The Dawn Patrol – 12.02.13 – HERMES+, L’OREAL+, MS on DANONE, JPM on SANOFI, more…


European stocks are seen edging down on Tuesday, adding to the previous session’s losses as a lack of positive catalysts prompts investors to move to the sidelines. Investors were also cautious after South Korea’s defence ministry said North Korea conducted a nuclear test on Tuesday.

Today, we’ll monitor the UK PPI/CPI and US NFIB Small Business Optimism, JOLT Job Openings and Monthly Budget Stmt. Also Obama to hold his state of the Union.

Spain to issue 6m and 12m paper for c.5bn and the Italian treasury to issue some 12m paper.

Draghi will speak in Spain with Rajoy on the OMT policy but market watchers will try to find clues on the EUR strength and the ECB strategy.



US equities were slightly lower on Monday. News flow was limited and volume was light. Pause for consolidation, overbought and other related commentary was widespread today. Usually these included a reference to the over 6% rally since the beginning of the year. There was little development to major macro themes over the weekend. There were no major economic releases or earnings reports today. Many exchanges were also closed in Asia. In the end not much really happened as major indices finished essentially unchanged. Sectors were mixed; financials lead gainers and energy was the largest loser.

Kelly at the Pebble Beach 18th hole. Happy Birthday KS!


Hermes report slightly better 4Q sales

FINMECCANICA CEO Orsi arrested, la Stampa reports

L’Oreal 4Q results, small beat on both LFL and margins/buyback announcement. EU and North America were positive.

Tesco more negative PR, the company says three tests on spaghetti sauce product exceeded 60% horsemeat. BBG

Shire. Bloomberg speculate that AstraZeneca could buy Shire

FT says Italy probing BlackRock’s EU315m sale of Saipem shares : Consob declined to specify target of investigation, said it would examine each operation and check into “every detail of the story” from transaction to profit warning

LEX on AHOLD : They suggest that Ahold should invest rather than reward shareholders due to itsvery slow growth in Netherlands and US

Tips for baffled investors on Apple value (By Aswath Damodaran)


Fears of fresh North Korean nuclear test: South Korea called a UN Security Council meeting at 2pm GMT after seismic activity was detected in North Korea, in a move that South Korea said indicated that Pyongyang had carried out a third nuclear test. An earthquake measuring 4.9 magnitude registered by the US Geological Survey with a depth of 1km. North Korea is not prone to seismic activity. Japanese prime minister Shinzo Abe said the country would consider its own sanctions against North Korea. (Reuters)(Financial Times)

Overnight Federal Reserve Vice Chair (and possible Bernanke successor) Janet Yellen said the central bank may hold the benchmark lending rate near zero even if unemployment and inflation hit its near-term policy targets.

S&P revises Ireland sovereign credit outlook up to stable from negative; current rating is BBB+. Eurogroup’s Dijsselbloem says ministers to discuss in march how to best support Ireland’s and Portugal’s return to markets.


Danone(MS, Khoo) Expect No Quick Turnaround – Downgrade to Underweight
EU Food Producers: Industry View – Attractive to In-Line

Danone still has the most attractive LT growth profile in EU Food, but we expect this to be overshadowed by a slower-than-expected turnaround in its Western Europe Dairy business near-term. Risk-reward now looks negatively skewed, given latest stock performance.

Sanofi (JPM, Vosser) Price Target raised to €80 on Lantus upgrades following Tresiba US delay
Following the Feb 8, 2013 FDA Complete Response Letter for Tresiba and Ryzodeg in the US and subsequent delay (Novo’s competitors to Lantus) we now see a clear runway for Lantus until 2015 and potentially beyond should Lilly’s biosimilar and new branded insulin face similar scrutiny. As a result we see a substantially enhanced growth potential for Lantus and now forecast the product having a 2012-16 CAGR of 13% (JPM previously 9%, Consensus 6%). Not only does this result in upgrades to 2014-2015 Business EPS forecasts of 2-3%, it also increases our Group sales 2012-15 CAGR to 5.1% (prev 4.5%) and the Business EPS 2012-15 CAGR to 6.1% (prev. 5%).


ELUXB raised to Buy at Citi, Seadril downgraded to UW at Exane while Subsea7 raised to OW, Nordea upgrade to Outperform at RBC, Fortum raised to Neutral vs Reduce at Nomura.
JPM raise Sanofi’s price target to €80 on Lantus upgrades following Tresiba US delay and reiterate OW on SCMN + ASML (“Super Blue Sky” case where ASML could achieve revenue of €10.5bn and EPS of €9.65).
MS like Getinge, has a tactical Buy on Siemens and downgrade Danone to UW as they don’t expect a quick turnaround.
GS downgrade Catlin Group down to Neutral, reiterate CL Buy on Fugro NV, Boliden and Novo Nordisk


J.P. Morgan Emerging Markets recommend staying long EM fixed income despite the YTD underperformance. While the majority of the decline has been due to the 20bp increase in US Treasury yields, EMBIG spreads are also 6bp wider than they were at the start of the year. The negative return for January does not suggest slower inflows, reduced demand for EM fixed income or continued spread widening going forward, in our view… J.P. Morgan rates strategists believe that US Treasury yields have gotten ahead of themselves, particularly given looming concerns around fiscal policy and the economic impact of sequestration. We expect US Treasury 10-year yields to bottom at 1.75% and to end the year in the current 2.0% range. We stay with our full-year targets for EMBIG spreads to narrow to 225-250bp, returning5-6% for the remainder of the year, while the CEMBI should continue to outperform the EMBIG, with total returns projected at around 7-7.5%.


Asian markets
Nikkei 225 up +297.21 (+2.66%) at 11,450
Topix up +15.89 (+1.66%) at 973.24
Hang Seng up +38.16 (+0.16%) at 23,215

US markets
S&P 500 down -0.92 (-0.06%) at 1,517
DJIA down -21.73 (-0.16%) at 13,971
Nasdaq down -1.87 (-0.06%) at 3,192

European markets
Eurofirst 300 down -7.79 (-0.67%) at 1,154
FTSE100 up +13.13 (+0.21%) at 6,277
CAC 40 up +1.08 (+0.03%) at 3,651
Dax down -18.40 (-0.24%) at 7,634

€/$ 1.34 (1.34)
$/¥ 94.15 (94.28)
£/$ 1.57 (1.57)

Commodities ($)
Brent Crude (ICE) up +0.11 at 118.24
Light Crude (Nymex) down -0.16 at 96.87
100 Oz Gold (Comex) down -2.80 at 1,645
Copper (Comex) unchanged 0.00 at 371.80

10-year government bond yields (%)
US 1.97%
UK 2.13%
Germany 1.61%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.19bps at 105.94bp
Markit iTraxx Europe +0.67bps at 116.44bp
Markit iTraxx Xover +8.28bps at 455.04bp
Markit CDX IG +0.21bps at 89.51bp

Sources: FT, Bloomberg, Markit


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