The Dawn Patrol – 07.02.13 – UBS strat, ALU++, CS=, SAN=, VOD-, and all the European dramas…


European stocks are seen mixed today as we hit a two months low yesterday on the SX5E. Investors remain cautious ahead of Spain’s bond auction and ECB’s Draghi’s press conference. In Asia, markets were in profit taking mood and China will be closed next week.

Today, we’ll monitor the Spanish bond auction (around 10:40 CET), the ECB’s press conference following the EUR rally. Other key indicators are the UK, Spain and Germany’s IPs; the US housing price indices and jobless claims.

Extreme Boat Surfing


SANOFI sees 2013 Business EPS flat to 5% lower vs 2012 at CER, co. says in statement.
• Sees impact on business net income from loss of Plavix, Avapro exclusivity in U.S. in 1H of ~EU800m at CER
• 4Q Business EPS EU1.19 vs est. EU1.17
• 4Q rev. EU8.53b vs est. EU8.43b
• Dividend EU2.77/shr vs BDVD forecast EU2.78/shr
• On track to meet 2012-2015 objectives for sustainable growth, on track to deliver cost savings program of EU2b by 2015
• Conf. call at 2:30pm CET on +44-203-367-9457, pw 279615#

ALCATEL: Numbers are good and CEO is out. The latter news will be taken positively by the market… Will rally strongly on that. I still hate this company, but there could be some better news ahead….

Assa Abloy 4Q Net SK1.39b vs Est. SK1.43b

CS: Mixed. Earnings fine by the restructuring effort will disappoint. AM numbers goof and Wealth Management strong vs UBS. The bank now targets CHF4.4bn in cost savings which is higher than the CHF4bn previously but could remain below what some investors expected.

Daimler 4Q Profit Misses Est., Sees FY Ebit Unchanged. Daimler 4Q Ebit EU2.32b; est. EU2.35b. Sales EU29.8b; est. EU29.6b.

Danske 4Q Net Beats Est.; Sees 2013 Post-Tax Profit Up to DK10b

DASSAULT SYSTEMES: Sales/EPS of 568m/€1.02 vs estimates of €569m/€1.016 so in line. BUT licenses only grew 3% and guidance is poor too. Will come down today.

FT reports Daimlerunder pressure to change gear : “There are a couple of activist shareholders in there and they’re applying pressure. They could create an uncomfortable situation for the board,” a German banker said.

Ocado FY Ebitda Beats Est., Pretax Loss Less Than Est.

Saipem Says Will Hold Conference Call Today on 2013 Targets

Skanska 4Q Net, Sales Beat Est.; Proposes FY Div. SK6-Share

TUI Travel Sees FY Profit Growth Toward Top End of Outlook

Vodafone 3Q Organic Sales Growth Misses, Confirms FY Outlook. Vodafone reports 3Q organic service rev. growth -2.6% vs estimate -2.4%. Reiterates guidance for FY adj. operating profit, FCF.

Voestalpine 3Q Net Income Up 73%, Keeps Outlook

ECB’s Draghi faces heat over euro, Monte Paschi.


On the ECB
No change is expected today. The meeting should focus on the Euro appreciation and probably on the LTRO early repayments we’ve seen.

On Spain
On the Barcenas scandal, Rajoy said he would publish his earnings online. Unless proven guilty, the government should stay in place. Any change would put too much pressure on the yield and would trigger a large OMT (Open market transaction). Volatility and rates to remain under pressure in the very short term.

On Italy (from JPM)
Bottom Line: Our base case is a Centre/Centre Left alliance win announced on 26th February. This is the best outcome for markets. Whilst the CL lead has been hurt by the Banca Monte Dei Paschi Siena allegations and Berlusconi’s blatant populist policies so far he hasn’t been too effective in explaining how his cancellation of the real estate tax will actually work. Also an announcement of a Monti/Bersani pact could come at any time which would definitely give the CL a boost in polls. Last official poll is this Friday however. Election date 24/25th February, results early hours of 26th.

