The Dawn Patrol – 26.11.12 – Strategy focus: JPM, MS, UBS and Barclays on 2013.

Bonjour,

European markets are expected to start lower on Monday as finance ministers meet yet again in Brussels today. Gold at 1749.75, EURUSD 1.2966. Today we’ll watch the Spanish mortgages, the German and Italian Consumer confidence indices.

Hope you had a great week end.

FT says BARCLAYS inverstors urge CEO to split up IB & Qatar disposes of Barclays warrants Speculation (again) that LVMH could sell Moet
TELEFONICA may group its Latin American businesses into one holding company in order to carry out an IPO of the unit next year to cut debt – Expansion
DEUTSCHE TELEKOM aims to start payment service though mobile phones in 5 to 6 countries next year, including Hungary and Germany FT Deutschland
SWISS RE sees claims of $900mln from Hurricane Sandy, total insured losses $20bln to $25bln, estimates may be later adjusted
RENAULT NISSAN up 2.5% helped by an analyst upgrade
CARREFOUR. China’s Huarun Seeks Carrefour Stake: Les Echos
TELECOM ITALIA
CEO says GVT interesting asset, Corriere reports
NOKIA MICROSOFT in talks to open U.K. retail stores next year – FT
NOKIA II Barron’s wrote on NOKIA and RIM both stocks are pegged to the popularity of new smartphone devices, yet both are too far behind Google, APPLE and SAMSUNG in market share. Until 1Q’13 is reported both stocks could be good for an upward trade; 1Q’13 could bring the stocks back down to reality
TOTAL Has Offers From EDF, Axa, CDC, ENAGAS for TIGF: AFP

UPS & DOWNS

Banco Espirito Santo Rated New Buy At SocGen, PT Eu1.1
Barclays Raised to Overweight from Neutral at JPMorgan
British Land Raised To Buy VS Neutral at UBS
Compass Group PT Raised to 832p from 800p at Nomura
Deutsche Telekom PT Cut to Eu9 From Eu9.3 at HSBC
EDP Renovaveis Raised to Buy From Hold at Deutsche Bank
Grifols b Shares Rated New Hold At Deutsche Bank
Iberdrola Rated New Neutral At Citi, PT Eu3.90
KPN Raised to Buy from Neutral at BofAML
Sandvik Raised to Buy from Hold at Berenberg
Snam PT Cut to EU3.6 vs EU3.8 at Credit Suisse; Kept at Neutral
ThyssenKrupp Cut to Neutral from Outperform at Credit Suisse
ThyssenKrupp PT Raised to EU20 from EU19 at Nomura
Tpsa Cut To Sell From Hold at ING
TUI Travel PT Raised to 250p VS 200p at Morgan Stanley
United Spirits Raised to Buy From Neutral at Nomura

CURRENT STUFF

On Greece,

According to Moscovici (the french FinMin), Europeans made great strides yesterday over a conf call before today’s meeting. It is likely we get confirmation of a disbursement today and a stop gap solution that may involve lower interest rates and even a discount debt buyback loan, it is very unlikely there is any mention of a haircut on previous loans.

On Spain
Catalonia’s election delivered a big win for the separatist movement, with four parties supporting independence for the Spanish region together winning 87 of the parliament’s 135 seats. (Financial Times)

On the Fiscal Clifff
Little progress has been made on fiscal cliff talks since the US election, a senior Democratic senator said. “Unfortunately, for the last 10 days, with the House and Congress gone for the Thanksgiving recess … much progress hasn’t been made,” Dick Durban told ABC. (Reuters)

STRATEGY

JPM (Matesjka) European Strategy

How significant is the value proposition in periphery? Not to be ignored. 25 stock ideas
Peripheral Europe offers an interesting risk-reward. 25 stock ideas (Mislav Matejka) For more than three years we had a preference for core over periphery. We recently closed our long standing OW Dax call. We think periphery will hold its own with core going forward. Clearly, its economic backdrop will remain challenging and structural adjustment is far from over. However, activity and earnings have already repriced. Spanish IP is 30% below the peak, back to 1990 level. Peripheral earnings are down 45% from the peak, back to 2004. On cycle adjusted P/E Italy trades at 8x, Spain at 9x – in contrast to US at 21x and Germany at 17x. Spanish current account has moved into surplus for the first time in 14 years. ULCs are increasing less than in Germany.

