The Dawn Patrol – 29.04.13 – Strategy: MS on earnings, JPM strat update, VOD, Siemens, Schneider…

Bonjour,

European stocks are seen mixed on Monday following the previous week’s sharp gains, with Italian stocks set to rally after a coalition government was named over the weekend, putting an end to two months of political impasse.

This week’s main events will be the Central banks meetings with the Fed expected to maintain its policy, while the jury is out on what the ECB will do. In terms of data, we’ll monitor the jobs reports, the PMIs and the ISM.

Today:
EC Business confidence (11:00), CPI, Dallas Fed (15:30).

NEWS

Schneider Electric SA and Emerson Electric Co. are likely bidders for Invensys Plc, the Sunday Times says, citing unidentified people.

Siemens may guide down on Thursday according to Handelsblatt.

Vodafone investors want bigger bid or full takeover by Verizon (http://reut.rs/16ai8f3)

TNT Q1, revenues 1.67bn (es 1.8bn); net income 144m (est 95.5). Cost saving program continued to be implemented. Co reduces FY profit forecast on Europe & MEA volume increase but yield drop. Asia Pacific and Other Americas expected to perform in line with prior year.

CURRENT STUFF

The Fed is widely expected to maintain its easing policies on Wednesday, in part because of inflation measures falling below the 2% target. (Wall Street Journal)(Bloomberg)

Italy’s new cabinet was sworn in on Sunday: The grand coalition of left, right and centrist parties includes four ‘technocrats’, among them Fabrizio Saccomanni, the Bank of Italy’s deputy governor chosen as finance minister. Italian news on the day was dominated by mayhem outside the prime minister’s office when a 46-year-old man, unemployed and apparently driven to desperation, opened fire with a pistol, wounding two policemen. (Wall Street Journal)(Financial Times)

President Hollande will unveil a new initiative Monday to lower capital gains tax rates in an effort to attract businesses to France – FT

STRATEGY

JPM (Loeys) The J.P. Morgan View

More noise than economic signal now
Asset allocation –– No change in our long equity and HY strategy as softer activity data are not weak enough and low risk remains a strong enough argument to receive still attractive risk premia over cash and safe bonds.
Economics –– Downside risk bias on EM growth for Q2, as March activity data signal a weak entry point for Q2. US data are soft also, but already imbedded in our and consensus views of a sub 2% Q2.
Fixed Income –– Government bond market pickings are slim, except in the Euro area periphery.
Equities –– The 2-month change in the global manufacturing PMI is firmly into negative territory. Overweight Defensive vs. Cyclical equity sectors.
Credit –– We go long Euro HY versus US HY in CDS.
Currencies –– We ignore past May swoons in risk markets and focus on fundamentals forces: weak JPY, stronger CNY, and low overall volatility.
Commodities –– We remain underweight commodities in our cross-asset global portfolio given no yield and low economic growth.

JPM (Matejka) EMEA Equity Strategy Update.
DAX and global Cyclicals unlikely to lead this year; Periphery (Italy) and domestic Cyclicals have a better chance Our base case remains that Q2 will not see a dip similar to the ones witnessed over the past 3 years. Regionally, after 3 years of championing DAX, we think German equities will struggle to outperform in ’13. Yield compression is a bigger benefit for periphery. Weakening Yen is a problem for German exporters as is the rebalancing in China. While DAX is not leveraged to commodity equities (which remain our key short for more than a year now), German exports have the largest sensitivity to China as a share of GDP. DAX is unlikely to lead as long as yields remain low, EPS revisions negative, and PMIs mixed. We think Defensives will continue to outperform this year – a big problem for DAX.

MS (Garman and team) European Strategy
Earnings Season Summary.

Now, this is what matters really. Looking at pre-exceptionals earnings, 31% of companies have beaten estimates, while 36% of companies have missed expectations, meaning a net 5% of companies have missed expectations. However, excluding Financials, an even weaker result, with a net 9% of companies missing earningsestimates by at least 5%. After a couple of earnings seasons in Europe that have been broadly in-line, this marks a renewed period of disappointment. In aggregate, earnings have missed by 0.2% on a weighted basis, but looking at the median stock, we’ve seen a miss of 1.9%, which would be the worst quarter on this basis since 4Q 2008. Earnings are on track to fall 3% YoY, or 6% excluding Financials.

UPS&DOWNS

Aero & Defence – our key calls (JPM, Perry, CFA)
Top trade ideas: MTU Aero (OW) vs Safran (UW); Thales (OW) vs Safran (UW) & Finmeccanica (UW) We have made a number of ratings changes in recent weeks. We are now OW on EADS, MTU, Rolls-Royce and Thales. We are UW on BAE Systems, Finmeccanica and Safran.

BT Group plc (MS, Delfas) Cautious Into Numbers
We would be cautious into BT’s FY13 results on May 10. We downgraded to EW on April 4 due to near £200m pa of headwinds from recent Ofcom decisions and rising pension liabilities, in addition to ongoing “calls & lines” losses. BT Retail is the key source of upside, but is a longer-term project.