PBoC signals inflation fear: “China’s central bank signaled concern at inflation risks and said that monetary easing by nations, including the U.S. and Japan, may push up commodity prices and make global capital flows more volatile.” The PBoC’s quarterly report, published on Wednesday, also said prices for labour-intensive goods could rise because of slowing labour supply. Inflation data for January is due on Friday. (Bloomberg)

Commodity hedge funds lose 20% of assets: “The average commodity hedge fund lost 3.7 per cent in 2012, according to a closely watched index compiled by Newedge, the biggest decline since the yardstick was created more than a decade ago and substantially worse than the 1.4 per cent loss of 2011.” (Financial Times)


Buying the periphery… shunning the “safe havens” – UBS
The “risk on” trade continued in January. Net buying of peripheral markets hit a
21Ž2-year high in mid-January. The vast bulk of the money went into Spain, but also the smaller markets of Portugal and Ireland. Italy lagged. “Safe havens” were shunned: since the ECB move to launch the OMT in July, investors have been net sellers of Swiss equities for 27 out of 33 weeks. With a somewhat weaker CHF, there may now be some opportunities here.
Rotation into cyclicals… but not yet at danger signals
The same theme has occurred at a sector level as investors continue to rotate into cyclicals and out of defensives. Whilst definitely in “risk on” territory, our flows indicator is not yet at sell signals (usually close to 2 standard deviations above average) and currently we are just over 1 standard deviation above.
Sectors: Buying Chemicals & Insurance; selling Utilities, Pharma &Telcos
Net buying of Chemicals hit a 21Ž2-year high. In Financials, investors seem to be
rotating into Insurance rather than the Banks, where flows are flat. Elsewhere, the “structurally challenged defensives” (Utilities and Telecoms) continue to see net selling: the 4-week moving average has been negative for both sectors since mid-November.
Credit vs. equities
In 2012, US credit mutual funds had c.$170bn of inflows, but US equity mutual
funds saw $6bn of netoutflows. We have yet to see outflows from credit funds, but last week we highlighted the gap in valuations between European equity and credit.


EUROPEAN TECH (Jones, GS) Winners and losers in the European consumer TMT value chain
Content/tech benefit; trickier for infrastructure; complex overall Broadly, content and technology should benefit from these shifts, while it is trickier for infrastructure; however, the situation is far more complex in practice. We have developed an integrated European TMT Structural Ranking framework to demonstrate the myriad winners and losers. Prefer structural winners, but recognise other anomalies We have Conviction Buys on Monitise, SAP, BSkyB, SES, Kabel Deutschland and Millicom, which all have top-quartile industry positioning; however, we also recognise a number of other more valuation-driven opportunities.

Aviva Added to Citi Focus List Europe; Prudential Removed
Buy SAP, BofA Says After Meetings With Management
Buy Vinci, Weak Momentum Priced In, UBS Says
Christian Dior Asdded To Ubs’s Least Preferred List
Givaudan Raised To Buy VS Neutral at UBS
Hannover Re Cut to Hold After Very Strong Run, Berenberg Says
L’oreal Cut To Hold VS Buy at SocGen
Unibail Buy Case Still Intact After Poitrinal Departure: UBS
Volvo Cut To Hold VS Buy at Deutsche Bank


Asian markets
Nikkei 225 down -121.22 (-1.06%) at 11,343
Topix down -0.99 (-0.10%) at 967.83
Hang Seng down -62.84 (-0.27%) at 23,194

US markets
S&P 500 up +0.83 (+0.05%) at 1,512
DJIA up +7.22 (+0.05%) at 13,987
Nasdaq unchanged 0.00 (0.00%) at 3,168

European markets
Eurofirst 300 down -2.35 (-0.20%) at 1,152
FTSE100 up +12.58 (+0.20%) at 6,295
CAC 40 unchanged 0.00 (0.00%) at 3,643
Dax down -83.48 (-1.09%) at 7,581

€/$ 1.35 (1.35)
$/¥ 93.57 (93.57)
£/$ 1.57 (1.57)

Commodities ($)
Brent Crude (ICE) up +0.08 at 116.81
Light Crude (Nymex) up +0.16 at 96.78
100 Oz Gold (Comex) down -0.10 at 1,678
Copper (Comex) unchanged 0.00 at 373.35

10-year government bond yields (%)
US 1.97%
UK 2.08%
Germany 1.63%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.62bps at 106.01bp
Markit iTraxx Europe +2.07bps at 117.14bp
Markit iTraxx Xover +3.29bps at 451.69bp
Markit CDX IG +0.99bps at 89.5bp

Sources: FT, Bloomberg, Markit


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