The Dawn Patrol – 11.12.12 – JPM derivatives Strat for 2013, MS on Italian elections. Thyssen lowers guidance. GS downgrades CASA.


Flat European markets opening. US slightly up on low volumes and Asia in a tight range too on low volume and lack of big news. Main issues are the US fiscal cliff and the Italian political cliff.
Gold at 1709.76 and the EURUSD at 1.2954.
Today, macro eyes on the Zew (11:00), the US trade balance (14:30). We’ll also monitor the Spanish bond auction and the OPEC data.

This is a really good selection of websites. Most have nothing to do with finance.
The Sites We Love Right Now | 50 Best Websites 2012 |



AHOLD CEO Exercises Stock Options; Buys, Then Sells 25,000 Shrs

GLENCORE extends Xstrata takeover deadline to Jan. 31

HSBC will pay at least USD1.9 billion in a deferred prosecution agreement that settles U.S. probes of money laundering. HSBC, whose top executives were accused of lax oversight by a U.S. Senate subcommittee in July, will forfeit USD1.25 billion, the biggest forfeiture ever by a bank, it will also pay an addition USD665 million in civil penalties, people familiar with the matter told Bloomberg

Roche says four experimental anti-cancer drugs promising in Phase 1.

TEXAS INSTRUMENTS says computing market, communications market continue to be weak, VP Ron Slaymaker says on update conference call.

THYSSENKRUPP reports adjusted EBIT EUR399m vs. 395m consensus. Company writes down EUR5bn on US and Brazilian operations, cuts dividend. Guidance is weak, conference call 13:00..


French Banks (GS, Jean-Francois Neuez) Less risk, less return;
CASA down to Sell after strong re-rating
French bank share prices have re-rated significantly as a consequence of substantial balance sheet de-risking. From here we continue to prefer BNP and downgrade CASA to Sell, from Neutral.

Deutsche Post DHL (JPM – Christopher G Combe)
Downgrading to Neutral: full valuation discounting healthy outlook; buy on material pullbacks
The long-term case for DPW stands largely on the back of (1) a strong market position in Express (c.50% of core volumes touch Asia; market share opportunities in Europe on potential UPS/TNTE integration-related disruption), (2) emergence of greater operational gearing in that business, (3) stabilization of Mail profitability (bolstered by Parcels), and (4) an ambitious goal to roughly double margins in Forwarding (but with limited visibility of progress through YE ’14). With a healthy degree of Express progress and Mail stability already discounted in current valuation, we are downgrading DPW to N (from OW) and recommend taking profits at this time and would be quick to take advantage of material pullbacks.

ADVA OPTICAL PT Cut to Eu5 From Eu6.5 at Berenberg
ANGLO AMERICAN PT Cut to 1,800p VS 2,000p at Nomura
ANTOFAGASTA Cut To Neutral From Buy at Nomura
BHP BILLITON PT Raised to 2,350p VS 2,000p at Nomura
ENRC Cut to Sell VS Neutral at Citi
EPR PROPERTIES Cut to Neutral VS Buy at Goldman
GLAXO Removed From Bofaml’s Europe 1 List
GO-AHEAD Raised To Equalweight VS Underweight at Morgan Stanley
KAZAKHMYS Cut To Reduce From Neutral at Nomura
KAZAKHMYS PT Cut to 700p VS 800p at Nomura
KBC Raised to Buy VS Neutral at Citi
LOTTOMATICA Raised To Outperform VS Neutral at Credit Suisse
STAGECOACH Cut To Equalweight VS Overweight at Morgan Stanley
SWATCH Added to UBS’s Most Preferred List


On the Fiscal Cliff

Positive signs in fiscal cliff talks: Although neither side gave any public signs that they were ready to give ground, there were indications that preparations were under way to quickly bring a deal to Congress if it is reached soon. (Reuters)

On Italy
Monti in talks to run for PM: “Mario Monti is in talks with centrist groups urging him to stand in Italy’s elections early next year it emerged on Monday as pressure mounted on the technocrat prime minister from the financial markets, fellow European leaders and the Church to stay in politics to safeguard his reforms.” (Financial Times)

Spiegel on the return of Berlusconi


JPM (Kolanovic) Global Derivatives Themes
Equity Derivatives 2013 Outlook

For the first time in seven years there were no large spikes in the VIX this year, as low volatility surprised investors. This combined with high correlation has made it difficult to make money picking stocks over the past 20 years, correlation between stocks experienced a secular increase from ~20% to the current average level of ~40%
Macroeconomic uncertainty should provide a floor to volatility in 2013, with stock correlation high, we expect volatility to increase in the short term.
Eurostoxx 50 skew is near post-Lehman lows, likely driven by low investor positioning in Europe as the Eurozone debt crisis wears on, reduced perception of tail risk in the region post OMT, and the orderly nature of the year’s main sell-off – falling over 20% from March to May on just 23% annualized volatility
The Eurostoxx 50 term structure was the flattest/most inverted among major global indices throughout most of 2012 as front-end volatilities priced in continuing near-term risks for the peripheral debt crisis, and due to the index’s relatively high realized volatility
Although the Eurostoxx 50 dividend market experienced some major setbacks such as Telefonica’s dividend cut, year to date the 13s and 14s have delivered respectable double-digit returns.

MS (Antonucci) European Economics
Italy and the Political Cliff
A winding Path to Where?

This is a great overview of the political situtation in Italy. It provides insight and analysis. (This is a very short extract:).
With austerity taking a toll on an already weak economic fabric, the risk is that discontent might well continue to rise, thus affecting the next government’s ability or willingness to pursue bold reforms – or result in a tough anti-reform election campaign at the very least.
Will the fiscal policy path change? Not really. Its direction is set, we think. U-turns are unlikely. Could someone envisage, say, a reduction in the pension age, now that it has been raised and index to life expectancy? That seems too far-fetched, as markets would punish such slippage.
The most pressing question for the next Italian government is how to strengthen the country’s economic fabric, and achieve a ‘new normal’ with sustained growth. More than anything else, this is what will determine the views of market participants on the reform path of Italy’s next political leaders.

MS – Global EM Investor.
Reflation and Rebalancing.

We see a steady migration towards higher-yielding assets over the course of 2013. EM currencies are set to outperform local rates and credit over the balance of 2013. MXN, RUB and to a lesser extent INR are likely to outperform, CZK and ZAR to underperform. Local duration is likely to outperform in 1Q13, marginally outpacing that of EM currencies. We see Russia, Poland and India as outperformers for local bonds in 1Q.
Although supported by ongoing fund inflows, EM credit is challenged by rich valuations and the prospect of a bear-steepening in core rate markets yields. We prefer Venezuela, mid tier/select new-to-market sovereign names and EM corporate credit – specifically oil & gas and telecoms. Steer clear of IG sovereigns.
We expect local bonds (unhedged) to post a 7.9% return and sovereign credit a 0.2% return over 2013.
1Q13 Trade Highlights
Currencies: Long MXN/JPY, long EUR/CZK
Rates: Buy Russia 10y, buy Poland 5y
Credit: Long Venezuela versus short Brazil, buy VIP ’18


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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