The Dawn Patrol 11.02.13 – GS lowers Equities, JPM stays OW cyclicals, JPM likes periphery and banks. More…


Hope you had a nice week end. Heard it was nice in the Alps, rainy, windy, snowy almost everywhere else…

European stocks were seen flat on Monday as simmering worries over Spain and Italy were set to halt the previous session’s tentative rebound. European stocks have sharply retreated over the past two weeks, dragged by growing fears over Spain where a scandal on secret cash payments has affected the prime minister, while confidence in Italy has been shaken in the run-up to the Feb. 24-25 election. Most Asian bourses, including those in Japan, China, Hong Kong, Singapore and South Korea, were closed for the Lunar New Year holiday.

Today, we’ll monitor the French IP and the US mortgages foreclosures.

Marion Rolland of France raced to victory under a clear sky on the 1.9-mile Streicher course, in 1 minute 50 seconds.
“If you believe in your dreams, you will reach them one day.”


VENEZUELA devalues the bolivar by 32% as of the 13th of Feb.

The FBI is probing corruption allegations against a subsidiary of EADS, Europe’s biggest aerospace company, relating to a contract in Saudi Arabia for the UK’s Ministry of Defence.” (Financial Times)

ThyssenKrupp to slash “more than 2,000 jobs” at its Europe steel division in a cost-cutting drive.
Ahold To Sell 60% Ica Stake for Sk20b to Hakon Invest

Bank Austria CEO Sees Loan Rates Rising, WiBlatt Says

BBVA Refinances 10 Percent of Spain Loan Book, El Pais Reports

Bilfinger Forecasts Increase in 2013 Output, Profit

Galp 4Q Adj. Net EU83m in Line With Ests.

NOVO NORDISK Insulin Fails to Win FDA Backing on Heart Concern

YPF says it received notice of Repsol lawsuit at Madrid court

Boeing tells airlines that Dreamliner deliveries could slip

Spain bad bank said to snub funds from firms incl. Cerberus

Lloyds sees difficulties in branch sale, considers unit IPO: Sky


Bail-in proposed for Cyprus: “A radical new option for the financial rescue of Cyprus would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign bonds, according to a confidential memorandum prepared ahead of Monday’s meeting of eurozone finance ministers. The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout.” It hasn’t been endorsed by its authors at the European Commission or by individual eurozone members. (Financial Times)


Swiss Life (JPM, Huttner, CFA) Upgrading to OW and adding to AFL with SF210 Dec13e price target: beneficiary of Solvency 2 delay
Swiss Life is up 78% from its 1st June 2012 low, yet we see considerably more upside to the share price. Our Dec13 SOTP based PT has been revised upwards to SF210 and we move to an OW rating and add the stock to the AFL. We are more positive on Swiss Life because: i) faster earnings growth, ii) derisked balance sheet, and, iii) historical issues addressed, plus attractive valuation. Furthermore, given the delay in adopting Solvency 2, the Swiss regulator, Finma, is, we believe, more flexible in applying the Swiss version of Solvency 2, Swiss Solvency Test (SST), and this benefits Swiss Life which, while in the green on solvency is, we believe, less strong than some peers.

Citi on Fiat : Fiat has to sell assets or shares as balance sheet still key issue – With EU1b Chrysler R&D capitalization and EU3b higher capex than depreciation, says FCF undershoots net income by EU4b p.a. without working capital changes. Says net income has to double just to get to FCF breakeven. Without this, says net debt continues to rise. Kept at sell with PT EU3

Europe: Utilities (GS, Wilkens) Updating valuations for sovereign risk; PGE upgraded to Neutral
We have increased our price targets by 2% on average to reflect updated country risk premia. Only PPC and PGE increase greater than 5%. We upgrade PGE to Neutral from Sell following recent underperformance.

JPM on Spanish Banks : Feedback from the Coast Line: The sun could shine again in Benidorm
In late January, we travelled across Spain with investors from Madrid or Barcelona all the way down the Mediterranean Coast, meeting politicians, regulators, lawyers, retailers and local real estate experts. We visited some of the worst-hit areas in Spain and while headwinds remain strong, we did see signs of capitulation on prices in the real estate market, the first step towards a real recovery. We still see many clouds on the horizon for banks but we’re getting closer and following the trip we upgrade BBVA from UW to Neutral.

