The Dawn Patrol – 19.02.13 – GS US Equity Strat (and behavioral finance), MS EU Strat, JPM on retailers, CS downgrades UBS….


European markets with no clear direction. Asia was slightly down. We’ll wait until the US markets reopen… The mood is so-so. Earnings are borings and we play the game of who’s scared of Italian elections.

Macro eyes on the ZEW (11:00), the US NAHB, earnings…

Spain will sell between €3 and 4bn of 6 to 9 month bills.

11am: Germany Feb. ZEW survey (econ. sentiment); est. 35 (prior 31.5)

11am: Germany Feb. Zew survey (current situation); est. 9 (prior 7.1)

Romanian ads…

More cheeky ads here:

And here:

Crédit Agricole: GS thinks that a read across from the Natixis transaction wouldn’t make financial sense for CASA (rated Sell).

EasyJet in Talks With Airbus, Boeing About Fleet Expansion: FT

NESTLE withdraws beef products after tests find horse DNA

EU will seek to broker tentative compromise on banker bonus curbs as diplomats and lawmakers attempt to overcome 8 months of conflict on how to apply Basel rules to the bloc’s lenders

Orix To Acquire Rabobank’s Robeco Asset-Management Unit


Nobel Biocare 4Q Net Income EU11.2m vs Est. EU9.55m

Pfeiffer Vacuum 2012 Rev, Ebit Miss Estimates; Gives No Guidance

Duerr 4Q Ebit Rises, Raises Dividend; Sees Slight Growth in 2013

Schindler 2012 Profit Gains 21.5%
Schindler full-year profit CHF730m vs CHF601m.

• 2012 sales rise 5.1% to CHF8.26b, est. CHF8.35b

• Order intake up 8.5%, rises 8.7% in CHF


As I wrote yesterday, this week should be another wobbly one. Volumes are expected to be on the lower side despite the reopening of the Chinese market. Earnings results are okay, but guidance is somewhat tepid and as markets have already rallied substantially, it’s definitely hard to get more bullish (for now…). and as MS wrote yesterday:
Earnings revisions continue to weaken

From mid-November through to mid-January, the FY1 earnings revisions ratio improved strongly by 8%, from -11% to -3%. However, in the last few weeks, it has been noticeable that revisions have turned back down to -9.3%. Health Care, Energy and Telcos have seen the biggest fall in revisions in the last month, while Financials is the only sector to have seen an improvement in in earnings revisions momentum.

Macro hedge funds turn to ‘Carney short’: After making billions successfully shorting the yen since November, top global macro hedge funds are turning their attention to the pound. “With Carney coming in, there are interesting opportunities [either] shorting sterling or going long volatility on sterling,” says one. (Financial Times)

George Soros Is Going After The Two Most Hated Currencies In The World
Read more:


GOLDMAN: Behavioral Biases Are Found In Every Aspect Of The Investment Process
Read more:

GS (Kostin) US Equity Strategy.
Look past politics to improving economic growth

Index: S&P 500 year-end 2013 target of 1575
Economy: US economic growth accelerating from 1.8% in 2013 to 2.9% in 2014; low inflation; low interest rates.
Earnings: We forecast operating EPS of $107 in 2013 and $114 in 2014 (bottom-up consensus is $112 and $124).
Valuation: Six approaches triangulate on 1540. Our target implies multiple of 13.8x, consistent with current multiple.
Money flow: We forecast $200 billion of net inflow into US equities. $450 billion of Buybacks will offset retail outflow.

Risks to our forecast: Margins and money flow

Margins: Margins have been stable for 2 years. We expect trend will persist in 2013. Consensus expects margins to rise.
Money flow: Institutional reallocation to stocks may be higher than we expect, offsetting retail outflow.

Sectors: Cyclicals should outperform given accelerating economic growth

Overweight: Cyclical sectors (Materials, Industrials, and Information Technology);
Underweight: Defensive sectors (Consumer Staples, Health Care, and Telecom).

Themes: Selectively seek growth in 2013
1.Buy stocks / sell bonds. Re-allocate assets away from Treasuries and into equities.
2.Buy Global Cyclicals. Materials, Industrials, Tech lagging vs. Domestic Cyclicals Financials & Consumer Discretionary.
3.BRICs vs. US growth exposure. Basket offers better GDP growth and higher Beta (GSTHBRIC vs. GSTHAINT).
4.Own Double Sharpe Ratio stocks: Firms with high risk-adjusted earnings growth and price return (<GSTHEPSR>).

