The Dawn Patrol – 19.03.13 – Cyprus is boring. MS’ earnings season report. Nomura on Luxury, JPM on Chemicals, Iliad… Tiger and Lindsey!

Bonjour,

European markets indicated flat to slightly up as Cypriots said no to the deposit tax… Doesn’t really seem to be a concern…

SX5E futures: 2609.00y -33.00. Looks like opening around the 2608 support level… Below there is 2578 & the key 2556 level. Short term resistances remain at 2633 then the gap at 2647

Today might be another volatile day. It feels like investors are bored about the whole Cyprus situation and some consider that, anyway, anyhow a solution will be found. It clearly feels like this kind of situation is not new for the Eurozone (Ireland, Greece, Spain, Portugal, Italy and next… France). Germany and the ECB shout at the culprit for a while and then thanks to the taxpayers they find some sort of arrangements once people walk in the streets. It’s all too political but we’re not out of the woods yet. In the meantime let’s focus on where we can invest our Euros… Gold clearly feels like an option.

Other interesting things to look at today: the UK budget, the FOMC meeting. In terms of data, we’ll get the EC consumer confidence for March and some important US earnings (FedEx and ORCL).

My parents!
As you heard on Monday, Tiger Woods and Lindsey Vonn are officially a couple. It’s not new news to everyone… I’m here to prove it.

HOT STUFF

Volkswagen China Recall May Cost More Than $600m

RIM Raised to Overweight on Margin Potential: Morgan Stanley

BNP, RBS, BPCE Plan to Take Over Saur, Le Figaro Says

Eurazeo 2012 Net Loss EU198.5M v Pro Forma Loss EU111.5M

BlackRock’s CEO Fink Says Cyprus Is Not a Major Problem

French budget minister resigns, Cahuzac steps down as formal tax fraud probe begins

Fiat says profit to fall as jeep shortage adds to woes

Vodafone further speculation in the UK press that Verizon will bid for the company. Telegraph, Guardian

France Telecom. Yahoo may buy a stake in France Telecom’s Dailymotion, with reports suggesting they are looking at a 75% stake in the USD 300m company

North Korea warned of “strong military counter-action” if the U.S. again flies B-52 bombers over the Korean peninsula, with two flights this month after the totalitarian regime threatened pre-emptive nuclear strikes. The skittish pariah state released a video showing US government buildings as destroyed and claimed that the US was within range of the DPKRs nuclear missiles.

CURRENT STUFF

On Cyprus

Cyprus seeks Russian assistance after rejecting bail-out vote: Cyprus’s finance minister arrived in Moscow on Tuesday night to try to wrest assistance from the Kremlin as his country’s parliament rejected a €10bn EU-led bailout that requires €5.8bn to be seized from Cypriot bank accounts. The 11th-hour attempt to tap funds from Russia as an alternative to the deposit levy stunned leaders in Brussels, who said they were taken aback by the resistance of Cypriot lawmakers to shifting the tax’s burden to large deposits, many of which are held by wealthy Russians. What happens next is not clear. “The ball is now really in Cyprus’s court,” eurogroup president Jeroen Dijsselbloem said on Dutch television. The Cyprus government is working with European officials on measures to contain a possibly crippling deposit outflow when banks reopen, including imposing limits on daily withdrawals and capping the amount of money that can be taken out of the country. (Financial Times)(Wall Street Journal)

Also:
Martin Wolf: Cyprus shows how banking is dangerous everywhere, and threatens the eurozone’s survival. (Financial Times)

Cyprus’ high stakes ECB gamble. (Wall Street Journal)

Extract from Martin Wof’s article: “Many insist that any tax on deposits is theft. This is nonsense. Banks are not vaults. They are thinly capitalised asset managers that make a promise – to return depositors’ money on demand and at par – that cannot always be kept without the assistance of a solvent state. Anybody who lends to banks has to understand that. It is inconceivable that banking – a risk-taking financial business – can operate without exposure to loss of at least some classes of lenders. Otherwise, bank debt is government debt. No private business can be allowed to gamble with taxpayers’ money in this way. That is evident.”

On France

France’s socialist government must step up its efforts to cut its big public spending bill and become more competitive to boost both its own and Europe’s faltering economy, the OECD has warned. http://on.ft.com/ZZiwqt

On the FOMC Preview (by GS’ Stehn and Hatzius)
We do not expect any policy changes–or change in message–at the March 19-20 FOMC meeting. The committee is likely to recognize the recent improvement in the data through a modest upgrade of the outlook paragraph in its statement and its updated forecasts. But we do not expect the statement or the post-statement press conference to signal increased concerns about costs and risks of QE, nor do we expect much additional clarity on what constitutes a “substantial improvement” in the labor market.