Expectations on Italian Banks Still Too High, Berenberg Says

BBVA Raised to Neutral VS Underweight at JPMorgan
Catlin Group Cut To Underperform VS Neutral at BofAML
Danske Bank Cut To Hold VS Buy at Deutsche Bank
Eutelsat Raised To Buy VS Neutral at Nomura
Gedeon Richter Cut To Underperform VS Buy at BofAML
Koza Raised To Buy VS Neutral at BofAML
Lukoil Raised To Overweight VS Neutral at JPMorgan
Morrison PT Cut 8% to 230p at Exane; Kept at Underperform
Nexans Raised to Neutral vs Underweight at JPMorgan
Pge Raised To Neutral VS Sell at Goldman
Thomas Cook Raised To Neutral VS Sell at Citi
Upm Cut To Neutral VS Outperform at Credit Suisse


GS (Nielsen) GS Asset Allocation Update : Strategic stance is pro-risk; but equities down to Neutral near term
Macro outlook
: Global growth acceleration in 2013 We expect global growth to improve from 3.1% in 2012 to 3.3% in 2013 and accelerate further to 4.1% by 2014. However, due to the drag from fiscal contraction we only expect the US to reach a trend-like level of growth by 4Q13. Some US fiscal uncertainty remains and the European sovereign situation could deteriorate again, but we see risks as smaller than last year.
Equities: We remain Overweight over 12 months and expect returns to be supported by a combination of a rebound in global growth, accelerating earnings growth and declining risk premia. Over 3 months we downgrade to Neutral as we expect near-term consolidation after the strong gains.
: We see the oil market as structurally stable, with longdated prices anchored around US$90/bbl. In this environment attractive roll yields should support returns from commodity investments. Still, the gradual supply response is likely to be supportive for equities by easing constraints on growth and, if anything, a headwind for commodity returns.
Corporate credit: We expect already tight IG spreads to trade within a narrow range, compressing from the recent increase in levels as still sluggish growth, subdued tail risks, and QE feed the search for yield. Credit metrics should remain strong as a whole, especially for US financials, and while we expect increases in leverage for many firms as they look to exploit low yields, we think these increases should be modest.
Government bonds: Bond yields remain low on an absolute basis, and when benchmarked against macro fundamentals. We expect a small increase over 12 months, but risks are skewed towards a faster correction.

JPM (Matejka) European Strategy.
Key Positioning during consolidation – opportunities in periphery and Banks

It typically took 60 days – 2 months – for equities to find the trough after CESI moves into negative territory. This would suggest the consolidation could continue until end of March.
Our base case is that this will end up being a good opportunity to add risk into Q2. For this to prove right the macro momentum should not start to deteriorate. We monitor the moves in the Eurozone M1 growth, oil price and the FX in this regard.

Key positioning: keep low beta. Our preferred Defensive is Staples, followed by Pharma. We are UW Capital Goods, Mining and Chemicals. We think high FCF yield will remain a winning style for stock and sector positioning.
How much conviction is left in our “Buy Periphery” call? Italy and Spain suffered disproportionately in the consolidation so far. Interestingly, smaller peripheral markets are faring much better. Portugal, Ireland and Greece are up 8%, 6% and 13% ytd respectively.
We think the political uncertainty which is hurting the bigger peripherals will be short lived. Peripheral equities have overshot the widening in bond spreads. We think they will offer a good entry point over the next few weeks and Banks (OW) are the first place we would add risk into on any sign of improving sentiment. We recommend buying Italy/Spain and Banks into weakness, and selling Cyclical exporters into strength.

JPM (Loeys) The J.P. Morgan View.
Is risk-on, risk-off dead

Our investment strategy has performed well so far this year, but the overall return hides significant misses on some trades offset by bigger gains elsewhere. The last month has seen quite some confusing, if not inconsistent asset price movements. Equities rallied strongly, but credit spreads refused to come in further and widened in places. Bonds are up in yield, but nobody raised growth forecasts and the consensus still expects Fed QE to last through the middle of next year. We raised our Asian growth forecasts, and gained from longs in metals, but lost from overweights in EM Asian equities and global Cyclicals. Euro periphery sovereigns have tightened, but EU HY is wider.

Asset allocation –– Correlation between risky assets has fallen dramatically, as global tail risks have faded allowing local forces to become more important. Investors should focus increasingly on local idiosyncratic forces, but need to act globally, across markets.
–– US Q1 raised from 1.0% to 1.5%, with continued upside bias to global Q1.
Fixed Income
–– Focus on cross-market trades, including long Treasuries vs Bunds, and long EM vs DM.
–– We believe that the YTD underperformance of Materials and IT sectors is overdone. Stay OW Cyclical vs. Defensive equity sectors globally.
–– We go long risk Europe vs the US in CDS.
–– Reduce Yen shorts.
–– We expect the recent fall in correlation between commodity and equity returns to continue, supporting commodity investment.


One comment

  1. Abbou · · Reply

    Salut max, merci!!

    Envoyé de mon iPhone

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