The Dawn Patrol – 26.03.13 – Cyprus… MS likes Russia. MS ups EDF, JPM on aerospace, GS ups Wienerberger.


European shares were likely to edge higher on Tuesday, with some investors taking advantage of recent drops to buy equities, although concerns that a strict bailout deal for Cyprus might set a precedent for Europe could limit gains.

Today, we won’t try to get our Euros out of Cyprus, because banks will remain closed for another couple of days. Mr. Dijsselbloem tried to clarify what was said in the FT yesterday that Cyprus is a a specific case and not a template for the other countries (ie haircuts on bondholders or deposits won’t happen again…). Anyway, the market is poised to open slightly up, but should remain volatile (it’s a market after all).

SX5E Futures: 2587.00y -32.00. Support at 2578 then 2556 (key support). Resistance 2608/11 then 2633. Looking around 2690 at the moment…

Macro data:
US: Feb. durable goods, Jan. S&P/Case-Shiller home price index, March Richmond manufacturing index, March consumer confidence, Feb. new home sales
8:45am: France March consumer confidence indicator; est. 86 (prior 86)
11:00am: Italy to sell EUR8.5b 186-day bills
13:30 US Durable Good Orders est 3.9% (prior -5.2%)
6:00pm: France Feb job-seekers: net change; est. 23.9k (prior 43.9k)

Do you remember the Batman vigilante who brought a wanted man to custody?
Well, he quit… He says he prefers to live his life on Kebabs and cigarettes.
(I can’t bring great news every day).


Cyprus Banks to Remain Closed Through March 27: Central Bank

Allianz Said to Buy Yapi Kredi Sigorta for EU950M: Reuters

ABB Sees Organic EPS Growth Meeting Targets in 2014, 2015

Carlsberg Says It Was Visited by German Competition Authorities

Freenet Proposes 1.35 Euros Dividend After Surge in Profit

T-Mobile USA Dropping Smartphone Subsidies: WSJ. Apple’s iPhone will play prominent role in T-Mobile’s “Uncarrier” event tomorrow: CNET, citing someone familiar with plans. BlackBerry Z10, Galaxy Note 2 will also figure at the carrier’s LTE event

L&T General Insurance, Future Generali Agree to Merge

Accor Planned Airport Hotels in India Blocked by Police: Echos

Celesio FY Ebitda EU579.6m; Sees 2013 Ebitda EU580m-EU610m

Ingenico Seeks 2016 Sales Above EU1.8B, Ebitda Margin Above 20%

RWE’s Radmacher to Join K+S in September, Handelsblatt Reports

Adidas Confident on 2015 Strategy Goals, CEO Tells Le Figaro


On Cyprus
WHAT COULD STILL GO WRONG? Daniele Antonucci at MS wonders…
“In the near term, we are concerned that a Greek-style recession, as a result of the end of Cyprus’ economic model – a good part of which was based on a certain kind of banking – might produce a still unstable debt trajectory. And implementation risks, especially on the political and social fronts, remain substantial. Thus, we would not rule out that a larger than previously anticipated relief, starting with an even more substantial haircut of uninsured deposits, might be needed.”
“In the medium term, we are concerned that a precedent is now set and it’s no longer taboo to haircut deposits or even to apply bank levies. We regard this as a potential policy mistake, as the risk is that depositors in the weak parts of the eurozone might hypothetically draw parallels with the Cypriot situation in a bear case scenario. This is because there’s now more than one ‘unique’ country with ‘unique’ problems addressed in a ‘unique’ way.”

