The Dawn Patrol – 05.11.12 – JPM’s View, MS Q3 earnings.


Markets indicated to open down this morning. Gold zat $1678.73, EURUSD at 1.2840. Today will watch the Spanish unemployemnt, UK PMI services, US ISM Non Manf.

Really hope you had a nice week end and that you’re ready to fight!

EU Earnings : CGG Veritas missed ($45m vs $68m) whereas RYANAIR beats and raises forecasts
CHEVRON closed down -2.9% Q3 profits down on oil decline
raises profit forecast after sales in US. & Japan Gain (+2.40%)
TELEFONICA may integrate all of its businesses in Latin American into one unit headquartered in Brazil in order to carry out an initial public offering of the division – Expansion(Latin America represents 50% of sales for co.)
PRUDENTIAL buys Thanachart Insurance unit for 368m Pounds
SIEMENS to write down another EU250m from solar exit – FTD
LUFTHANSA, Turkish Airlines may merge after leaders’ talks
IBERDROLA to sell Medgaz Ssake for EU300M – El Confidencial
TUI plans to double online bookings within 5 years – Bild
ENI 2012 operating cash flow may be higher than 2011 – Sole


GS reiterate positive view on Satelite ( Conv Buy SES, Buy ETL) and resets its ratings on European Autos: cnoviction Buy on VW, emoving Daimler and Fiat from the list.
JPM on Global Investments banks : UBS read-across: OW Tier II IBs for restructuring, UW Tier I IBs as market share gains immaterial

ALCATELLUCENT Cut to Underperform at Bernstein
ATLAS COPCO Raised To Neutral From Reduce at Nomura
BEIERSDORF Cut To Sell From Hold at Equinet
DAIMLER Cut To Buy From Conviction Buy at Goldman
FIAT INDUSTRIAL PT Raised to EU8.7 vs EU8.3 at BofAML ; Cut to Neutral From Conviction Buy at Goldman
HANDELSBANKEN Raised To Neutral at Credit Suisse
ILIAD Raised To Overweight From Neutral at JPMorgan
MILLENNIUM & COPTHORNE Cut to Neutral at Credit Suisse
ORIFLAME Cut To Underperform VS Neutral at Credit Suisse
SWEDISH MATCH Raised To Outperform From Neutral at Exane
TELEFONICA Deutschland Rated New Overweight At Barclays; PT Eu7
TENARIS PT Cut 5% to Eu18 at Exane; Kept at Outperform
TUI AG PT Raised to Eu9 From Eu7 at Berenberg, Stays Buy
VALLOUREC PT Cut 6% to Eu34 at Exane; Kept at Neutral


On Q3 Earnings (see MS piece below).

On US Elections
The FT reports today Obama retains a slight lead in all key battleground states even though the candidates remain tied in the national polls.

On China
Growth has fallen to a more moderate pace for China’s services sector, according to the latest HSBC PMI data.
The survey dropped to 53.5 in October from 54.3 in September. The official non-manufacturing PMI earlier painted a cheerier picture, rising to 55.5 in October from 53.7 in the previous month.

On The Fiscal Cliff
G20 policymakers have declared the US fiscal cliff as the biggest short-term threat to the world economy. European officials were especially keen to move avoidance of the cliff, a combination of sharp tax rises and spending cuts at the end of the year, up the agenda at the Mexico City meeting. The G20 itself was again unable to reach consensus on the merits of stimulus versus austerity. “It won’t be a straight choice between growth or fiscal rebuilding, such a debate has dangerous aspects,” according to one official. (Reuters)

To Read
The peripheral threat to France
Fixing Greek Debt Still Elusive
Why I remain a pessimist on Europe’s solvency
German-Iranian trade booming


JPM (Loeys) The J.P. Morgan View
Looking Beyond the Stormy Weather

Asset allocation –– We retain a medium-term value approach, focused on overweights in credit and equities, and based on softening of the fiscal cliff, and gentle rebound in global growth into Q1.
Economics –– Better PMIs and US jobs support a coming rebound in growth, but not enough to raise forecasts. We lower Euro area Q1 to flat.
Fixed Income –– Our systematic duration signals call for a small short position.
Equities –– A cyclicals overweight may be a better way to express a positive view in equity markets than an outright long.
Credit –– The HG CDS-Bond basis has turned positive for the first time in 14 months.
Currencies –– We list currency implications of different US election outcomes.
Commodities –– Port closures and power cuts are delaying the reopening of refineries on the US East Coast, but this should prove short lived.

Markets are now focused on the US elections, ignoring those in China. We note that Betting firms give Obama a 2/3rd probability of retaining the White House, and higher for the Democrats to retain control of the Senate. Status quo is thus seen as the most likely scenario, even as the popular vote polls suggest

this will a very close contest.

JPM (Matejka) November Chartbook
Financials remain the pain trade; OW Eurozone vs US has more to go

Market has been in a very narrow range for 3 months now. We still think the range trading is likely to continue as the “2nd derivative” trade is running against the headwinds of fiscal cliff, Q4 earnings hurdle rate being much higher than the Q3 one and some clear “travel and arrive”. In addition, we believe the outlook for profit margins is the key consideration for ’13. We were bullish on margins or nearly 4 years, but think they have reached the end of the road. Key supports are reversing and will have an impact on capex plans. Sectorwise, we stick with the preference for Financials (top Insurance) over Cyclicals that we initiated on 6th August. Financials are the main pain trade given their outperformance and falling cost of equity. Within Cyclicals our top pick remains Autos. China plays are seeing a bounce on better data, but unlikely to sustain. Still prefer consumer to infrastructure despite outperformance. OW Eurozone vs the US (initiated in July) has further to go. Our key Eurozone pick was Dax for more than 3 years, but we think Dax will not outperform further


MS (Carr) European Equity Strategy
Earnings Season Monitor
3% more companies have missed than have beaten estimates.
In a historical context, this would be the 5th worst earnings season since 2003. Ex-financials, we’ve seen a net 4% of companies miss estimates.
6 out of 10 sectors have reported earnings misses so far this quarter. To date, the highest proportion of earnings misses has been in Consumer Staples (net 31% of earnings misses), Health Care (-19%), Utilities (-17%) and Consumer Discretionary (-15%). Meanwhile, Telcos, Energy and Industrials are the only 3 sectors to have reported an earnings beat. Financials have had in-line earnings so far.
Worst quarter for revenues since 2009. This quarter’s weakness so far has been more top-line driven, which marks a contrast to recent quarters where margins have tended to be the bigger issue.
Market is now differentiating between winners and losers
Market is now starting to penalize misses and reward beats. Across every metric we track, companies that beat estimates are outperforming the market in the 3 days post results, while those that miss are underperforming.
Earnings revisions have deteriorated quickly in the last couple of weeks. The biggest fall in the earnings revisions ratio over the last month has been seen in Telcos, Materials and the Consumer sectors, whilst Financials is the only sector to see stronger revisions momentum.
US earnings season has been mixed
With 77% of the S&P 500’s market cap having reported, results have been mixed. Aggregate, earnings are tracking 4.8% ahead of consensus primarily driven by Financials. Ex-Financials the earnings beat is 3.4%, with Telcos and Energy contributing the most.

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


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s