The Dawn Patrol – 22.10.12 – Not much… Look at GS comments on Q3 earnings. Philips OK. JPM View.

Bonjour,

European markets to open slightly down following the US on Friday and the lack of news this week end except the Spanish elections. Asia quite stable given the current environment. GOLD at 1725.6. EURUSD at 1.3057. This week, our eyes will be monitoring the Obama-Romney final debate tonight, the PMIs on Wednesday and Draghi’s speech on Wednesday as well. Q3 earnings will make the bulk of trading desks comments.

Hope you enjoyed your week end, took time to do the things you enjoy and exercised. If not, don’t worry, but please take some time to get in shape. Winter is coming…

NEWS

Spain’s ruling People’s Party extended its majority in regional elections in Galicia, while regional nationalists won a vote in the Basque Country.

PHILIPS beats estimates apparently with Sales of €6.13bn and EBITDA of €562bn (adjusted) vs estimates of €520m. Seems like the cost cutting effort is delivering…

Investors more concerned about the fiscal cliff? (Wall Street walks a tightrope as US gets back on track http://bit.ly/XIDxW9)

Sorry but I don’t see anything that is really relevant this morning…

UPS&DOWNS

DANONE PT Cut to EU53.2 vs EU58.5 at Nomura; Kept at Buy; PT Lowered to Eu51 VS Eu53.5 at Berenberg; Kept at Hold

FIAT PT Cut to EU7.7 at Goldman; Kept at Conviction Buy

HAMMERSON PT Raised 2% to 530p at Exane; Kept at Outperform

LUNDIN PETROLEUM Assumed at Neutral at Credit Suisse

MOBISTAR Cut To Hold VS Buy at Deutsche BankVOESTALPINE Cut To Neutral VS Outperform at Credit Suisse

PIRELLI PT Cut to Eu10.8 VS Eu11.1 at Goldman; Kept at Neutral

SOCGEN Given Trading Buy at at Credit Suisse

SUEDZUCKER PT Raised 6% to Eu28 at Exane; Kept at Neutral

TUI TRAVEL PT Raised 30% to 260p at Exane; Kept at NeutralBELGACOM Cut To Sell VS Hold at Deutsche Bank

STRATEGY

GS (Kostin) US Earnings.
Negative 3Q Surprises in IT and lower guidance across the market.

3Q reporting season is roughly one third finished. Two early conclusions: (1) Information Technology results have been startlingly weak with high-profile revenue disappointments by the four horsemen: MSFT, GOOG, IBM, and ORCL. (2) EPS guidance for 4Q has been overwhelmingly negative across all S&P 500 sectors with 18 of 20 firms lowering 4Q earnings guidance by a median of 5%. Analysts have lowered 4Q EPS estimates for stocks already reported by 0.4%. We expect further EPS cuts of 6% loom ahead. Firms reporting this week: AAPL, T, PG, MRK, CMCSA, AMZN, COP, AMGN, OXY, MO, UTX, MMM, CAT, DD, and FCX.

JPM (Loeys) The J.P. Morgan View
The mean and the mode

Asset allocation –– Our modal forecasts on the economy and earnings are still edging down, but so are downside risks, such that the probability-weighted means are instead rising. We stay long risk assets, and add longs in euro periphery bonds and shorts in overall bond duration. With event risks moving from China and Europe to the US, we move underweight US equities and overweight USTs vs. Europe, while staying short the dollar.
Economics –– US 2013 growth is lowered by 0.2% to 1.7% as we raise 2013 fiscal drag to -2%.
Fixed Income –– Look for the rally in Euro area peripherals to continue.
Equities –– UW US equities within a global portfolio into 2013.
Credit –– We lower our YE US HG spread target to 135bp, down from 150bp.
Currencies –– A Romney win should be dollar bearish, as it boosts risk assets.
Commodities –– We stay long base metals.

“Equities: This week’s downgrade of our 2013 US GDP growth forecast by our economist Mike Feroli is a reminder of the growth risks that the US economy faces into next year. Even on our base case, the fiscal drag is set to increase by almost 1% of GDP in the US next year. We expect the opposite, i.e. a reduction in the fiscal drag in the Euro area. This justifies an underweight in the US within a global equity portfolio, especially if one takes into account the prospective improvement in the EM macro picture into 2013. Another headwind for US equities into year-end is the prospective increase in capital gains and dividend taxes in 2013.”

JPM (Matejka) Equity Strategy
Eploring the case for better performance of Euopre vs the US – Part III – More to go.
JPM cut its UW Europe position on the 16th of July
. They now think that Europe has further to go. The explanations are the same (lower tail risk, valuation, US fiscal drag, European earnings already down). Mislav continues to prefer Financials (banks and insurance)over cyclicals and doesn’t like luxury names or China exposure. There are closing their long DAX vs SX5E….

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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