JPM OW names which 1) screen well on FCF: REN, RXL, PRY, DG, DEC, SAN, VOE, SU, CPR, KYG, AKE, SGO, VIV, ASM, EEK, ANDR and 2) are at big P/B discount: AGS, KBC, TL5, EDF, KN, GLE, MS, AGN, MT.

JPM ( Lee) Global Stratgey
JP Morgan’s Top Four Global Macro Themes And Trades For 2013

Going into year-end, how 2012 would be labeled in the FX market ? It has been a year of “toil and trouble”, says JP Morgan. That, according to JPM, has been accounted to: 1. the shocks in every region; 2. the policy surprises from the world’s major central banks; 3. the little trend in the tradeweighted dollar; and 4: the below-average returns for currency and global macro fund managers.
For 2013 in the FX market, JPM expects mainly less stress, less value, and tougher returns. To define the next year more precisely, JPM outlines 4 global themes for 2013 accompanied by 4 major FX trades for its clients:
Theme #1: Global stagnation and abundant liquidity. 2013 promises to be another year of range-trading for many currencies as ying meets yang on many fronts.
Trade#1: Long worst-of carry basket of AUD, RUB and TRY vs USD.
Theme#2: Less euro stress, more European fundamentals. One consequence of the transition from acute to chromic euro crisis is that investors will assess currencies less on their credit risk and more on their idiosyncratic economic and policy merits.
Trade#2: long NOK/SEK and NOK/GBP; dual at-expiry digital with EUR/NOK lower and EUR/GBP higher.
Theme#3: Currency wars – ceasefires and new fronts. The antipathy of healthy countries towards FX appreciation will also be a defining theme of 2013.
Trade#3: long USD/JPY, KRW/JPY and CHF/JPY; dual-at-expiry EUR/NOK lower and EUR/JPY higher; bearish EUR/CHF seagull.
Theme#4: Valuation. It should be regarded as complimentary rather than orthogonal to the broader macro-economic and policy themes underpinning the above recommendation.
Trade#4: Long NOK/JPY in cash.

MS (Carr) European Equity Strategy
2013 Outlook

They like Equities : Autos+Pharmas raised to OW at MS whereas Utilities cut to Neutral and Telecoms cut to UW
Key surprises – Mining, M&A and Periphery
Three key surprises for 2013 are:
1) China investment-related stocks and Mining outperform;
2) Corporate activity (M&A and buybacks) picks up; and
3) Periphery outperforms.

BARCLAYS : 2013: Equities to benefit from Yieldfall

Even with a backdrop of anaemic global growth, falling profit margins and already fair valuations, we see European equity markets rallying in 2013. The key driver is yieldfall.
2013 year-end target for the STOXX 600 is 300.
Three catalysts to drive this yieldfall are:
1) further upside to Fed and ECB policy that has already suppressed investors’ reaction function to economic data;
2) continuing reduction in European policy uncertainty and
3) a potential resolution of the fiscal cliff in the US.

Key ideas: a) The euro convergence trade: Overweight Italy, Spain, b) Bond-like equities should continue to do well, c) Certain cyclicals may suffer from optically cheap valuations

UBS Outlook 2013: Peering over the cliff
Target 290 (DJ Stoxx 600) end-2013, 8% upside
The “growth gap” between the US and Europe will likely persist into 2014
They focus on European stocks that are exposed to the US and that look cheap or reasonable value vs. their peers: Shire, Fresenius Medical, Reed Elsevier,
AstraZeneca, Carnival, Smiths Group, Prudential and BAE Systems.

Upgrade cap goods to overweight : favoured stocks are ABB and Volvo. Other Overweights: mining, energy, construction materials, software and food retail.

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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