MS (Secker & team) European Strategy.
Identifying consensus geographical themes within European equity markets.
1) Caution on US exposed stocks – Despite the rise in the US CDS over the last few months, European stocks with high US exposure have continued to outperform (historically the two series have tracked one another). In addition, relative earnings revisions for this basket have just turned negative.
2) Bullish on China exposed stocks
– Recent outperformance of our China basket looks muted in the context of the improving growth outlook in China with Investment-Related plays, in particular, disappointing. We look for stronger performance ahead and note that relative earnings revisions are moving into positive territory.
3) Buy EM consumer exposure over DM consumer exposure
– European consumer stocks with high DM exposure have significantly outperformed their EM exposed peers in the last six months. With relative earnings revisions trends now moving back in favour of our EM-exposed basket we expect it to outperform the DM-exposed basket going forward.
4) Two-way risk in peripheral basket
– Our domestic peripheral basket has performed strongly over the last three months, yet valuations remain reasonable and relative earnings revisions continue to improve. However, on the negative side a strong euro could be a headwind and the basket is sensitive to any renewed increase in European political concerns.
5) Sell Euro strength
– We launch a basket of stocks that are likely to suffer most from a stronger Euro. Relative earnings revisions have just turned negative.


European Food Retail (JPM, Vazquez) Initiating and transferring coverage
JPM initiates coverage on 15 Euro food retailers expanding their European food retail coverage to 20* stocks.
Food retailing is about format and execution, and in our view, choosing the right format has become more important than ever before. The ‘right’ format is one that is low capital, low cost and low price, a combination typically achieved by discounters, low cost convenience players and efficient C&C operators. We identify seven companies in our universe that, in our view, meet these criteria: BIM, Jerónimo (JM), Dia, Magnit, Booker, Eurocash and Bizim. The rest are exposed to challenged formats and are difficult to be recommended for very long term investment portfolios. We see them more as trading stocks.

UK-Asian Banks (MS, Manners) Upgrading STAN; Downgrading HSBC
STAN is now our preferred name among the UK-Asian banks, vs. HSBC, as relative valuation has reached parity. HSBC looks fairly valued on lower revenue growth expectations, while an improving Asian macro should reduce asset quality concerns for STAN, driving a performance reversal.

HSBC Downgraded, StanChart Upgraded at Morgan Stanley
Informa Cut To Sell at Liberum
Tod’s Raised to Neutral vs Reduce at Nomura
Britvic Resumed At Buy at Nomura; PT 480p
Philips Cut To Hold at Societe Generale
RSA Insurance Rated New Buy at Berenberg; PT 153p
Carillion Raised To Buy VS Hold at Berenberg
Glaxosmithkline Cut To Reduce at iifl
Reed Elsevier Kept as a Most Preferred Stock at Citigroup
UBS Cut to Neutral VS Outperform at Credit Suisse
Vodafone Cut to Underperform vs Market Perform at Bernstein


Asian markets
Nikkei 225 down -27.94 (-0.24%) at 11,380
Topix up +0.33 (+0.03%) at 963.02
Hang Seng down -51.65 (-0.22%) at 23,330

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 -2.10 (-0.18%) at 1,159
FTSE100 down -10.07 (-0.16%) at 6,318
CAC 40 up +6.67 (+0.18%) at 3,667
Dax up +35.22 (+0.46%) at 7,629

€/$ 1.34 (1.33)
$/¥ 93.58 (93.95)
£/$ 1.55 (1.55)

Commodities ($)
Brent Crude (ICE) up +0.11 at 117.49
Light Crude (Nymex) down -0.37 at 95.49
100 Oz Gold (Comex) up +4.50 at 1,613
Copper (Comex) down -5.55 at 367.55

10-year government bond yields (%)
US 2.01%
UK 2.20%
Germany 1.63%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.72bps at 101.35bp
Markit iTraxx Europe +0.52bps at 112.98bp
Markit iTraxx Xover +3.07bps at 439.9bp
Markit CDX IG +1.03bps at 86.96bp

Sources: FT, Bloomberg, Markit


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