The Dawn Patrol – 25.03.13. Cyprus, Vodafone, AM flows. JPM on Utilities, on European Equities.


Europe’s main stock indexes should rally after Cyprus reached a deal with international lenders for a 10 billion euro bailout. This all thing looks like a bad joke. In the end they always find some sort of solution, but someone’s got to pay in the end…

SX5E Futures: 2619.00y 2.00. Support at 2633/8 then 2608. Resistance 2653 then 2669 & 2701. Looks like opening just under the 2653 resistance at the moment…

Today, we’ll wonder how this Cyprus thing will end and will benefit Berlin or Moscow? We’ll watch the Italian and French bond auctions, the Spanish PPI. And… we’ll read the Berlusconi Prostitution trial closing arguments…

DON’T EVER try a ski cross race without the proper equipment.
For us, it ended with one with a broken nose and one with a broken hand…


Bankia. The Spanish FROB released on Friday its final recapitalization plan for Bankia, in which it confirmed EUR 15.5bn will be injected at €0.01 per share that will wipe-out current shareholders of Bankia.
Boeing to Benefit From Ryanair Plane Order, Moody’s Says
BP’s $8 Billion Share Buyback Is Credit Negative, Moody’s Says
Buy Heineken, Potential Share Overhang Risk Low, ING Says
Diageo Seeks to Boost Stake in China Liquor Brand: Telegraph
ECB. According to a report in Spanish paper El Mundo, the ECB is preparing another round of LTROs to help limit the fallout from any Cypriot contagion. Bloomberg
France Telecom Seeks Partner for Dailymotion, CEO Tells Figaro

France to Cut Planned Rafale Order to 225 Planes V 286: Tribune
GDF Suez Household Gas Prices to Fall 0.6% on April 1, AFP Says
Generali May Raise Up to CHF1.9B by Selling BSI, FuW Reports
Marks & Spencer. Press speculation the company is increasingly vulnerable and could be a takeover target. FT
Samsonite Shareholders (RBS and CVC) Sold $528 Million Stake, Term Sheet Says
Spain – the country is currently negotiating with Eurozone officials to raise its permitted deficit target to 5.8% of GDP instead of the agreed 4.5%; Spain would also like a two year extension (until 2016) before having to hit a 3% deficit bogy – Bloomberg
Spain cut nominal value of Bankia shares to 1 euro-cent from 2 euros in a debt swap that will practically wipe out existing stockholders in the lender
Vodafone May Withdraw From U.S. With $135B Sale: Sunday Times


On Cyprus
EU ministers this morning approved a deal reached by Cyprus with international bailout negotiators, that should be enough to unlock a €10bn EU bailout and save the country from bankruptcy. The agreement will see depositors with accounts worth less than €100,000 protected. But those above those levels in Laiki Bank, the second largest and most troubled financial institution, would be severely cut and the losses on large deposits in Bank of Cyprus, which will survive as a much smaller entity, are also yet to be decided, but could be as high as 40 per cent. The eurogroup agreement will come as a relief, since rescue deals struck by the Troika have been unpicked by ministers in the past. (Financial Times)

On Vodafone
The Sunday Times reports on the front page of ‘Business’ that Vodafone may withdraw from US with GBP88bn, saying that Vodafone held talks with US partner Verizon Communications about selling Vodafone’s 45% stake in Verizon Wireless for GBP88bn, The report cited unidentified investors. According to the piece talks were broad-based and included the option of merger between Vodafone and Verizon, but that Verizon shareholders are said to oppose merger because they don’t want a stake in Vodafone’s European business. Vodafone declined to comment, Sunday Times says. Vodafone spokesman Ben Padovan also declined to comment when contacted by Bloomberg News

Europe AM
According to GS, European investors made a net withdrawal from equity funds this week – the first net outflow from the asset class for 19 weeks. Although the redemption was small in absolute terms (we estimate a -€0.3 bn net outflow in the seven days ended March 21) this confirms a slowdown in European equity flows that has become increasingly evident since mid/late February.


