The Dawn Patrol – 10.12.12 – THE BIG EUROPEAN STRATEGY TABLE. On Italy, the Cliff, on China. GS on the Cliff and on the S&P.

Bonjour,

European markets indicated flat to slightly up. Asia OK on better November IP data (despite poor exports this morning) and Japan’s GDP is down another 3.5% in the 3rd quarter.The Euro sank over the Week End as Mario Monti threatened to resign. EURUSD: $1.2907. Gold over $1700 at $1708.

Today macro eyes on the French and Italian IP, the Italian Q3 GDP.

Bravo Alexis!
The French skier, who was sixth after the first leg, scorched the second course down the testing piste of la Face in 47.33 seconds to time a combined total of 1min 36.55sec.

PPR said last night it was acquiring the luxuryt chinese brand Qeelin. No amount disclosed.

DIAGEO: Suntory Holdings is considering offer for Beam if U.S. distiller’s shr price drops, Bloomberg’s Yuki Yamaguchi reports, citing Suntory official who asked not to be identified because talks were private.

CAP GEMINI: CEO Confirms Annual Margin, Sales Targets, Echos Says

EADS: Jean-Claude Trichet, former president of the European Central Bank, has emerged as a contender to be the next chairman of EADS. This could happen through EADS’s plans to buy back 15 per cent of its shares. LAGARDÈRE could not be reached for comment Friday.

STMICRO will exit ST-ERICSSON after a transition period, will continue to support it as their supply-chain, advanced process-technology partner and application-processor IP provider.

DE LA RUE printing of UK banknotes has been put up for bidding according to the London Telegraph; De La Rue has had the contract since ’03 – London Telegraph.

AIR FRANCE-KLM. Sunday Times says Branson could give up control of Virgin Atlantic this week after talks of selling his and Singapore Air stakes to Delta and Air France KLM progressed at the weekend.

WPP ST reports that the company is on a collision course with investors who have threatened to oust Sir Martin as CEO unless he accepts a pay and bonus package.

CURRENT STUFF

On the Fiscal Cliff
Fiscal cliff update: Several Republicans said the party has no choice but to accept tax hikes on the wealthy; Obama and Boehner resumed talks on Sunday. (Reuters)(Financial Times). Although there is no specific agenda, the 15th of Dec is considered by many as a soft deadline to wrap up negotiations with the 21st considered the last ditch.

On China

China trade data disappoints, after positive IP numbers: China’s year-on-year export growth for November was 2.9%, down from 11.6% growth in October and well below expectations of about 9%. Imports for the month were flat on a year earlier. (Financial Times)(Bloomberg). Data released on the weekend showed industrial output and retail sales growth reached eight-month highs. (Financial Times)

On Italy
PM Monti said he would resign after the Italian parliament passes a budget (and if parliament can’t cooperate to pass the budget, Monti will step down immediately). Monti’s departure will pave the way for elections to be held in Feb, about ~1 month earlier than anticipated. Former PM Berlusconi said Sat he would be running in the upcoming race.
Italians and investors alike worry about who might succeed its current leader http://econ.st/TX7grs

To read

Hedge funds fall out of love with equities – FT.com http://on.ft.com/TX5pD3

STRATEGY

GS (Hatzius) US Economics Analyst
The Fiscal Cliff: Still Waiting.

Despite slow progress, a deal on the fiscal cliff looks slightly more likely to be reached by year end. A broad deal could present slight upside risk, while a “fallback” that extends only the middle-income tax cuts would be a negative.

We have slightly reduced our budget deficit estimates to take into account the effects of our recently revised economic forecast as well as changed fiscal assumptions, including expiration of the upper income tax cuts and additional spending cuts. We now expect a deficit of $900bn in FY2013 and $650bn in FY2014, and stabilization of the debt/GDP ratio within the next few years. However, this assumes that fiscal restraint already agreed to in 2011 remains in place, and that the measures similar to those currently under consideration will be put into place.

