The Dawn Patrol – 15.11.12 – RCUBE buys Russia, MS Business conditions hurt, Obama and the Fiscal cliff and more…

Bonjour,

Markets futures indicated down following the S&P’s 1.39% drop yesterday as Obama clearly wants aggressive tax rises. Asia ex Japan down as well. Gold is at $1725 and 1 Euro will give you US$1.2736. Today, we can already see the French and German GDP wich are slighlty better… We’ll then monitor the Italian, Spanish and European GDPs, US CPI and the Philly and NY Feds. Also, Wal Mart publishes (EPS $1.07 expected).

Surfing looks good today…

BOUYGUES Raises FY Rev. Target to EU33.2b From EU32.8b
MERCK KGaA 3Q EPS Beats Est.; Raises 2012 Sales Forecast

KONINKLIJKE AHOLD NV 3Q Oper. Profit EU289m; Analyst Est. EU315m 6:48

ILIAD adds 805k new subscribers, checking, but I think consensus was lower (like 700k max). I wasn’t expecting this…

UPS & DOWNS

Buy Siemens on Any Pullback, Morgan Stanley Says

Buy Swedish Match, Investor Day Confirms Over-Reaction: Citi

E.ON Cut to Underweight From Neutral at JPMorgan on Lower earnings, higher gearing and some strategic uncertainties

EDF PT Cut to Eu17 From Eu21 at HSBC

Enel PT Cut to Eu2.6 VS Eu2.7 at HSBC; Kept at Underweight

Ferragamo PT Raised to EU27.3 vs EU26.8 at Goldman

Gas Natural Raised To Overweight From Neutral at JPMorgan as LNG adds structural growth to the FCF story.

GDF Suez PT Raised to Eu18 From Eu16 at HSBC

KPN Cut to Underperform from Market Perform at Bernstein

Mediaset PT Cut to Eu0.9 VS Eu1.05 at Goldman; Kept at Sell

Pirelli PT Cut to EU9 vs EU10 at Citigroup; Kept at Neutral

Sainsbury PT Raised 8% to 325p at Exane; Kept at Underperform

Saipem
-PT Cut to Eu38 VS Eu39 at Nomura; Kept at Neutral
-PT Cut to Eu37 VS Eu40 at UBS; Kept at Neutral

Subsea 7 Raised to Buy from Neutral at Nomura

Technip Raised To Neutral From Reduce at Nomura

Verbund PT Cut to Eu16 From Eu18 at HSBC

RCUBE

RCUBE recommend to OW EM equities two months ago and the trade proved to be a good one. The team continues to be OW equities vs credit and in particular EM Equities. And to keep their EM exposure at teh same level (delta exposure has diminished) they go long Russian Equities. Russia’s P/E multiples (around 5) are amongst the lowest in the world. Although not a sufficient reason by itself, we believe that these very low valuations reflect investors’ aversion to Russia’s perceived political risk.

CURRENT STUFF

On Europe
Let’s celebrate! French GDP is up 0.2% in Q3 vs estimates of 0% according to the INSEE. INSEE however revised previous Q estimates down to -0.1% from 0%. The German GDP is up 0.2% QoQ vs estimates of 0.1%, so we can all celebrate together…

On BP
BP is expected to pay the largest criminal penalty in US history
to resolve the investigation arising from the 2010 Deepwater Horizon disaster in the Gulf of Mexico. Details of a settlement with the US Department of Justice were still being finalised on Wednesday night but an agreement could be announced on Thursday afternoon, according to people with knowledge of the talks.” Two sources said the company would still face actions for civil penalties and damages from federal, state and local authorities once the DoJ penalty was finalised. (Financial Times)

On the Fed
(from Hilsenrath – WSJ)

On the Fiscal Cliff – 1
I have a feeling that this issue will remain a main headline for a while in the Dawn Patrol… Sorry. Anyway, Obama made it very clear yesterday that he wanted higher taxes for the wealthiest Americans and said that Republicans could suffer a rude shock if there was too much stubbornness when negotiations begin… Obama also stressed that ending the tax cuts for the rich resolves “half of the cliff”

On the Fiscal Cliff – 2
MS monitors the impact of the Fiscal Cliff its Business condition index, and it’s not good. The composite MSBCI (MS Business Condition Index) cooled 1 point to 48% in November, low since May 2009, on mixed results for the components. Credit conditions (down 3 points to 60%) and advance bookings (plummeting to 27% from 48%) pulled down the composite, while business conditions expectations (up 1 point to 47%), hiring (unchanged at 44%), hiring plans (up 7 points to 51%) and capex plans (up 10 points to 63%) provided some support.

 

STRATEGY

JPM (Loeys) Global Markets Outlook and Strategy
The Economy
Recent economic data releases reaffirm our view that global growth has bottomed and will move higher over the coming months.
Asset allocation
Unchanged fundamentals keep us overweight equities and credit versus cash, bonds, and commodities. The risk asset rally is so far in line with past cycles, but comes from much higher risk premia, in our view. We thus see further upside on risk assets.
Cross asset volatility strategy
We prefer to monetize volatility risk premia via relative rather than outright trades. S&P500 volatility is the most attractive to sell across asset classes, EURCAD is the most attractive to buy, in our view.
Fixed income
We are short duration, but focus more risk on spread narrowing trades, including overweights in US MBS, Euro area peripherals, and EM local bonds vs. DM.
Credit
We move more aggressively from US to European HY as (i) tail risks have sufficiently diminished in the periphery (ii) BBs offer absolute yield pickup and attractive carry-to-risk and (iii) Euro HY prices are less constrained by callability.
Equities
Given elevated positions we continue to avoid directional longs and focus instead on regional and sectoral trades. We favor EM Asia and the Euro area vs. the US and across sectors US Telecoms and Materials vs. Energy and Utilities as well as homebuilders vs. the S&P500.
Currencies
2013 still looks like a year of USD weakness on Fed QE/low US real yields and China’s upturn.
Commodities
We stay long gold given the likelihood of further QE and higher uncertainty about future inflation. Our short agriculture position has performed well and should continue to do so and we are long base metals given the improving economic data.

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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