patrol – 17.10.12 – On Spain, on ASML, Ups and Downs, major news and other things that you may find useful.

Bonjour,

European markets indicated flat as Asia rallied on the announcemnt that Moody’s keeps Spain rating at Baa. In the US materials, tech and financials outperformed and the SOXX was up 2% before INTC and IBM numbers. Both not great… GOLD at $1,7256. Today, we’ll watch the weather forecasts for surfing conditions this Week End, the UK’s BoE minutes, US mortgage applications and housing starts. Also the German govt will release new macro economic forecasts (not sure what this is). Portugal will sell bills and Germany will sell 2y notes.

EU Earnings and news

*CREDIT AGRICOLE SAYS SALE TO CUT NET INCOME BY ABOUT EU2B IN 3Q (on Emporiki).

Danone 3Q LFL sales miss est. whereas Total revs inline & confirms outlook, BHP reports iron ore output little changed, meets est, TLSN 3Q earnings missed forecasts & cutting 2000 jobs to cut about $300m in costs in 2 yrs. Accor keeps FY guidance despite slowing revenue growth. Continental reaffirms its full-year guidance in today’s FT Deutschland, with CEO Degenhart saying he doesn’t expect anything serious to happen in the rest of the year for the group to change anything from August’s guidance hike. The tyre group points out, though, that in these straitened economic times it is supporting some small and medium-sized suppliers.

Rosneft seen leading race for TNK as BP calls for offers

Ups/Downs

MS likes BRBY for the readacross with LVMH, Nomura upgrade YAR to Buy, keeps Arkema at Buy, downgrades Air Liquide and Solvay. Tesco upgraded to Buy at UBS and ADEN added to UBS’s most preferred list whereas RAND to least, JPM like RIO, remain cautious on LVMH and see on GSZ ore pressure on earnings; self help needed to unlock this long-term value. Iberdrola added to Credit Suisse Europe Focus List.

MS a tactical Sell on ENEL ahead the publication of the consultation paper for the National Energy Reform to 2020.

MS on Autos : Auto stocks have taken negative newsflow in their stride, but could be vulnerable to steep earnings cuts and cautious commentary at Q3. They see most risk to earnings at BMW (EW) and least risk at Continental (OW). They would buy on weakness only selectively – VW and RNO (both OW) appeal here.

ASML. I like ASML as a company (as opposed to… a stock). Its products and technologies are unique, the management is great and it’s a great play on the semis industry (early cycle). Now, what they announce this morning will definitely weigh on the stock as their guidance is poor and the margins are poor… ASML also announces that it acquires CYMER (for $2bn). ASML was Cymer largest customer with c.25% of sales. It basically provides the UV light and maybe more importantly for the future the Extreme UV that enables the etching of semiconductors. ASML is the only lithography company to provide EUV which enables semiconductors companies to manufacture semis at 22nm. Basically it makes sense, it makes ASML unique. The next integration step would be the acquisition of Carl Zeiss for the lenses but way too expensive. So stay away in the short term.

AFTER HOURS

INTEL Sees 4Q Rev. $13.1b-$14.1b, Est. $13.71b; Shrs lower 2.2%. Sees 4Q gross margin 57%, plus or minus a “couple of percentage points” vs est. 61.4%. 3Q EPS 58c vs est. 49c. 3Q gross margin 63.3% vs est. 62%. 3Q rev. $13.46b vs est. est. $13.20b

IBM 3Q Oper. EPS Beats Est., Rev Misses; Shrs Fall 3%. IBM 3Q oper. EPS $3.62, est. $3.61; 3Q rev. $24.75b, est. $25.36b. FX hurt the bottom line….

CURRENT STUFF

On Spain
And Spain’s rating remains unchanged at Baa as “Moody’s assessment that the risk of the Spanish sovereign losing market access has been materially reduced by the willingness of the European Central Bank (ECB) to undertake outright purchases of Spanish government bonds to contain their price volatility.” Next step is obviously Spain asking for a credit line and the ECB will activate the OMT… BUT (it would be easy…) the story running yesterday that Rajoy was about to ask for an ECCL has been denied by Merkel… Apparently, he told her “don’t believe the rumours”.

to read (from the FT):
– Martin Wolf on the IMF’s warnings. (Financial Times)

– Are HFT and flash crashes scaring away investors? (Financial Times)

– China’s changing demographics could justify slower growth. (Bloomberg)

– Pioneering HFT firm shuts its doors. (NYT Dealbook)

– Carlos Slim goes long cement. (FT Beyondbrics)

STRATEGY

MS on autos:
Autos & Auto Parts: 3Q12 – Is it Safe to Get Back in? Not Yet.
Auto stocks have taken negative newsflow in their stride, but could be vulnerable to steep earnings cuts and cautious commentary at Q3. We see most risk to earnings at BMW (EW) and least risk at Continental (OW). We would buy on weakness only selectively – VW and RNO (both OW) appeal here.

BofA Manager Survey

Investors are cautious on growth, maintain chunky cash levels and prefer US domestic demand “growth” plays to “value” plays such as Japan and Resources. Our equity “buy” signal ends, but investors are not nearly bullish enough to prevent further upside to risk assets

– “Over the past nine years’ monthly data, there has been an 84% correlation between air cargo volume growth and global industrial production (IP) growth, with an air cargo lead of one to two months”

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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