The Dawn Patrol 25.02.13 – China PMI, Italian Elections, MS on Solvay, GS on Hochtief, +ve news for VIV, Wirecard…

Bonjour,

European stocks were seen nudging higher at the open on Monday, cheered by signs that the United States and Japan will continue with ultra easing monetary policy for some time yet, but uncertainty surrounding the Italian elections was expected to keep a lid on market gains.
Federal Reserve officials late on Friday highlighted the merits of the U.S. central bank’s bond-buying programme, reassuring investors that stimulus is not about to be removed and helping Wall Street post solid gains.
Britain’s credit downgrade by Moody’s after market close on Friday and uncertainty over the outcome of Italian elections, where voting finishes later on Monday, were also seen dampening investors’ appetite for risk.

TODAY, we’ll monitor the Spanish Producer prices, the US Chicago Fed activity Index, the Dallas Fed manufacturing activity and obviously, the Italian elections…

• Argo wins best picture at the 85th Academy Awards.
• Jennifer Lawrence wins best actress for Silver Linings Playbook
• Daniel Day Lewis wins best actor for Lincoln
• Ang Lee wins best director for Life of Pi
• Christoph Waltz best supporting actor for Django Unchained
• Anne Hathaway wins best supporting actress for Les Miserables

HOT STUFF

Danone raises stake in Centrale Laitiere to 67% from 29%

Wirecard, Vodafone Form Partnership for Mobile Payment Services

John Lewis Weighed House of Fraser Buyout, Mail on Sunday Says

Abertis Reviewing Airport Operations, Says Sale Is Option

Numericable Owners Working on All-Cash Offer for SFR, BFM Says

HP’s new tablet is not an iPad killer and definitely not a Google Nexus killer (says me…).

Moody’s Sees ‘Considerable Financial Uncertainty’ on BP Profile

Merck Says No Significant Survival Rate Achieved (on Cilengitide)

PostNL 4Q Ebit Eu219 Mln; Analyst Est. Eu144 Mln

TNT Express Plans to Name Akzo Nobel’s Gunning CEO as of June 1

CURRENT STUFF

China’s manufacturing sector grew at the slowest rate in four months in February according to the preliminary HSBC/Markit purchasing manager’s survey. The flash index was 50.4 compared to 52.3 in January, however the Chinese new year can affect economic data in either month. (Bloomberg)

Italian election looks close as polls open: Voting began on Sunday with many anticipating a close outcome that could lead to no clear winner. “Latest opinion polls leaked to the media after a pre-election blackout came into force on February 8 showed the centre-left coalition led by the Democratic party narrowly ahead of a centre-right alliance headed by Silvio Berlusconi.” Turnout was slightly lower by midday Sunday compared to the same point in the previous election, which reached a final turnout of 80.5%. Polling booths close 3pm today. (Financial Times)

The U.K loses its AAA rating after Moody’s downgrade to Aa1 from Aaa on Friday evening. The outlook is now stable. Moody’s cites the sluggish UK growth outlook, risks to the fiscal consolidation program, and the country’s high and rising debt burden. Apart from the negative asociatred sentiment, markets shouldn’t be too effected by this move which was relatively well telegraphed and expected. The fact the outlook was made stable was a mild positive

UPS&DOWNS

Solvay (MS, Mackey): Paris Roadshow Conclusions
We hosted meetings with CEO J-P Clamadieu on Friday. Much discussion revolved around PVC and Polyamide, despite their accounting for only ~12% of EBITDA. But they are a source of some potential catalysts this year. We conclude that flat-to-slight growth in EBITDA in 2013 is a fair expectation (MS+2%), and that management will provide more detail on the roadmap to its 2016 targets later this year. Take advantage of recent weakness – OW.

Volkswagen Prefs. (JPM, Asumendi) Reasons to buy the best in class
Volkswagen Group reported 4Q12 numbers in-line with street estimates. In true Volkswagen-style, we believe the 2013 guidance of matching FY12 operating profit is conservative. VW remains our top pick.