Southern European Utilities (JPM, Garrido) Tariff Deficit is back and brings regulatory uncertainty. D/G Iberdrola/Enel/Endesa to UW; Gas Natural to N
We are increasingly nervous about the regulatory risks for Spanish utilities. We believe that the market underestimates the size of the problem (the Tariff Deficit) that the government needs to address, and is therefore being complacent on the risks. Due to weak electricity demand and higher than expected incentives to renewable we believe that even after c. €3bn taxes paid by utilities and €2.65bn cash to be contributed by the government, there will be €0.8bn tariff deficit (TD) in 2013E. This deficit could grow to €2.4bn in 2014 even if we assume 5% rises in regulated access fees paid by customers and a €2.2bn contribution by the government.

Arcelormittal Added To Ubs’s Most Preferred List
Britvic Raised To Hold VS Sell at SocGen
Endesa Cut To Underweight VS Neutral at JPMorgan
Enel Cut To Underweight VS Neutral at JPMorgan
Gas Natural Cut To Neutral VS Overweight at JPMorgan
Iberdrola Cut To Underweight VS Neutral at JPMorgan
Ladbrokes Raised To Buy VS Hold at Jefferies
RBS Raised to Neutral VS Sell at Goldman
Schneider Electric Added To JPMorgan’s Analyst Focus List
Voestalpine Removed From Ubs’s Most Preferred List
RBS upgraded at GS.


JPM (Loeys) The J.P Morgan View.

Asset allocation –– With little movement in global growth projections or tail risk perceptions, strategy has become more bottom up, focused on assets with best value (stocks), and countries with better growth momentum (US and Japan).
Economics –– Euro area recession exit is pushed back to mid-year. Combined with downgrades for UK and EM Europe, this lowers 2013 European growth to 0.1%, from 0.4% before.
Fixed Income –– Barring a Cypriot accident, yields will struggle to break the bottom of the range.
Equities –– The improvement in global PMIs for March is not large enough. Exit overweight in Cyclical vs. Defensive equity sectors. Within regions stay OW Japanese equities and UW Euro area equities
Credit –– We prefer EM corporates over sovereigns.
Currencies –– Dollar to gain further against GBP and JPY.
Commodities –– We buy Brent as it is now looks cheap to our price target.

JPM (Matejka) Europe Equity Strategy.

Moves in EPS revisions, PMIs, bond yields and DXY all argue against Cyclical leadership – remain UW
We think the disconnect between market direction and the sector leadership will remain significant
1) EPS growth projections keep being steadily downgraded,
2) Bond yields are staying stubbornly low
3) Euro PMIs are showing a clear rollover, as was signaled by the move down in a lead indicator we track, Euro M1
4) DXY has recently reversed the negative correlation with equities that had been in force for the past 4 years.
We remain UW Cyclicals, in particular Mining, Steel and Mining Equipment. We are also cautious on Chemicals, Autos and Capital Goods. We continue to be bullish on Defensive Growth sectors – Staples (OW), as well as Pharma, to which we are adding further, moving from N to OW, at the expense of Materials (increasing the UW).


Asian markets
Nikkei 225 up +229.93 (+1.86%) at 12,568
Topix up +12.05 (+1.16%) at 1,051
Hang Seng up +140.21 (+0.63%) at 22,256

US markets
S&P 500 up +11.09 (+0.72%) at 1,557
DJIA up +90.54 (+0.63%) at 14,512
Nasdaq up +22.40 (+0.70%) at 3,245

European markets
Eurofirst 300 down -1.28 (-0.11%) at 1,189
FTSE100 up +4.21 (+0.07%) at 6,393
CAC 40 down -4.56 (-0.12%) at 3,770
Dax down -21.16 (-0.27%) at 7,911

€/$ 1.30 (1.30)
$/¥ 94.86 (94.49)
£/$ 1.52 (1.52)

Commodities ($)
Brent Crude (ICE) up +0.59 at 108.25
Light Crude (Nymex) up +0.48 at 94.19
100 Oz Gold (Comex) up +1.60 at 1,608
Copper (Comex) unchanged 0.00 at 345.40

10-year government bond yields (%)
US 1.97%
UK 1.85%
Germany 1.38%

CDS (closing levels)
Markit iTraxx SovX Western Europe +1.28bps at 101.83bp
Markit iTraxx Europe +0.01bps at 118.98bp
Markit iTraxx Xover -4.14bps at 473.48bp
Markit CDX IG -0.48bps at 90.58bp

Sources: FT, Bloomberg, Markit


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