The (after) Dawn Patrol – 22.02.13 – Earnings, Barclays on Italian elections, UPS&Downs more.


Asian stocks inched back, commodities bounced with Aussie on better growth data in Singapore and encouraging comments from the RBS about the effects of recent interest-rate reductions.
Noting as well, after the US bell, AIG and HPQ rose on better forecasts – see more below.

Key levels : SPH3 1505.20, EURUSD 1.3212, AUDUSD 1.0313, Gold $1586, Cl1 $93.14

We’ll monitor German GDP, Imports/Exports and IFO – focus as well on LTRO repayment : This will be important to gauge banks confidence, LTRO2 was much larger than LTRO. Recall the initial repay of LTRO was EUR137bn. JPM expect EUR100 – EUR125bn. The higher the figure, the better for the euro, though peripheral banks may be reluctant to prepay much ahead of Italian elections on February 24 – 25th

The WE Specials will come later…


Alcatel appoints Michel Combes as CEO (former Vodafone)
Bankia is set to announce the biggest corporate loss in Spanish history. The bailed-out bank will reveal its more than €19bn hole when it reports on Thursday – FT
– David Einhorn implored Apple investors to rally round the “iPref”. The Greenlight founder used a public conference call to press shareholders to vote out corporate governance changes that may make it harder for Apple to issue preferred stock. Einhorn’s proposal for Apple to issue $47bn preferred perpetual shares would conserve its cash hoard while giving savers a “desperately needed” yield, he said. “While Apple wants to keep its cake, the shareholders get to eat it, too.”
Petrobras announces that the sixth well drilled following the execution of the Transfer of Rights Agreement has discovered oil in the area known as Florim, in the pre-salt of Santos Basin.


Air France loss narrower than est.; Targets further cost cuts – Stock up 180% since July 2012
Tenaris 2012 net $1.7b vs est. $1.74b
Turkcell 4Q net rises 38% on sales growth, lagging est.

US After-hours
– AIG: Q4 EPS (excluding some investment results) 20c vs (8c) expected, announced a $1.3Bln loss on Sandy. Shares rose 3.4% in after-market.
– HPQ: Q1 adj. EPS 82c vs 71c est, revs $28.36Bln vs $27.80Bln. The company forecast Q2 profit that exceeded analysts’ estimates, helped by cost-cutting measures and recovering demand for enterprise services. Shares are up 9% in after-market.
– TXN: The company boosted quarterly dividend to 28c/shr from 21c (in line with estimate). The company also said it will buy back up to $5b more shares
– ODP: Grupo Gigante SAB said it offered the equivalent of $690.5 million for the 50 percent of ODP’s Mexico operations it doesn’t already own.


Confidence :
Business executives are more optimistic about the global economy than they have been in almost two years, according to the FT/Economist Global Business Barometer survey.
For the first time since May 2011, more executives think the economy will improve in the next six months than think it will deteriorate, according to the quarterly survey of about 1,600 executives. They are also more enthusiastic about the prospects for their industries, though their expectations for their own companies have not improved as much.

The math :
The earnings/multiple dynamic has shifted a bit since the start of Q4 earnings. SP500 EPS estimates heading into ’13 were ~$107 but that has since inched up towards ~$109 coming out of the Q4 season (some are even penciling in $110+). At the current quote (~1512) the index is trading at ~13.8x. 14x $109 only gets to ~1530. Assuming the “macro” can stay calm, some think the 14x could be 15x (the bigger bulls are using ~15x $110-111 and getting ~1650 although that may require a lot to “go right”).

Scenarios & Positions ahead of Italian Elections :
from Barclays : "The other big even will be the Italian elections. We had been advising a tactical short going into the elections, but the BTP market has held up very well in absolute terms, despite rising uncertainties. This highlights that investor positions are probably more cautious than we had expected. If a Bersani-Monti government takes the helm (even if negotiations take a month), this should be supportive of BTP spreads: we could see them move back down to the late January levels, with 10y BTPs rallying back towards 4%. A market-unfriendly election result could push yields back up towards (but below) the 5% level, though, especially since there is an auction in the coming week (likely €8bn of a 5y and a new 10y). All in all, we see broadly symmetrical potential moves in post-election scenarios; this does not suggest being short BTP forwards tactically anymore. Similarly, we had been recommending favoring Spain over Italy across maturities: with the spread tightening recently, and the election uncertainty likely over soon, the potential for further near-term tightening is lower, and we now recommend being neutral. A market-friendly election result in Italy should help Spain rally as well, even if slightly less so, especially since some of the uncertainty in Spain has dissipated. Indeed, Prime Minister Rajoy revealed that the government budget deficit for 2012 was lower than 7% (vs. a target of 6.3%, but market expectations in excess of 7%), and the political scandal has not intensified anymore."

