The Dawn Patrol – 0.1.03.13 – On Italy, China, Sequester. MS likes EADS, GS likes TEF. Some earnigns and the Week End…

Hello,

No real direction this morning on the European markets following these two day run. This morning we’ve got some poor Chinese data and we should face the start of the automatic spending cuts in the US.

SX5E futures: Support at 2608 then 2578. Resistance 2633 then 2669. Looks like opening around 2627

Today, we’ll monitor the manufacturing PMIs, the unemployment rate in Europe and Italy and the Italian deficit and GDP. In the US, we get the ISM manufacturing, the U of Michigan confidence, the Markit PMI…

This was another eventful week end with all our rabbit’s eyes focusing on the Italian elections and now the sequester. Earnings kept coming at an impossible pace. All in all it’s Ok on the top and bottom line but earnings revisions for 2013 continue to come down. JPM lowered its US GDP growth forecasts on the sequester. We should keep focusing on stock picking à la Graham style. This week’s paper by Mislav Matejka (JPM) was good one to help us refocus on this. European strategists started the year on a bullish tone and somewhat reversed that call to a more neutral one 2 to 3 weeks ago. We’re still in the choppy waters with some headwinds and messy waves. Let’s look a bit further and we should find a better (lower) tide to grab our boards… Let’s focus on finding the good boards…

WEEK END

VIDEO. You liked Homeland? You’ll love House of Cards (not for a while in France). http://www.imdb.com/title/tt1856010/

RESTO. TAO KAN. Very good. Ask your second favourite broker (ie not me) to take you there… http://www.taokan.fr/

SPORT: SKI in Kvitfjell (Norway) Downhill tomorrow on Eurosport (11:45).

ZUMARIKA

My best friend suffers from ALS, a terrible disease also known as Lou Gehrig’s disease. To help him, we’ve launched a website where you can donate… Don’t hesitate. (yes, I know the site somewhat bugs as I’ve designed it myself… but the Paypal link should work…). http://zumarika.com/

HOT STUFF

Thales FY profit and revenue beat estimates, sees EBIT rising 5-8% yoy

Areva 2012 restated EBITDA EUR 1.01bn vs. consensus EUR 1.05bn

Fiat CEO Marchionne said yesterday he prefers Fiat-Chrysler merger over Chrysler IPO, Italy instability may hurt Fiat in medium term. BBG

Luxottica 2012 operating income rose 22% and BBG headlines look positive.

Diageo. United Spirits shares rose as much as 8.6% as Indian regulator approves Diageo deal. BBG

Belgacom forecasts 2013 adjusted EBITDA of EUR 1.69bn – EUR 1.73bn vs. estimates of EUR 1.75bn, sees capex at 13%-14% of revenue, sees revenue down 1%-2% vs. EUR 6.46bn

Deutsche Telekom. John Paulson has said he will vote against plans to merge MetroPCS with T-Mobile USA. Paulson & Co owns 9.9% of MetroPCS. FT

Andritz Q4 Net EU76.4m vs Est. EU80.8m, Sees EU1.20 Dividend

Bertelsmann To Take Full Control of BMG

Glencore Says Xstrata Merger Won’t Complete By March 15

WPP 2012 Revenue, Dividend Beat Est.; Reaffirms Long-Term Aims

CURRENT STUFF

On Italy
It seems that investors are now less concerned with Italy and are looking forward for the next thing to worry about. Apparently Grillo is open to continue in the line of the Monti administration according to an article in la Repubblica. The article goes onto say Grillo will meet with his elected party members early next week to debate guidelines going forward for such a recommendation. Such a government may be part of an option that involves Bersani “giving up” hopes of being PM (and forming a minority government−something we think is unlikely to happen) and allowing President Napolitano to nominate a technocrat as PM to form a Monti style government (that could last until European elections in June 2014).