On US Banks
JP Morgan downgraded in confidential regulator scorecard: The bank’s rating from the Office of the Comptroller of the Currency “fell one notch last July to a level that signifies oversight “needs improvement,” following the revelation of what are known as the “London whale” trading losses, said people familiar with the regulatory assessment.” (Wall Street Journal)

STRATEGY

MS (Secker & Al) European Earnings Season
Earnings season has been lacklustre, with results posting a small beat
38% of companies have beaten estimates, while 35% of companies have missed expectations, meaning a net 2% of companies have beaten expectations. However, excluding Financials, we’ve seen no net surprise, with an equivalent number of beats and misses. In a historical context, this is a below average earnings season (long-term average of 10%), despite the beat. In aggregate total earnings have missed by 4.2%, but excluding Financials, earnings have beaten in aggregate by 0.3%. However the data is cut, this quarter has been a soft, but not disastrous earnings season given the weak European macro backdrop in 4Q. To date, companies in the Utilities, Energy and Financials have seen among the highest proportion of earnings beats. So far, four sectors have seen net earnings misses – Materials, Telcos, IT and Staples.
Earnings revisions have stabilised after weakening a lot in the last couple of months
Financials and Telcos have seen the biggest falls in earnings revisions momentum in the last
month, while we’ve seen a recent improvement in revisions in IT and Industrials.

UPS&DOWNS

Nomura on Luxury goods
Nomura expects European luxury goods sector performance to pause given recent rise in valuation toward a historical multiple of 16x. Sees limited near-term upgrades, noting cautious comments from Hugo Boss regarding global footfall levels. Prefers stock-specific exposure, says long-term structural growth story for luxury goods remains intact.

Swatch, PPR, Adidas remain top picks owing to stock-specific catalysts

European Chemicals (JPM, Evans) Lack of near term upside suggests more selective, less cyclical stance – favouring stocks with specific momentum.
2012 was a bonanza year for investors – with European Chemicals up 30% for the year, double the Eurostoxx Index. 2013 has started in sluggish mode with a relatively weak performance following a number of lower than expected Q4 earnings numbers – and with companies generally cautious on 2013 prospects. The sector has lagged, up 5.1% year to date versus the Eurostoxx Index up 5.7%, the S&P up 8%, FTSE 100 up 9% and the DAX up 4%. Over the same time period, sector consensus EPS forecasts quietly have fallen 6.3% (2013e) and 5.9% (2014e). Outperformance through the next quarter would require specific earnings upgrades, or that savior of cyclical industries, the re-emergence of substantive M&A activity – neither of which is predictable.

Iliad (MS, Purewal) Stellar performance reflected in share price: Move to EW. OW to EW, PT €174 to €180
We think current levels already reflect impressive FY12 numbers and resulting upgrades. Our scenario analysis shows a skew to the downside & little room for upside surprise in 2013. Move EW.

Accor Cut To Hold VS Buy at SocGen


Clariant
Raised To Neutral VS Underweigh at JPMorgan
CSM Cut to Hold VS Buy at ING
Dialog Semiconductor Raised To Buy From Hold at Berenberg
Elementis Raised To Overweight VS Neutral at JPMorgan
Eutelsat PT Raised to Eu26.5 VS Eu22.6 at Berenberg, Stays Sell
Glencore Added To Ubs’s Most Preferred List
Iliad downgraded to Neutral at Morgan Stanley
Kemira Oyj Raised To Overweight VS Neutral at JPMorgan
Mediaset Raised to Neutral vs Sell at Goldman
Prysmian Cut To Hold From Buy at Berenberg
Technicolor Raised To Buy VS Neutral at Goldman (Didn’t they
Yara Cut To Neutral VS Overweight at JPMorgan
CAPGEMINI Raised To Neutral VS Underperform at Credit Suisse

OVERNIGHT MARKETS: MIXED

Asian markets
Hang Seng up +142.91 (+0.65%) at 22,185

US markets
S&P 500 down -3.76 (-0.24%) at 1,548
DJIA up +3.76 (+0.03%) at 14,456
Nasdaq down -8.49 (-0.26%) at 3,229

European markets
Eurofirst 300 down -4.83 (-0.40%) at 1,195
FTSE100 down -16.60 (-0.26%) at 6,441
CAC 40 down -49.72 (-1.30%) at 3,776
Dax down -62.91 (-0.79%) at 7,948

Currencies
€/$ 1.29 (1.29)
$/¥ 95.05 (95.13)
£/$ 1.51 (1.51)

Commodities ($)
Brent Crude (ICE) up +0.45 at 107.90
Light Crude (Nymex) up +0.29 at 92.45
100 Oz Gold (Comex) down -1.30 at 1,610
Copper (Comex) down -0.90 at 338.65

10-year government bond yields (%)
US 1.90%
UK 1.86%

CDS (closing levels)
Markit iTraxx SovX Western Europe +2.5bps at 100.92bp
Markit iTraxx Europe +3.45bps at 108.41bp
Markit iTraxx Xover +9.22bps at 413.37bp
Markit CDX IG +1.67bps at 81.92bp

Sources: FT, Bloomberg, Markit

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