The Dawn Patrol – 02.11.12 – Lots! (read it with your coffee and croissant). On Chinese green shoots, on ECB lending, on the fiscal cliff, on earnings…


European futures indicated slightly down but with Asia up all night, it may change. Obama leads in the polls. Gold is expensive at 1709.45 and EURUSD at 1.2902 this morning. Today, we’ll monitor the Eurozone PMIs and the US NFP and wonder what the weather will be like for the Week End…

There is a lot going on and have a look at the earnings summary by GS below, the better Chinese outlook and the ECB lending report. Again, have a great week end, exercise! Fix that thing you’re supposed to fix, and relax…

ALCATEL 3Q Net loss narrower than ests. & sales beat (don’t believe them).

October US sales for HONDA, TOYOTA, NISSAN, GM, FORD, AND CHRYSLER all miss expectations

Regulators says DBK must hold extra capital : Deutsche Bank has been listed as one of the world’s four most system-critical and risky banks. The four global banks will be required to hold an extra 2.5% of common equity as a percentage of risk-weighted assets on top of a 7% minimum being phased in from January. they need an extra buffer to absorb potential losses, according to global regulators. COMMERZBANK has dropped out of the list after balance sheet adjustments and risk reduction. It is, though, still considered a nationally system-critical and risky bank.


MS downgrade MRW to UW, do not see downgrades and guidance cut on LXS but remain cautious on DSM, JPM upgrade TLW to OW ( As production improves on Jubilee they turn their focus to the upcoming exploration campaign) but still early to buy NOVN. FIAT INDUSTRIAL cut to Neutral vs Buy at UBS, FRAPORT cut to U/P at BofA-ML
JPM prefers TEF over TIT as near term catalysts favor TELEFONICA (will reduce debt by €6.6bn in Q4 12 driven by asset sales and organic cash generation compared to TI’s €2bn reduction mainly organic driven).

AB-INBEV PT Cut to Eu76 VS Eu77 at Citigroup; Kept at Buy
ASSOCIATED BRITISH FOODS PT Raised to GBP14.20 at Citigroup
CHR HANSEN Cut To Sell From Hold at SocGen
CRODA INTL Raised To Neutral From Underperform at Credit Suisse
CRODA PT Cut to 2,350p VS 2,500p at HSBC, Stays Neutral
FIAT INDUSTRIAL Cut to Neutral from Buy at UBS
FRAPORT Cut To Underperform From Buy at BofAML
SANDVIK PT Raised to Skr110 VS Skr100 at Citi; Kept at Buy
KERRY Cut To Sell From Hold at SocGen
MORRISON Cut To Underweight From Equalweight at Morgan Stanley ; Morrison PT Cut to 255p From 305p at Morgan Stanley
SAINSBURY PT Raised to 400p From 365p at Morgan Stanley
TATE & LYLE PT Raised 5% to 800p at Exane; Kept at Outperform
TULLOW OIL Raised To Overweight From Neutral at JPMorgan
VEOLIA ENVIRONNEMENT PT Cut to EU13 vs EU14 at Citigroup


AIG 3Q eps comes in at $1 vs. est. 87c
SBUX up 7% after markets as SBUX publishes Q4 Sales/EPS came in at $3.364bn/46c vs ests of 3.391bn/45c. Starbucks increases FY dividend by 24% and gives higher guidance.
LNKD up after market on Q4 sales/EPS of $252m/22c vs estimates of $244m/11c. Linkedin raises FY forecast as well.
PCLN beat on EPS and revs. YELP inline and TRIP beat


On China
Are things really getting better. I’ve seen so many reports indicating that the China economic growth is bottoming out, that I’m thinking about investing there myself… This morning, MS publishes another positive report on China economics (October Data Preview: Green Shoots Story to Get More Traction by Helen Qiao) in which the economist expects better FAI and IP growth data, flat CPI and a pullback on exports. At the same time, GS wonders about the strength of the Chinese cyclical turn (in their EM daily) and: Bottom line: China’s cyclical momentum appears to be improving somewhat, but we remain cautious about the pace of recovery. Sectoral indicators that we introduce here suggest construction and enterprise finance areas have shown improvement, but the picture on the manufacturing and trade side is still more mixed.”
And JPM adds colour to these notes with a ‘hands on’ report analysing the Chine demand for hard commodities. ” Several data points in the last month or so have pointed to green shoots of recovery in fixed asset investment and in end-demand in industries including property, retail, transportation and manufacturing. In turn, the domestic market for construction materials such as steel and cement has been gathering strength over recent weeks, coinciding with a recovery in the price of seaborne iron ore – one of the commodities most leveraged to China’s growth.”

On ECB lending.
Funding conditions improve, but corporate lending declines. This is really key to any positive call on Europe. The OMT definitely helped improve lending conditions. Markets dried up in Q2 after the LTRO effect somewhat weakened, but yesterday’s data shows that it still doesn’t transfer to the whole of Europe in the same manner. Spain and Italy see the sharpest decline in corporate loans, while at the same time, lending conditions for Italian banks improved dramatically.
The situation in Spain is even worse but it may be explained by the real estate bubble (although the trend is still down).
Again, this is key data as all the liquidity pumped by Draghi and co to help banks won’t be enough if it doesn’t translate to increased financing of European corporates.
The entire report is here:

Changes in Demand for Loans or Credit lines to enterprises.

On the Fiscal Cliff
As we enter the final days of the US election race, the Fiscal Cliff is about to become the Number 1 macro issue. It’s still not clear what each candidate is going to do, althrough Obama indicated he doesn’t want the Bush cuts (sorry) to remain for the higher income earners. The best outcome in the coming days concerning the fiscal cliff is that it should be delayed for a few months but the lack of clear indication from the government to the corporates may delay capex and it also may have an impact on the US ratings.


GS Strategy Espresso: 3Q2012 Earnings Tracker:
The European earnings season has been weak so far. 127 companies have reported 3Q results that had at least two estimates (out of a total 230 we expect to include). 35% of companies reporting have beaten estimates by more than 5% (below the average over the past 12 quarters of 43%), while 35% have missed estimates by more than 5% (compared to 37% historically). On an absolute basis, 45% of companies have beaten estimates, while 55% have missed. The average equal-weighted EPS surprise has been -4.0%.This is comparable to the previous earnings season (2Q 2012: -4.4%) and below the 5-year average (0.8%).
Revisions:Earnings estimates declined by 0.6% over the last month. 2012 earnings growth is expected to be -2.6% (our top-down forecast stands at -5%). Since the beginning of the year, consensus expected growth has been revised down by more than 12 percentage points.
Sectors: Insurance and Oil & Gas have had the best results so far this season, while Basic Resources and Autos have had the worst.


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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