On the Sequester
The US sequestration looks certain to go ahead. The automatic spending cuts were expected to begin on Friday after rival Republican and Democratic bills to replace the sequestration fell well short of the necessary 60 votes in the Senate. The Congressional Budget Office estimates the cuts will reduce growth by 0.6% and cost 750,000 jobs. The IMF said it would revise its forecasts for 2% US economic growth in 2013. Adding to concerns were revisions to Q4 GDP growth released on Thursday, which showed a much smaller upward move than had been anticipated. (Reuters)(Financial Times)

On China
More signs of slowing Chinese manufacturing growth: The official manufacturing purchasing managers’ index for February dipped to 50.1 from 50.4 in January. It was the fifth consecutive month above the midpoint of 50, which indicates an expansion in industrial activity, but the decline in the index means that the pace of expansion has likely slowed. The final HSBC/Markit PMI was confirmed at 50.4 for February. (Financial Times)

UPS&DOWNS

EADS (MS, Vig) Still More to Play for; Remain OW and PT to EUR46
Despite a stellar YTD, we still see material upside – ~30% EPS CAGR through 2016 at just 0.5x EV/sales is attractive. We remain OW & lift our PT to €46.

Amadeus IT Holding (JPM, Pollard) Targeting growth for the long term
Amadeus is a cash generative company with visible growth in the near term and sustainable long term growth driven by investments in new Altéa modules as well as IT platforms in new related verticals. We are updating our model to account for the outperformance in 2012 and new guidance. Maintain OW rating and PT €21.80, with potential upside if new Altéa customers are signed.

French Banks Still Attractive, Favor Capital Return, Citi Says
Says Overweight French Banks, prefers BNP for capital return.
Preference: BNP (Buy) followed by SocGen (Buy), Natixis (Buy), neutral on CASA.

Telefonica (GS, Boddy) Spanish risks receding, estimates bottoming; upgrade to Neutral
After several years of sharp earnings declines, stronger than expected cost cutting in Spain should allow the group to stabilise and earnings forecasts to bottom. We upgrade the stock to Neutral from Sell and remove it from our Conviction List.

Adva Cut To Hold VS Buy at Deutsche Bank
Asos Raised To Buy VS Hold at SocGen
Bouygues Raised To Neutral VS Sell at Citi
Danske Bank Raised To Buy VS Neutral at Citi
Gemalto Cut To Hold VS Buy at SocGen
Kazakhmys Cut To Sell VS Buy at SocGen
Liberty Raised To Buy VS Neutral at BofAML
Luxottica Growth Prospects Remain Strong, Citi Says
Plastic Omnium Cut To Hold VS Buy at SocGen
RBS Cut to Hold VS Buy at SocGen
Telefonica Raised To Equalweight VS Underweight at Barclays
TeliaSonera Cut to Underperform VS Hold at Jefferies

OVERNIGHT MARKETS: DOWN

Asian markets
Nikkei 225 up +74.14 (+0.64%) at 11,634
Topix up +8.33 (+0.85%) at 983.99
Hang Seng down -68.91 (-0.30%) at 22,951

US markets
S&P 500 down -1.31 (-0.09%) at 1,515
DJIA down -20.88 (-0.15%) at 14,054
Nasdaq down -2.07 (-0.07%) at 3,160

European markets
Eurofirst 300 up +10.89 (+0.94%) at 1,171
FTSE100 up +34.93 (+0.55%) at 6,361
CAC 40 up +31.51 (+0.85%) at 3,723
Dax up +65.87 (+0.86%) at 7,742

Currencies
€/$ 1.31 (1.31)
$/¥ 92.68 (92.53)
£/$ 1.52 (1.52)

Commodities ($)
Brent Crude (ICE) down -0.29 at 111.09
Light Crude (Nymex) down -0.36 at 91.69
100 Oz Gold (Comex) up +1.90 at 1,580
Copper (Comex) down -2.15 at 350.60

10-year government bond yields (%)
US 1.87%
UK 1.99%
Germany 1.45%

CDS (closing levels)
Markit iTraxx SovX Western Europe -1.87bps at 103.72bp
Markit iTraxx Europe -1.05bps at 116.68bp
Markit iTraxx Xover -7.03bps at 447.59bp
Markit CDX IG +0.63bps at 87.88bp

Sources: FT, Bloomberg, Markit

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