Hochtief (GS, Morgan) Home improvements can drive further upside; Conviction Buy
Ahead of 4Q results on Feb 28, we take stock of recent developments at Hochtief. We believe the recent rally in Leighton has driven all of Hochtief’s YTD performance with further upside if European profitability can improve. PT to €67 from €61. CL Buy.

AB INBEV Raised to Neutral VS Reduce at Nomura
Alcatel-lucent Cut To Underweight VS Neutral at HSBC
Antofagasta Raised To Buy VS Neutral at BofAML
Coloplast Rated New Hold At SocGen, PT Dk300
K+S Raised to Buy VS Neutral at Citi
Mondi Cut To Sell VS Neutral at Citi
Prada Rated New Neutral at Citi, PT HK$80
SABMiller Cut to Equalweight VS Overweight at Barclays
SES Cut to Neutral VS Overweight at HSBC
Standard Chartered PT Raised to 1,920p VS 1,800p at UBS
Swedish Match Raised To Neutral VS Reduce at Nomura
Telefonica Czech Cut To Underweight at Morgan Stanley
Vedanta Cut To Sector Perform VS Outperform at RBC
Vivendi Raised To Neutral VS Sell at UBS

STRATEGY

JPM (Loeys) The J.P. Morgan View

Asset allocation –– The near-term outlook has become more uncertain as risk positions have built, and US economic data should see softening as a result of fiscal tightening. We accept higher correction risk near term, but keep average overweights of equities and credit on excellent medium-term value. All our credit longs are duration hedged.
Economics –– End of Euro Area recession is delayed to next quarter. Softer US spending data over the coming 2 months raise uncertainty on 2013.
Fixed Income –– We cover our MBS overweight as it is suffering from bond managers selling on fears of an early end to QE buying of MBS.
Equities –– We cover our Cyclicals overweight as the next manufacturing PMI risks moving down.
Credit ––Investors signal they reduced risk in EM fixed income in our survey.
Currencies –– Mid-year forecasts raised to stronger dollar vs JPY (97) and GBP (1.47). Cross-currency correlation has collapsed.
Commodities
–– Gasoline prices should move lower over the coming month.

JPM (Matejka) European Equity Strategy
Stay focused on FCF yield
JPM thematic basket of 25 stocks
Markets have undergone a big change in style leadership. After a poor start, Quality and Growth styles are now in positive territory. Even in the US, which is holding up well, up 6% ytd, Defensives are strongly outperforming Cyclicals, by a huge 320bp. Factors such as Quality and Growth have been flipping in and out of favour frequently over the past year, but FCF yield has consistently delivered. We think this continues and keep our sector preferences broadly aligned with it (caution on Mining, Utilities, Energy, Telecoms and preference for Staples, IT, Healthcare and Business Services). We update our FCF yield basket of 25 names (ticker JPDEUFCF). Despite 300bp outperformance over the past 3 months it still remains cheaper than the broader market.

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 up +233.84 (+2.05%) at 11,620
Topix up +15.05 (+1.56%) at 978.53
Hang Seng up +17.42 (+0.08%) at 22,800

US markets
S&P 500 up +13.18 (+0.88%) at 1,516
DJIA up +119.95 (+0.86%) at 14,001
Nasdaq up +30.33 (+0.97%) at 3,162

European markets
Eurofirst 300 up +13.97 (+1.21%) at 1,166
FTSE100 up +44.16 (+0.70%) at 6,336
CAC 40 up +81.48 (+2.25%) at 3,706
Dax up +78.34 (+1.03%) at 7,662

Currencies
€/$ 1.32 (1.32)
$/¥ 94.10 (93.95)
£/$ 1.51 (1.51)

Commodities ($)
Brent Crude (ICE) down -0.14 at 113.96
Light Crude (Nymex) down -0.08 at 93.05
100 Oz Gold (Comex) up +5.30 at 1,578
Copper (Comex) unchanged 0.00 at 353.00

10-year government bond yields (%)
US 1.97%
UK 2.11%
Germany 1.57%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.62bps at 101.76bp
Markit iTraxx Europe -1.52bps at 113.37bp
Markit iTraxx Xover -6.98bps at 441.33bp
Markit CDX IG -2bps at 86.5bp

Sources: FT, Bloomberg, Markit

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