The Dawn Patrol – 18.02.13 – JPM Strat, Italian Elections, NATIXIS out, GS on PEUGEOT+, Carlberg Out… More

Bonjour,

Europe’s major stock markets are seen mixed at the open of trading on Monday, with some dealers expecting investors to take a cautious approach following the G20 meeting this weekend. China reopens today and the US markets are closed for President’s day (I guess Obama needs some rest after playing Tiger yesterday in Florida).

Macro today: Eurozone Current Account, Bank of Spain publishes bad loans data.
This is going to be another eventful week in terms of earnigns and macro data (PMIs, LTRO2, BoJ’s new governor, FOMC minutes).

Hope you’re in great shape, had time to rest and exercise. Remember to eat properly, it will increase your energy level.

Wunder Hirscher!

HOT STUFF

Natixis results were published earlier and are below estimates, but more importantly it will sell back the 20% it holds in the regional BPCE network which should free €12bn. The bank will also give a special dividend of 65c, giving it a 26% return! So despite the poor earnings, the shares should react positively today.

Carlsberg 4Q EBIT ex-items DKK 2.15bn vs. consensus at DKK 2.28bn looks like a miss

Man Group’s incoming chief is poised to announce a sweeping management shake-up – A management reshuffle will close to double the size of Man’s executive committee. The committee, under which Mr Clarke met monthly, will now meet weekly
Novartis’s Zortress wins expanded FDA approval in liver patients
Tenaris plans to build $1.5b steel pipe mill in Texas

Watch steelmakers in Europe as BlueScope Steel Ltd. surged 15% after Australia’s largest steelmaker reported a smaller net loss.

Diego Della Valle has entered a bidding race for Italy’s one national television channel not owned by former prime minister Silvio Berlusconi or state broadcaster RAI.

Shell likely to lose out to Indonesian firm in race for Maurel & Prom
Vodafone said to consider Kabel approach as early as next week
Sonae gets option to buy France Telecom’s Sonaecom stake
HNZ: the SEC sued unidentified traders over “suspicious trading” in Heinz before Berkshire and 3G Capital announced the $23Bln takeover.

EU Earnings : Carlsberg 4Q Ebit Ex-Items, Net miss est. – Sees 2013 oper. profit ~DKK10b

CURRENT STUFF

Although every single strategists is quite bullish on 2013, some worry about the current situation. We’ve already had a strong rally, and for Europe, the strength of the currency is a further drag. Where will the next issue come from? Will it be in Washington as the Barron’s cover seems to think? Will it be Cyprus (elections results below) or Italy with a return of Berlusconi and the country’s government becoming a huge bunga bunga party?

Volumes are low. Earnings are okayish but guidance and earnings revisions on the lower side. With the G20 comments yesterday, we could have another wobbly week…

Cyprus Elections:
Anastasiades wins first round in Cyprus: Centre-right leader Nicos Anastasiades easily won the first round in Cyprus’s presidential elections with 45.4% of the vote, but failed to avoid a runoff vote. His success takes Cyprus closer to an international bailout as Anastasiades wants to resumed stalled talks on the process.

Italian Elections :
Silvio Berlusconi kicks off the week with a rally today in Milan. Berlusconi had 27.8% support in an SWG Institute survey published Feb. 8, compared with 33.8 percent for Pier Luigi Bersani, Berlusconi’s main rival.

The great rotation:
It would appear that the hopes and commissions of each and every talking head wealth manager and/or central banker has been dashed on the rocks of ‘fiscal cliff’ tax-hike front-running and a citizenry who remain far more cognizant of the unreality of the real world than the reality being preached by the market. There were some fund flows this week into equity funds (the lowest in six weeks) but, as Reuters notes, it was all into international funds as domestic funds saw outflows and domestic bond funds once again saw inflows. As Goldman Sachs’ funds flow and positioning monitor shows – Rotation, Over.