Europe: Utilities (GS, Wilkens) CL Buys: Adding E.ON and Shanks alongside GDF SUEZ and REE
We add EON and Shanks to the CL (Buy); reiterate our CL Buys on GDF Suez and REE. We highlight risk of greater fragmentation for power/climate policy in Europe. Our new base case reflects lower EU ETS carbon price, includes carbon tax in Germany 2014.

AB InBev Cut to Market Perform vs Outperform at Bernstein
ANGLO AMERICAN RAISED TO NEUTRAL VS REDUCE AT NOMURA
ARCELORMITTAL RAISED TO BUY VS HOLD AT ING
Balfour Beatty Lowers FY Profit Estimates on U.K. Construction
BANK ST PETERSBURG RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMOR.
BANK VOZROZHDENIE CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
BASF CUT TO NEUTRAL VS BUY AT BOFAML
BASF CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
BELLWAY RAISED TO BUY VS HOLD AT JEFFERIES
BELLWAY RAISED TO BUY VS NEUTRAL AT GOLDMAN
BERKELEY CUT TO NEUTRAL VS BUY AT GOLDMAN
Coca-Cola Hellenic Bottling Raised to Overweight at Barclays
COUNTRYWIDE RATED NEW BUY AT GOLDMAN, PT 578P
COUNTRYWIDE RATED NEW OUTPERFORM AT CREDIT SUISSE, PT 510P
DNB RAISED TO HOLD VS SELL AT NORDEA
ENRC RAISED TO NEUTRAL VS REDUCE AT NOMURA
ESURE GROUP RATED NEW HOLD AT BERENBERG; PT 313P
EXOR CUT TO ADD VS BUY AT BANCA IMI
FINMECCANICA CUT TO UNDERWEIGHT VS EQUALWEIGHT: MORGAN STANLEY
GAS NATURAL CUT TO SELL VS NEUTRAL AT UBS
Hong Kong Developers Cut by Morgan Stanley on Home Price Concern
ING RAISED TO NEUTRAL VS REDUCE AT ODDO
INTESA RAISED TO HOLD VS SELL AT SOCGEN
Intesa Upgraded to Hold at SocGen; UniCredit Cut to Sell
L’OREAL RAISED TO BUY VS HOLD AT SOCGEN
Lonza Cut to Underperform vs Outperform at Cheuvreux
MEDITERRANEAN OIL & GAS RATED NEW SECTOR PERFORM AT RBC, PT 13P
PERSIMMON RAISED TO CONVICTION BUY VS NEUTRAL AT GOLDMAN
REDROW RAISED TO BUY VS NEUTRAL AT GOLDMAN
REED ELSEVIER CUT TO NEUTRAL VS BUY AT CITI
ROTALA RAISED TO BUY VS ADD AT NUMIS
RWE Rated Underweight After Restriction Lifted at JPMorgan
RWE REINSTATED AT UNDERWEIGHT AT JPMORGAN; PT EU28
SAINSBURY CUT TO NEUTRAL VS BUY AT CITI
SEVERSTAL RAISED TO HOLD VS SELL AT SOCGEN
TAYLOR WIMPEY RAISED TO BUY VS NEUTRAL AT GOLDMAN
UBM RAISED TO BUY VS NEUTRAL AT UBS
UNICREDIT CUT TO SELL VS HOLD AT SOCGEN
VOPAK RAISED TO NEUTRAL VS SELL AT UBS

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 down -41.95 (-0.30%) at 13,884 (Friday)
Topix down -11.59 (-0.99%) at 1,161 (Friday)
Hang Seng up +20.44 (+0.09%) at 22,568

US markets
S&P 500 up +3.09 (+0.20%) at 1,582
DJIA up +11.75 (+0.08%) at 14,713
Nasdaq down -10.73 (-0.33%) at 3,279

European markets
Eurofirst 300 down -4.23 (-0.35%) at 1,196
FTSE100 down -16.17 (-0.25%) at 6,426
CAC 40 down -30.42 (-0.79%) at 3,810
Dax down -18.10 (-0.23%) at 7,815

Currencies
€/$ 1.30 (1.30)
$/¥ 97.51 (98.06)
£/$ 1.55 (1.55)

Commodities ($)
Brent Crude (ICE) down -0.48 at 102.68
Light Crude (Nymex) down -0.39 at 92.61
100 Oz Gold (Comex) up +15.70 at 1,469
Copper (Comex) down -0.85 at 317.60

10-year government bond yields (%)
US 1.67%
UK 1.69%
Germany 1.21%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.26bps at 96.69bp
Markit iTraxx Europe -0.19bps at 105.32bp
Markit iTraxx Xover -1.07bps at 427.04bp
Markit CDX IG -0.75bps at 78.25bp

Sources: FT, Bloomberg, Markit

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