Happy New year!
Markets indicated flat. Asia consolidating YTD gains. Gold is up 0.15% at 1658.17, the EURUSD at 1.3045. Today, we’ll monitor the Eurozone PPI.
France and Germany to sell bills.
Really hope you enjoyed your time off and are ready for a great new year. It’s time to detox, and lose those extra pounds… It’s easier to do it right now!
Air France-KLM is in advanced talks to buy Italy’s flagship carrier Alitalia – Reuters
Roche says hostile bid for Illumina is ‘off the table’. BBG
ILIAD: French Digital Economy Minister Fleur Pellerin meets today with online advertisers, publishers and Iliad SA officials to discuss the ad-blocking option offered by the company’s Free service.
Axa Real Estate Seeks GBP1b for U.K. Long-Lease Fund
VINCI Revises Net Income Target To Reflect French Tax Measures
(alphaville) Basel eases liquidity requirements: The Basel Committee on Banking Supervision has bowed to intense pressure from the banking industry on liquidity coverage ratio (LCR) rules. The final rules announced on Sunday make it significantly easier for banks to meet their LCR requirements than the original 2010 draft version. The main change is extending the assets that qualified towards liquidity coverage: when the rules were first laid out in 2010, this was limited mostly to government bonds and cash held at central banks. Regulators ultimately agreed to count some equities, corporate bonds rated as low as BBB- and top-quality MBS toward up to 15% of the requirements, albeit at a discount. Furthermore, banks will only need assume they would lose 3% of deposits during a hypothetical 30-day bank run compared to 5% previously, and that corporate clients would only draw down 30% of their lines of credit compared to 100% in the 2010 draft rules. Mervyn King, who has led the negotiations, said “the vast majority” of the world’s top 200 banks already comply with the relaxed standards. Implementation has been delayed from 2015 to 2019. (Financial Times)(Wall Street Journal)(Full list of changes)
Portugal – the IMF’s Lagarde said Portugal’s bailout program is progressing well and the co absolutely doesn’t need a debt restructuring – Reuters http://goo.gl/qc97T
Government Bonds to Equities Re-Allocation. The re-allocation from bonds to equities debate continues. The Sunday Times writes that a “wall of cash running to tens of billions of pounds could flee from government bonds into the stock market” according to top investors. Whilst there has not yet been clear signs of an asset switch taking place (apart from last weeks govvies sell-off) the article mentions UK’s benchmark gilt rate trading above 2% for the first time in 8 months. While “core” sovereign bonds have certainly weakened last week (not only TSYs but gilts, bunds) it doesn’t seem like a huge broad shift out of FI and into stocks is underway (yet?) While indications of investor worry and uncertainty is a lot higher in the fixed income world than it is in stocks at the moment and there is plenty of money that could change sides (retail investors bought $680B in bond funds globally last year, surpassing the prior peak from ’09, while $23B of equity funds were sold making the gap between FI/stock fund buying the highest on record) the shift out of stocks has been a 10yr+ process (encouraged by such events as the tech bubble, financial crisis, European crisis, etc.) and won’t easily (or quickly) reverse (according to JPMorgan calculations, negative bond returns of close to ~5% would be required for retail investors to sell bond funds in ’13, something we think is unlikely http://goo.gl/S51dt)
The ECB continues to suffer from problems of collateral management according to a weekend newspaper report. There have been instances where the ECB extends more credit than it should have otherwise. DJ http://goo.gl/y6OCa.
UPS & DOWNS
Adidas Added To Citi’s Focus List Europe
Ahold Raised To Buy at Kempen
ArcelorMittal Cut at Sector Perform at RBC Capital
ASML Cut to Neutral VS Buy at BofAML
Deutsche Telekom, TeliaSonera Cut to Neutral VS Buy at Citi
Galp Still Undervalued, a Top Pick for 2013, Bernstein Says
Infineon Cut To Underperform VS Neutral at BofAML
KPN, Mobistar Raised to Buy VS Neutral at Citi
Merck Kgaa Cut To Underperform VS Neutral at BofAML
Neste Oil Raised To Hold VS Sell at Danske
Richemont PT Raised to Chf72 VS Chf63 at Berenberg, Stays Hold
SAP Cut to Neutral VS Buy at UBS
Securitas Raised To Neutral From Underweight at HSBC
SWISSCOM Raised to Buy VS Neutral at Goldman
Telefonica Deutschland Rated New Sell At Goldman, PT Eu5.60
Volkswagen (Pref) Cut To Neutral VS Buy at Citi
Swisscom (GS, Boddy) Buy: Return to growth to drive a rerating; upgrade to Buy
We upgrade Swisscom to Buy from Neutral with a SFr500, 12-month price target as we believe the stock is returning to growth after years of EBITDA and FCF declines, justifying a rerating to peak historical multiples.
JPM (Loeys) The J.P. Morgan View
Game changers or new games in town? At issue for investors are now whether the new-found compromise in Congress and hawkishness at the Fed are true game changers, or only short-term tactical market games that will soon fade. The same can be asked about the Japanese reflation and the EMU yield convergence trades that were put in the later months of last year. To this analyst, the Japanese reflation trade – or ‘Abenomics’ – has the highest chance of becoming a game changer, followed by EMU, with the new Washington compromise or Fed hawkishness more in the camp of shorter-term tactical games.
– Asset allocation –– We stay with significant overweight’s of equities and credit over cash and bonds. We prefer the bond UW over the short duration trade as we do not see an early Fed QE exit.
– Economics –– Better activity data and PMIs are comforting, but they still only support the expected grinding up in growth rates towards trend by midyear, and are not enough to upgrade growth prospects, in our view. We do raise Japan by a notch to 0.5% given a weaker yen.
– Fixed Income –– We are fading the early QE exit trade and go flat duration, even as we remain UW bonds vs. credit and equities.
– Equities –– EM equities continue to outperform their DM counterparts for four straight months helped by strong flows.
– Credit –– Stay long but hedge duration risk.
– Currencies –– Remain short JPY.
– Commodities –– We close our long gold position. We would look to reopen the position around $1,550/oz.
JPM (Matejka) European Equity Strategy
January Chartbook Compared to its level of 3 months ago, S&P500 is exactly flat. In contrast, Eurostoxx50 is up 9% over the same period. Since last summer’s lows SX5E has outperformed S&P500 by as much as 17%. We think that Eurozone’s outperformance has more to go. We still find widespread scepticism towards the region, the bar is set very low for the potential growth surprise. In contrast, optimism regarding the US growth outlook is consensus. Our starting assumption was that fiscal cliff scare will end up being a “red herring”, but the US will still have to negotiate a greater fiscal drag in 2013 than Eurozone. In a sense, the source of risks is shifting regionally. Valuation case remains compelling with Eurozone offering 40% P/B discount to the US.