The Dawn Patrol – 29.10.12 – MS on the earnings season, GS on US elections.

Good morning,

Gasoline rose as Hurricane Sandy threatened refineries and forced the US to cancel equity trading. Asian stocks fluctuated on concern over corporate earnings (Motor  and NTT DoCoMo cut profit forecasts) and after Hong Kong introduced new property curbs. EURUSD 1.2919, Gold a touch higher at $1715, WTI $85.96. Eco wise we have BOJ meeting tomorrow, China manufacturing PMI Thursday & US NFP Friday.

Hope you enjoyed your week end. For most this will be a short week, so give the best of yourselves in the next 3 days and then relax!

LINDE beats on Net and Sales & confirms targets.
UBS will announce a headcount reduction of  10,000, on top of the 3,500 already announced. (FT)
Marchionne set to miss FIAT targets with $19b shortfall
BAE’S Olver could step down at AGM (FT) – News Corp. said to consider Penguin bid in threat to Bertelsmann
VIMPELCOM to sell emerging-market businesses – FT
UNIBAILRODAMCO 9-Month Rev. EU1.25b Vs EU1.2b
DIA 3Q Net EU49.9 Mln Vs Analysts’ Estimate EU42.2 Mln ; 3Q sales EU2.58b, est. EU2.58b

GS maintains Buy on BASF and UBS, JPM keep UW on FTE as they believe operating momentum will challenge this outlook and OW on PSON & PUB (encouraged after the analyst meeting), GENERALI raised to OW at DB, BAER raised to Buy at UBS, MS cuts TENARIS to EW, keeps UW on FIAT ahead numbers and OW on ATOS, SAGE raised to Buy at Citi, SANTANDER cut to Neutral at BofA-ML.
CAMPARI Cut to Hold from Buy at Deutsche Bank
MICHELIN Raised to Equalweight from Underweight at Barclays
ESSILOR Rated New Overweight at Barclays




On Europe
Mario Draghi backed a proposal by German Finance Minister Wolfgang Schaeuble to radically expand the powers of the European Union’s monetary affairs commissioner giving Brussels greater control over member states budgets. Spiegel
European Union Exit? Concerns Grow for Britain
CDU’s Kauder: “Further budget cuts in Greece not possible. Now we need to focus on reforms & privatizations”

Other Stuff
China is mulling lower tax levels on stock dividends to boost long term investment – Reuters
Credit Suisse fx survey of clients: “The survey continues to point to almost no desire to add to risk”.

To read
Housing is finally showing the economy some love
White House is considering tax cut to stimulate economy


JPM (Matejka) Equity Strategy
Mixed earnings are hurting capex plans; Balance sheets could be next
The question we frequently field is what is the key pain trade now. We think it remains Financials. It is not Cyclicals as they failed to perform, so no pressure to chase them. PMIs are unexciting, earnings are mixed. Q4 hurdle rate remains too high. More than  half of corporates have cut sales guidance and 38% have cut capex plans. This will  pressure Capital Goods (JPM is UW or N KNEBV, MAN, SKFB, ATCOA, WEIR,  MEO1V, ABBN, NEX). Capex to depreciation ratio is near ’07 peak. Cash on balance  sheets is coming down, buybacks are not far from ’09 lows. We remain cautious on  supposedly high dividend yielders that can’t deliver (Telecoms, Utilities) andprefer  sustained yield plays, in particular Insurance and Staples (BATS, CNA, ETL, ROG, RSA, SAN, SL). Cyclicals are not the pain trade – they keep underperforming; It is Financials that are making relative highs

MS (Carr) Equity Strategy : Earnings Season Monitor
* 4% more companies have missed than have beaten estimates
* Earning misses driven by Consumer sectors, IT and Financials
* Worst quarter for revenues since 2009
* US earnings season has been mixed
* Earnings revisions have deteriorated quickly in the last couple of weeks

GS : If Obama Wins, Buy IT, Telecom, Sell Materials, Healthcare; If Romey: Buy Staples, Healthcare, Fins, Sell Materials
At the sector level, politics – and possibly policies – matter more. Over the past 35 years, Democratic terms are associated with the outperformance of cyclical stocks while more defensive and higher yielding sectors have outperformed during Republican presidencies. One year after a Republican president is elected, Consumer Staples, Health Care and Financials have generally outperformed the S&P 500 while Materials and Tech have lagged. Following Democratic victories, Information Technology and Telecom stocks have led the market while Materials and Health Care have fallen off the pace.
The past four years have largely followed suit with Consumer Discretionary and Information Technology shares outperforming the market since Election Day 2008. Meanwhile, Financials, Energy, and Utilities stocks have lagged the market, with all three impacted by regulatory issues to varying degrees. In contrast, Health Care has outperformed the S&P 500 by about 700 bp.





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