Other stuff :
– Gross: Fed will never sell what they now own but will stop buying more @ some point. Question is when? Growth dependent. We est. Jan 2014.
– A Bundesbank official has looked forward to an “exit from the non-standard measures” of the ECB
– Iran installs advanced centrifuges at Natanz to speed up nuclear work

To read :
– “Core Problem for Europe as France and Germany Drift Apart” – nothing really new in this Reuters article but it does discuss how investors are growing concerned over the widening rift (both politically and economically) between Germany and France.
– Plastered, Rome is Ready for the Elections


MS has tactical Sell on Premier Oil and EnQuest, reiterate UW on JMAT and keeping OW on CS, UBS. JPM keep KD8 with OW rating, downgrade Suez Env. To Neutral and UW on Veolia (structurally FCF negative and expensive). GS Drax down to Sell, Swiss Re up to Neutral, reiterate CL Buy on Sports Direct, Spectris and Lafarge, reiterate Buy on Schneider.
Sainsbury raised to Buy at Citi, PSON reiterate OW at Bernstein with new CEO arrival approaching, Fresnillo rated Sell at Socgen, DB see CSR overvalued (Sell), ANTO raised to Buy at RBC, Teliasonera upgraded to Buy at SEB.

GS on German Utilities : Higher carbon prices: A further catalyst for coal plant closures
The outlook for old coal and gas plants in Germany/NW Europe is negative even with the current low carbon prices. Higher carbon prices will exacerbate pressure on old coal plant . GS continue to expect significant coal and gas plant retirements & expect this to lead to higher spreads, which together with higher carbon should drive power prices higher.
> The main stocks exposed: E.ON, Fortum, Verbund, CEZ, RWE

Strategy …

– GS Strategy Matters : The reward for spending is rising
Companies in the highest categories for expected capex growth have outperformed over the last few months. This is in contrast to 2011 or early 2012 when companies spending on investment did not obviously outperform and were sometimes penalized for weakening their balance sheets. This reward for investment we see as crucial to encouraging corporates to use excess cash and raise capex, much the same can be said of M&A which is still at historically low levels.

Calendar of events to watch for the week of Mon Feb 18

– Europe to publish fresh eco forecasts – the EU is set to publish new economic forecasts Fri 2/22 (at 5amET). These will likely generate a bunch of headlines but might not be a huge deal (unless they include large changes in countries like Spain or Italy). The more influential forecasts will be the ones from the ECB on 3/7.
– US housing – a few data points around US housing are due, inc. US housing starts and building permits (Wed 2/20) and a bunch of earnings (MHK Thurs night).
– Tech earnings continue – the Jan-end tech earnings season will continue w/a particular focus this week on the PC market (HPQ is Thurs night). Other tech earnings inc. MRVL (Thurs night).
– Retail earnings start – along w/tech, the other big off-month quarter sector is retail and that group’s Jan-end reporting season kicks off this week w/WMT Thurs morning (2/21). The bulk of the consumer earnings though don’t come until the week of Mon 2/25. In addition to retailer earnings, a big consumer staples conf (CAGNY) will take place in Miami (2/18-22).
– Japan – according to media reports, Abe is close to naming his next BOJ governor and increasingly it looks like the formal announcement may not be until the week of 2/25. Abe will meet w/Obama in Washington on Fri Feb 22.
– Italian elections – the Italian elections are 2/24-25. JPMorgan analysis of the upcoming elections – from W White and G Salford – Our base case scenario sees Bersani’s centre-left receiving just under 33% of the national vote, while Berlusconi’s centre-right gets 30.2%. Our base case is for a working majority for the centre-left and centre in both houses of parliament. However, there are real risks


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