To read:
Interesting FT piece on German EU leadership and how a lack of counter balance from France and other eurozone nations makes Germany a reluctant leader

For the first time since 1998, emerging market stocks are underperforming in a global rally. (Bloomberg)


MS (Carr) EEMEA Strategy: Buy Russia – 7 reasons why valuation discount will narrow
We are turning positive on Russian equities. Valuation is too cheap relative to EM and seven reasons suggest that either the valuation discount is excessive or potential catalysts could cause it to come down in the medium term.
1. Better macro fundamentals and resilience to shocks.
2. Governance and political risk are more than fairly discounted and may be improving at the margin.
3. Structural reforms – glass half full. We see modest progress, with the potential for more.
4. The energy sector’s deep discount fully reflects the challenges. Russia has de-rated 27% versus crude oil and we see some potentially positive catalysts.
5. Russia is an attractive dividend yield play with a trailing 3.7% DY and a very low payout ratio (19%).
6. Global growth uplift in 2H13 is a boon to Russia and lead indicators suggest EPS growth has bottomed.
7. Domestic growth, inflation and rates are turning more supportive.


EDF (MS, Turpin) Attractive risk-reward into the Energy review – moving OW
We are turning more positive on EDF – the stock trades at a steep discount on PE and DY, yet offers superior earnings growth; the Energy review will be a key catalyst – initial signs are encouraging; its quasi-regulated status shelters it from weak commodity markets; and risk-reward lends support.

European Civil Aerospace (JPM, Perry, CFA) Still bullish as we enter Q2 2013
European Civil Aerospace stocks have risen by an average of 20% in 2013 YTD. In Q2 2013 we believe the group can continue to rally due to strong fundamentals and also expectations of positive news flow at the annual air show (June 16-21 this year, in Paris). We have raised our Dec-13 price targets for MTU (OW) and Rolls-Royce (OW), in both instances due to updated FX assumptions and a lower assumed risk premium. We have trimmed our price target on EADS (OW) on expectations of a smaller buyback. We maintain an UW rating on Safran as we think it is significantly overstating its true EPS.

Wienerberger (GS, Rutland) Buy: Focus on cash and potential for recovery; up to Buy and onto CL
Four years of P&L losses and concern over covenant breaches have weighed on the shares. But, despite the recent rally, we see value and upgrade to Buy and add it to the Conviction List. Our new PT is €14.3.

Morrison Raised To Buy VS Neutral at Citi

ASM International Exits Ing’s Benelux Favorites List, Stays Buy

Pirelli Raised To Buy VS Hold at SocGen

Telecom Italia Cut To Equalweight VS Overweight at Barclays

TDC Cut to Hold From Buy at Berenberg

Anglo American Cut To ’Underperform’ at RBC Capital

Telecom Italia Cut To Underperform VS Neutral at BofAML

Wienerberger Raised To Conviction Buy VS Neutral at Goldman


Asian markets
Nikkei 225 down -29.54 (-0.24%) at 12,517
Topix down -1.39 (-0.13%) at 1,046
Hang Seng down -130.77 (-0.59%) at 22,120

US markets
S&P 500 down -5.20 (-0.33%) at 1,552
DJIA down -64.28 (-0.44%) at 14,448
Nasdaq down -9.70 (-0.30%) at 3,235

European markets
Eurofirst 300 down -2.99 (-0.25%) at 1,186
FTSE100 down -14.38 (-0.22%) at 6,378
CAC 40 down -42.31 (-1.12%) at 3,728
Dax down -40.45 (-0.51%) at 7,871

€/$ 1.29 (1.29)
$/¥ 94.32 (94.15)
£/$ 1.52 (1.52)

Commodities ($)
Brent Crude (ICE) down -0.10 at 108.07
Light Crude (Nymex) down -0.06 at 94.75
100 Oz Gold (Comex) unchanged 0.00 at 1,605
Copper (Comex) unchanged 0.00 at 343.50

10-year government bond yields (%)
US 1.92%
UK 1.83%
Germany 1.34%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.33bps at 101.5bp
Markit iTraxx Europe +3.33bps at 122.31bp
Markit iTraxx Xover +7.35bps at 480.83bp
Markit CDX IG +0.55bps at 91.13bp

Sources: FT, Bloomberg, Markit


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