The Dawn Patrol -14.11.12 – ML Fund Managers Survey, MS on Investment Banks, On the Fiscal Cliff…


Tough markets… European futures indicate a lower opening. After a massive rally in Europe on the back of Spanish bailout rumours and single payment to Greece from Germany, the US market dropped sharply on renewed fears of the fiscal cliff. Today, we’ll watch the French CPI, Euro IP and in the US: retail sales, PPI and business inventories. Greece, Portugal report 3QGDP.

It has nothing to do with finance, but Venice is still under water…

VIVENDI Q3 ahead and reported a better FY12 guidance, ENEL report a strong beat, RWE inline, EDF cut nuclear output target as profit seen steady in 2013, TELEKOM AUSTRIA beat on Net income and IFX beats on 4Q revs+EPS but FY13 sales below est.

CISCO reported slightly better EPS and Revenues – No guidance shares up 7% after hours.

AMD said after hours that it’s not for sale…

Watch Aluminum stocks (AA, NHY) as China Securities Journal said the Chinese government will start to buy it to add to reserves.

SOCGEN and LUFTHANSA will sell 5.28% stake in AMADEUS (this is the time to get in?)

Posco studying bid for ARCELOR MITTAL iron ore assets in Canada.

Shares in SHARP jumped more than 7 per cent after Kyodo News reported Intel interest in taking a stake.


JPM believe G4S’s share price is oversold and reiterate OW, GS like TALKTALK, ATCOA, OXIG and KD8 (all Buy). VIE rated Buy at Socgen and Citi say Buy on INVENSYS as take-out may be 360p/share. MEDIASET cut to UW at Barcap, SIEMENS cut to EW at RBC.
GS view recent weakness in VODAFONE as a long-term buying opportunity. They argue that the group’s proportionate growth profile remains attractive and expect rising VZW dividends to catalyse a re-rating.

-Cut to Neutral from Buy at Nomura
-Cut to Underperform from Sector Perform at RBC Capital
-Cut to Underperform From Neutral at Exane
-Cut to Hold VS Buy at Deutsche Bank
-PT Cut to Eu13 VS Eu16.90 at Morgan Stanley
-Cut to Market Perform From Outperform at Raymond James
EDF PT Cut 9% to Eu20 at Exane; Kept at Outperform
-PT Cut 8% to Eu2.4 at Exane; Kept at Underperform
-PT Raised to EU3.8 vs EU3.6 at Citigroup; Kept at Buy
KBC Raised to Buy VS Hold at Deutsche Bank
-Cut to Underweight from Equalweight at Barclays
-Raised To Hold VS Sell at Deutsche Bank
-Raised to Hold From Sell at Berenberg
-Raised to Neutral VS Underperform at BofAML
PIRELLI PT Cut to Eu9.7 From Eu10.4 at SocGen, Stays Buy
SIEMENS Cut To Sector Perform VS Outperform at RBC
SONOVA Cut From UBS’s Least Preferred List
SUEZ ENVIRONNEMENT Rated New Buy At SocGen, PT Eu9.1
TUI TRAVEL Raised to Overweight From Neutral at JPMorgan
WEIR Group Raised To Neutral From Reduce at Nomura
WENDEL Raised To Buy From Hold at SocGen


On the Fiscal Cliff
Obama, according to the WSJ, will ask the for $1.6trillion in additional tax revenues over the next decade (way more than Republicans are ready to accept) and will continue to advocate for tax increases on the wealthy. He remains committed to preserving tax cuts for middle class families. It’s also interesting to read about the Sequestration and its impact on defence names (MS note published yesterday).

On Europe
Today will be a strikes day in Greece, Spain, Portugal and Italy. Anti-austerity strikes sweep southern Europe

On Spain
Spain’s bad bank will start with equity of 5 billion euros ($6.35 billion) and international investors are likely to focus on buying assets instead of becoming shareholders

A new article by Saumil H. Parikh, “Forecasting Equity Returns in the New Normal”,
An interview with Kathimerini on how to stabilize the Greek economy: . Here’s Google Translate:

WSJ piece on Obama’s tax demands when talks begin on Friday

Spiegel reports that Greek cities and unions are refusing to comply with demands for layoffs

The FT says agreeing to higher personal rates would be a small price to pay for the investment bonanza that could be unleashed by a fiscal grand bargain in the US

Lloyd Blankfein sets out his plan for the fiscal cliff in the WSJ


ML Fund Manager Survey Europe.
Growth expectations fell in Europe but improved globally
After stabilising last month EU growth expectations fell in November (net 10% see weaker growth in 2013). By contrast, global growth expectations picked up as China optimism rebounded. EU and Global growth expectations seldom diverge for long so we would anticipate that the dip in EU sentiment may be short lived.
Meanwhile fiscal cliff fears eclipse EU sovereign concerns
The US fiscal cliff is investors’ top concern for the third month running. The EU debt crisis is still in second place but most PMs see EU monetary policy as “about right”. Correspondingly, 60% now see Spain accessing the OMT as a 2013 issue.

Cash levels correspondingly high & EU equity exposure slips
PMs are managing risks by tweaking portfolios rather than wholesale de-risking. Globally, there is evidence of rotation from bonds to stocks but at the same time cash levels are elevated. And exposure to the perceived “riskier” EU stocks dropped (net 1% OW from 10% last month) for the first time since June.

PMs show faith in cyclicals, scepticism on domestic EU

Better global growth expectations pushed up the OW in global cyclicals. Autos are now at 21% OW (from 11%), Industrials at 24% OW (from 2%) and Basics are back to neutral (from 21% UW). By contrast, EU domestic sectors suffered with Utilities falling to 50% UW (from 28%). Cyclical vs. defensive positioning is now stretched so there may be scope for a brief pause in cyclical outperformance.

Energy OW cut, but banks stay near long-run average

Lower oil prices may have contributed to the sharp fall in the Oil & Gas OW (from 45% to 2%). But PMs held their nerve in banks (14% UW vs. 13% in Oct). While EU growth optimism may be low PMs appear more sanguine on broader EU risks.

Structurally confident, still buyers on weakness

PMs are offsetting low beta exposure with higher cyclical exposure, but overall risk levels remain low.Europe is seen as the cheapest region globally by a net 31% and rock bottomgrowth expectations create a floor for stocks. Progress on the fiscal cliffwould likely be risk-on for Europe so we remain buyers on dips. Contrarian buys: Utilities, Telecoms, Construction, Retail, Financial services. Contrarian sells: Insurance, Technology, Autos, Industrial Goods & Services

MS (Van Steenis) Wholesale and Investment Banking
Credit Suisse: EW, PT SFr25 to SFr25.50

UBS: OW, PT SFr15 to SFr17
Restructuring has started, but more to come. The thesis of our note with Oliver Wyman was “the market appears to underestimate imminent changes in industry structure, as banks rationalise their portfolios and market shares shift.” Since we wrote, radical actions at banks such as UBS, Nomura, RBS and CS support this. Yet restructuring – we argue inside – is only part way done: firms have to select where they have advantage and gain scale or restructure.

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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