STRATEGY

JPM (Loeys) The J.P. Morgan View
Asset allocation
–– Bullish retail sentiment and the mini cliff from sequestration pose near-term risks to risky assets. But our ability to anticipate short-term market moves is not great, and we thus stick with our value-based medium-term overweights of equities and credit against safe bonds and cash.
Economics –– Global growth fell to a cycle-low of 1.3% in Q4, but recent data keep us confident with a 2.4% pace for Q1 with upside risk. Full sequestration is now very likely for March 1. We lower US H2 from 2.75% to 2.25%, saar.
Fixed Income –– Higher BoE inflation forecast likely to feed into higher inflation risk premia.
Equities –– Fade US equity outperformance. The sequestration raises the risk of a US growth disappointment in Q2, thus favoring our OW EM vs. US.
Credit –– Short interest in the major HY and EM credit ETFs is approaching record highs.
Currencies –– No change in trades, despite G20 and next week’s BoJ succession: Short JPY vs USD and EUR, short GBP vs SEK and EUR, and long selective EM FX: KRW, BRL, and MXN.
Commodities –– We go outright short Brent, and our long Brent time spread.

JPM (Matejka) Europe Equity
Expects markets to continue to stall in the very short term, byt
Blue sky scenario could see 30-40% outperformance over next 1-2 yrs.

• Says Cyclicals as group might struggle to lead until yields or earnings start to turn higher

• Within Cyclicals, prefers Tech (overweight) and Autos (neutral) due to attractive valuations, high cash flow generation, resilient final demand

• Stays underweight Mining, Chemicals, Capital Goods

• Staples remain preferred Defensive, followed by Pharma

• Remains neutral Telecoms, underweight Utilities

UPS & DOWNS

Unibail-Rodamco (MS, Gysens) Upgrading to Equal-weight
The company is best in class on a variety of levels, which is well understood by investors. Therefore the timing of investment in the stock is often mainly a matter of valuation. After recent underperformance and a well-managed CEO succession, we are taking the shares back to EW.

ENI (GS, della Vigna)): Strong 4Q12 results, flat capex, high reserve replacement; CL Buy
ENI reported a strong set of 4Q12 results at the EBIT level (€4,957 mn, 12% above company-compiled consensus), although net income of €1,518 mn was only 1% higher than consensus because of higher tax rate and lower associates contribution. Conviction Buy.

Peugeot (GS, Burgstaller): Signs of life? Upgrade to Neutral with 12-month PT €6.50
Following capacity reduction and cost savings, we see an improving degree of clarity on Peugeot’s cash burn profile. We remove the stock from the Sell list and raise our 12-month price target to €6.50.

CSR Reinstated Overweight at JPMorgan, PT 450p
Arcelormittal Raised To Outperform VS Sector Perform at RBC
Thyssenkrupp Raised To Sector Perform VS Underperform at RBC
Tpsa Raised To Hold VS Sell at ING
Unibail-rodamco Raised From Underweight At Morgan Stanley
Peugeot Raised To Neutral VS Sell at Goldman
Daimler Added To Ubs’s Key Call List
Novozymes Cut To Sell VS Neutral at UBS
Accor Raised to Overweight vs Neutral at JPMorgan
BMW Cut to Neutral VS Buy at UBS
UniCredit Cut to Neutral VS Buy at BofAML
Natixis Raised To Buy VS Neutral at Citi
LVMH Cut to Hold VS Buy at Berenberg

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 up +235.64 (+2.11%) at 11,409
Topix up +19.57 (+2.08%) at 961.98
Hang Seng down -83.27 (-0.36%) at 23,361

US markets
S&P 500 down -1.59 (-0.10%) at 1,520
DJIA up +8.37 (+0.06%) at 13,982
Nasdaq down -6.63 (-0.21%) at 3,192

European markets
Eurofirst 300 down -2.20 (-0.19%) at 1,161
FTSE100 up +0.90 (+0.01%) at 6,328
CAC 40 down -9.23 (-0.25%) at 3,660
Dax down -37.68 (-0.49%) at 7,594

Currencies
€/$ 1.33 (1.34)
$/¥ 94.08 (93.80)
£/$ 1.55 (1.55)

Commodities ($)
Brent Crude (ICE) up +0.15 at 117.81
Light Crude (Nymex) down -0.25 at 95.61
100 Oz Gold (Comex) up +5.40 at 1,614
Copper (Comex) down -2.60 at 370.50

10-year government bond yields (%)
US 2.01%
UK 2.19%
Germany 1.65%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.12bps at 100.63bp
Markit iTraxx Europe +2.01bps at 112.46bp
Markit iTraxx Xover +6.09bps at 436.83bp
Markit CDX IG +1.03bps at 86.96bp

Sources: FT, Bloomberg, Markit

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