LCM Dawn Patrol – 22.04.13 – The JPM view, JPM on French banks, Hermes numbers, more…


European shares were expected to rise for a second straight session on Monday, mirroring gains on Wall Street and in Asia, with recent encouraging results from some major firms raising optimism for the earnings season.

Today, as the Italian political pressure eases, we can focus again on what really matters (i.e. earnings). This is going to be a big week and so far S&P 500 earnings are in line. This week, we have the PMIs and the Cyprus bailout vote.
Macro: Euro zone consumer confidence April and US existing home sales.

SX5E Futures: Support at 2509/15 then 2484. Resistance 2540 then 2556

Hope you had a great week end. It was the perfect set up to start or continue training and be ready for the summer.
But you can’t always be 100% can you?


Company insolvencies in euro-area countries like Spain and Greece that may rise by 33% this year will hurt German companies, Bild Zeitung said, citing estimates of insurer Euler Hermes

Apple may be looking for new CEO to replace Cook – Forbes
ABB to buy solar power firm Power-One for $1 bln
Philips Q1 beats, sees weak H1 in US and Europe
Suez Environnment 1Q Waste Europe Division Hurt By Low Volume
Dassault, Areva Contracts in India May Face Delay: Echos
Mobistar 1Q Ebitda Eu98.7 Mln; Est. Eu96.2 Mln
Elan Board Unanimously Reject Royalty Pharma’s Tender Offer
Interparfums Says 2013 Sales Will Exceed EU300M

Amid protests against G4S (GFS.L) presence in settlements within occupied Palestinian territories, the British security company said it intends to withdraw from key contracts in Israel.

Hermes 1Q rev. EU857m, est. EU854m.
• OUTLOOK: Plans to strengthen production capacity, expand distribution network, focus on “sporting life” theme
• 1Q sales at constant FX rose 13%, est. up 11% (median of 5).
• 1Q sales gained 10.3% including negative FX impact
• 1Q Europe sales constant FX up 12%, Americas up 11%, Non-Japan Asia 17%, Japan up 7%
• 1Q Silk & Textiles sales constant FX rose 15%, Leathergoods & Saddlery up 7%, Ready-to-wear & fashion accessories up 18%


Italian president Giorgio Napolitano was re-elected on Saturday and is expected to propose a a bipartisan cabinet supported by the two main, centre-left and centre-right forces, as had been anticipated after the national elections two months ago which resulted in a deadlock. Meanwhile Giorgio Squinzi, head of the country’s main business lobby Confindustria, urged politicians to form a coalition government or risk condemning the country to a prolonged recession. (Wall Street Journal)(Financial Times)

China’s slower Q1 growth is a ‘normal’ effect of structural reforms, PBoC governor Zhou Xiaochuan said. “China’s undergoing economic restructuring, which sometimes is not in lockstep with growth,” he told reporters on Saturday after the G20 meeting. “We need to sacrifice short-term growth for the purposes of reforms and structural adjustments.” (Bloomberg)

On the Net
The Senate is expected to vote as soon as this week on legislation allowing states to require Internet retailers to collect sales taxes, opening up a battle over a tax break that consumers love but that states say costs millions. The outcome is uncertain, largely because of opposition from some conservatives who see the move as a new tax and an unfair burden on business, and from lawmakers from states that don’t tax sales. (

Loans to Asia’s Middle Class Surge
Lenders from around the world are fueling a boom in short-term loans to Asia’s growing middle class, helping push debt to record levels.


French Banks (JPM, Abouhossein) Cutting EPS on lower CIB and corporate center revenues – SG offers best risk reward
We cut French banks EPS by -14% in 2013e, 8% in 2014e and 5% in 2015e on average, to account for lower revenue run rate in Corporate & Investment Banking, as well as higher revenue losses in the corporate center due to the cost of excess liquidity. We are now 19% below consensus in 2014e; although prices have already corrected and valuations are supportive in our view, consensus downgrades could weigh on share performance. In that context, we see SG as offering the best risk/reward at 0.5x NAV – recent underperformance is unwarranted and we see undiscounted upside potential from the turnaround in Russia/Romania as well as cost savings in French Retail and CIB.

Accor (MS, Lewis) Time to Buy
Accor is undergoing a radical restructuring to create a less volatile business with stronger cash generation, higher returns and better growth prospects. Short-term risks are well understood, and the valuation is compelling. Overweight.

Sodexo (GS, Edelman): Off Conviction List on weaker FY13 margin outlook; remains Buy
We lower our estimates for Sodexo to reflect near-term margin pressure highlighted in the 1H13 results. Our 12-month price target falls to €79 (€87) and we remove the stock from the Conviction List, but retain our Buy rating.