GS (Kostin) US Weekly Kickstart
(Copied and pasted) Our 2013 S&P 500 outlook for 7% EPS growth and 5% P/E multiple expansion are outliers relative to Goldman Sachs regional forecasts. We expect S&P 500 will post the lowest earnings growth and the smallest total return in 2013. Japan features 20% EPS growth amid increasing policy support, non-Japan Asia has 13% expected EPS growth and a 3% dividend, while Europe offers 9% profit growth along with a 4% dividend yield. A weaker USD may magnify foreign returns for US investors. In US Dollar terms, we forecast 24% total return in Japan, 17% in Asia ex-Japan, and 25% in Europe compared with 14% for the S&P 500.

JPM (Loeys) J.P. Morgan View
Jan Loeys/Team. 2013 promises to us modest capital gains in risk assets driven by a further fall in event risk perceptions and a rebound in global growth. We remain overweight equities, credit and carry versus cash, government debt, and commodities.
Equities: UW US equities vs. MSCI AC World, but OW peripheral equities in Euro area, Topix vs. S&P500 currency hedged, US Homebuilders and Banks on continued US housing recovery, European SMids vs. US. We project total returns of around 15% for EM equities and 10% for DM equities next year. Corresponding gains for earnings (EPS) are lower, at 10% and 5% for MSCI EM and MSCI World, implying equity risk premium compression, or PE multiple expansion, next year. These forecasts assume that profit margins will hold up next year. A decline in profit margins, especially in the US, is likely the biggest risk for equity markets next year. Underweighting US equities is our main regional theme. In contrast to the US, which faces fiscal cliff risks, the Euro area is benefiting from an improvement in financial conditions while in EM Asia we see already concrete signs of growth and flow improvement. Within the US, we keep our overweight US housing theme via longs in Home Construction and Banks vs. the S&P500.
Fixed Income. Government bond returns should be slightly negative next year, for the first time since 1994.
Credit: Stay long as spreads should tighten further in 2013.
Currency: Into 2013, we are short JPY and carry trades vs. USD.
Commodities: Stay OW base metals on further signs of improving economic growth and UW agriculture on likely high future supply.

UPS & DOWNS

ABERDEEN ASSET PT Raised 14% to 365p at RBC
ABERDEEN ASSET Raised To Outperform VS Sector Perform at RBC
BERKELEY GROUP Cut To Neutral VS Buy at Citi
CARREFOUR Raised To Neutral VS Sell at UBS
CEZ Raised To Buy VS Neutral at BofAML
DIRECT LINE Rated New Hold At Deutsche Bank, PT 220p
ENTERPRISE INNS Raised To Overweight at Morgan Stanley
FREENET PT Raised to Eu15.5 VS Eu14 at Berenberg, Stays Buy
HELVETIA Raised To Buy From Reduce at Nomura
MEDIASET Raised To Buy VS Hold at Deutsche Bank
PUBLICIS Cut To Sell VS Hold at Deutsche Bank
RWE Cut to Underperform VS Neutral at BofAML
SCHIBSTED Cut To Sell VS Hold at Deutsche Bank
TELEFONICA DEUTSCHLAND Rated New Buy At BofAML, PT Eu7.40
TELEFONICA DEUTSCHLAND Rated New Buy At Citi, PT Eu6.50
TELEFONICA DEUTSCHLAND Rated New Buy At UBS, PT Eu7
TELEFONICA DEUTSCHLAND Rated New Overweight At Morgan Stanley
TUI TRAVEL Cut to Hold From Buy at Jefferies
WPP Cut to Hold VS Buy at Deutsche Bank
WS ATKINS Cut to Hold From Buy at Jefferies

AUTOS (MS, Spina) EU Premium OEMs: China: Time to Think Small

Trends in Chinese mix for the German p remium OEMs confirm our ex p ectations for declining p rofitability on lower mix, mid-teen volume growth, and p eak contribution from China in 2013. We think Audi is the best p ositioned, BMW the most flexible and Mercedes most interesting from 2014-15.

THE BIG EUROPEAN STRATEGY TABLE. (Work in progress still)

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