SAP (GS, Mowalla) Buy: A slow start doesn’t change our investment case; reiterate CL Buy
We remain Conviction Buy despite the weak 1Q13, which doesn’t change our investment thesis owing to a strong pipeline and HANA. We reduce our 2013-15 PF EPS estimates by 5% for weak execution in 1Q13 and our 12-month price target falls to €82.

Accor Raised To Overweight VS Equalweight at Morgan Stanley
Dialog Semi PT Cut to Eu12 VS Eu18.50 at Morgan Stanley
EADS Raised to Outperform VS Sector Perform at RBC
Generali PT Cut 3% to Eu14 at Deutsche Bank; Kept at Hold
Generali Raised to Overweight vs Equalweight at Barclays
Inditex Raised To Neutral VS Underperform at Credit Suisse
Kazakhmys Raised To Neutral VS Underperform at Credit Suisse
Kazakhmys Raised To Neutral VS Underperform at Exane
Regus Cut To Underweight VS Neutral at JPMorgan
Ziggo PT Raised to Eu29 VS Eu27 at ING, Stays Buy


JPM (Matejka) European Equity Strategy
Are we in for more than just a dip? We don’t think so

The question is what could be the extent of market weakness. On the negative side we note poor seasonality, US CESI below zero, growth air pocket and continued downward EPS revisions. However, we believe these headwinds will be overshadowed by the following factors: 1) Falling commodity prices are ultimately a positive for consumer spending; 2) US house prices are rising and jobless claims, the key indicator, remain low; 3) Technicals are not stretched, Bull-Bear points to upside on 6 months and HF beta has moved below zero; 4) The big picture is still one of asset reflation, with equities having far better prospective returns than most other assets; 5) Peripheral spreads are stable. In fact, Italian equities have outperformed Dax by 8% during the recent weakness, something most thought was only possible in rising markets. We stay with the view that Q2 is likely to be range-bound and the volatility could continue, but we believe stocks will be higher on a 6- to 9-month horizon and advise buying into dips. We keep OW Defensives vs Cyclicals despite 1000bp ytd run, and FCF as the key style to pick stocks.

JPM (Loeys) The J.P. Morgan View
The convexity problem with fixed income

 Asset allocation –– Our UW bonds vs equities is not based on an outright bearish view on bonds. Instead, it is higher equity returns in the two markets we particularly like, US and Japan, and the bad convexity of fixed income.
Economics –– China 2013 growth downgraded from 8.2% to 7.8%. US data a bit weak but no threat yet to our already low 1.5% call for Q2.
Fixed Income –– Across markets, we are either long duration, or looking to get long on a yield backup.
Equities –– The S&P500 Q1 EPS is on track to reach or exceed $26.5. This is not impressive, in our view, but at least it would allow the S&P500 EPS to sequentially rise from the $26.3 delivered in Q4 2012.
Credit –– US HG credit looks well positioned to benefit from foreign bond buying by Japanese investors.
Currencies –– Q2 est. are EUR/USD 1.32, USD/JPY 100, GBP/USD 1.50.
Commodities –– Chinese growth forecast downgrades and curbs on lending to the construction sector keep us UW base metals.


Asian markets
Nikkei 225 up +275.38 (+2.07%) at 13,592
Topix up +21.28 (+1.89%) at 1,148
Hang Seng up +8.10 (+0.04%) at 22,022

US markets
S&P 500 up +13.64 (+0.88%) at 1,555
DJIA up +10.37 (+0.07%) at 14,548
Nasdaq up +39.70 (+1.25%) at 3,206

European markets
Eurofirst 300 up +5.81 (+0.51%) at 1,153
FTSE100 up +42.92 (+0.69%) at 6,287
CAC 40 up +52.60 (+1.46%) at 3,652
Dax down -13.77 (-0.18%) at 7,460

€/$ 1.31 (1.31)
$/¥ 99.80 (99.77)
£/$ 1.52 (1.52)

Commodities ($)
Brent Crude (ICE) up +0.37 at 100.02
Light Crude (Nymex) up +0.41 at 88.42
100 Oz Gold (Comex) up +26.30 at 1,422
Copper (Comex) down -1.55 at 313.60

10-year government bond yields (%)
US 1.72%
UK 1.66%
Germany 1.25%

CDS (closing levels)
Markit iTraxx SovX Western Europe -1.99bps at 98.99bp
Markit iTraxx Europe -0.57bps at 113.49bp
Markit iTraxx Xover -3.61bps at 458.04bp
Markit CDX IG -1.23bps at 83.75bp

Sources: FT, Bloomberg, Markit


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