LCM Dawn Patrol – 21.05.13 – GS is bullish, MS on EU Equity, JPM downgrades DBK



European shares were likely to retreat on Tuesday, with concerns that the U.S. Federal Reserve might begin slowing its bond purchases seen prompting investors to take some profits from the market’s rally to five year highs.
Focus will be on Fed Chairman Ben Bernanke’s testimony to Congress on Wednesday after comments by Fed officials following strong data fuelled speculation the central bank might start to roll back its stimulus measures, which have helped the stock market to hit multi-year highs.


The key data releases this week are the flash PMIs for May as well as national business surveys, notably the German IFO and French INSEE. Also, the second estimates of Q1 GDP, providing an expenditure breakdown, will be released for the UK and Germany.




The Spanish Treasury will issue 7.500mln bonds and bills between today (3.5bln bills) and Thursday (4bln bono’s).

Louis Vuitton is losing ground as the world’s most valuable luxury brand as competitors including Gucci and Prada gain, a new research report shows.

E.on is open to partnerships for individual projects but no large merger envisaged.



Congress accuses Apple of avoiding billions in tax: US congressional investigators on Monday accused Apple of avoiding paying billions in taxes around the world by exploiting loopholes and using Irish subsidiaries that are not tax residents of any country. The Senate permanent subcommittee on investigations released a 40-page report of a hearing on Tuesday, which said the company used technicalities in Irish and American tax law to pay virtually no corporate taxes on at least $74bn over the past four years. Apple denied entities were set up with the aim of avoiding taxes. Subcommittee staffers said Apple was not breaking any laws and had cooperated fully with the investigation.(Financial Times)(FT Alphaville)(Reuters)


Goldman Sachs is selling its remaining shares in Industrial & Commercial Bank of China for about $1.1bn. Goldman’s sixth sale of the stock since 2009 completes its exit from ICBC, in which it bought a 4.9% stake for $2.58bn in 2006. The latest move brings the total raised from sales to about $10bn. The exit comes ahead of new capital regulations that raise the cost of holding stakes in other financial companies. (Wall Street Journal)





JPM (Antonucci) Euroland Economics  Death of Austerity?
Extra time to reduce the budget deficits, less fiscal retrenchment and targeted stimulus programmes are all signs that austerity on top of austerity is no longer the name of the game. In this report, we ask what it all means for public finances, economic growth, macro policy and market sentiment.



GS ( Oppenheimer) GOAL: Asset Allocation Update
Macro outlook: Improving global growth

We expect global growth to improve from 3.0% in 2012 to 3.2% in 2013 and to accelerate further to 4.1% in 2014. US growth is currently stabilizing at a low level, but we expect reacceleration starting in 4Q13, when fiscal headwinds should moderate. In Europe and China we expect sequential growth improvements from here, though very muted in the case of Europe. Risks have continued to decline with the formation of a government in Italy and the impact of fiscal tightening in the US now appearing to be steady in 2Q and 3Q relative to 1Q, instead of ramping up.
Our views across asset classes
Equities: We remain overweight over both 3 and 12 months. Returns should be supported by a rebound in global growth, accelerating earnings growth, high risk premia and very easy financial conditions.
Commodities: We expect commodity prices to exhibit low volatility and be mostly range bound around equilibr ium mid-cycle prices as the pick-up in economic growth is met by a gradual supply-side response. We expect a 0.0 and 1.5% return over 3 and 12 months respectively and are neutral over both horizons.
Corporate credit: We expect already tight IG spreads to narrow slightly driven by financials as still sluggish growth, lower tail risks and QE feed the search for yield. While we expect increases in leverage as firms look to exploit low yields, we think these increases should be modest.
Government bonds: Bond yields are low on an absolute basis, and when benchmarked against macro fundamental s. We expect a gradual rise in yield to drive negative returns and remain underweight.





Global Investment Banks (JPM, Abouhossein) Basel ‘curve ball’ securitization proposal – capital at risk: Downgrade DB from OW to N
As we outlined in our report, “Global Investment Banks: Can universal banking model survive the new wave of uncoordinated IB regulations? OW Tier II IBs”, the market is already discounting Basel 3 and Dodd-Frank/MiFID II risk, but we are concerned about the undiscounted new regulatory proposed ‘curve balls’ by Basel as we discuss in this report as well as local regulators such as EU compensation proposals. We downgrade DB from OW to N due to i) our analysis of the impact of Basel securitization proposals in this note reducing potentially B3CET1 to 8.6% 2014E and ii) as it now implies only 1% upside to our Dec-13 Target Price of €38.


Safran (JPM, Perry, CFA) Imposing a stop-loss; upgrade to Neutral
Since we downgraded Safran to UW on March 11, 2013, its shares have rallied 14%, vs. an average of 10% for the four other European civil aerospace stocks we cover. It appears the majority of investors does not share our concerns about Safran’s accounting and/or believe this issue is outweighed by the positives of the Safran investment case. We upgrade to Neutral and increase our Dec-13 price target to €37.5 from €34.5. However, Safran still has the highest J.P.Morgan defined clean P/E and EV/EBITA multiples (Table 1) and is our least preferred civil aero stock.


Severstal (GS, Chekunaeva) Buy: Solid positioning leads to strong performance; attractive valuation
Severstal reported 1Q13 results showing sequential improvement and underpinning our investment thesis. Our 12-month price target of $16 is unchanged and implies upside potential of 87%. We reiterate our Buy rating.



Ashmore Group (ASHM.L): RBC cuts to sector perform from outperform
Commerzbank (CBKGk.DE): SocGen cuts price target to 6.7 euros from 10 euros; rating sell
Deutsche Bank AG (DBKGn.DE): JP Morgan cuts to neutral from overweight
Firstgroup Plc (FGP.L): Panmure cuts price target to 170p from 200p; rating hold
Henderson Group (HGGH.L): RBC raises price target to 180p from 160p; rating sector perform
Jupiter Fund Management (JUP.L): RBC raises to outperform from sector perform
Petropavlovsk Plc (POG.L): SocGen cuts to sell from buy
Shire Plc (SHP.L): S&P Capital IQ raises price target to 2300p from 2000p; rating hold
Unite Group (UTG.L): JP Morgan raises price target to 425p from 330p; rating overweight



Asian markets
Nikkei 225 down -2.72 (-0.02%) at 15,358
Topix down -0.06 (0.00%) at 1,269
Hang Seng down -117.49 (-0.50%) at 23,376

US markets
S&P 500 down -1.18 (-0.07%) at 1,666
DJIA down -19.12 (-0.12%) at 15,335
Nasdaq down -2.54 (-0.07%) at 3,496

European markets
Eurofirst 300 up +3.91 (+0.31%) at 1,252
FTSE100 up +32.57 (+0.48%) at 6,756
CAC 40 up +21.58 (+0.54%) at 4,023
Dax up +57.83 (+0.69%) at 8,456

€/$ 1.29 (1.29)
$/¥ 102.52 (102.26)
£/$ 1.53 (1.53)

Commodities ($)
Brent Crude (ICE) up +0.11 at 104.91
Light Crude (Nymex) up +0.04 at 96.75
100 Oz Gold (Comex) up +3.20 at 1,388
Copper (Comex) unchanged 0.00 at 335.70

10-year government bond yields (%)
US 1.96%
UK 1.93%
Germany 1.38%

CDS (closing levels)
Markit iTraxx SovX Western Europe -6.1bps at 82.64bp
Markit iTraxx Europe -1.03bps at 90.29bp
Markit iTraxx Xover -1.45bps at 380.23bp
Markit CDX IG +0.67bps at 71bp

Sources: FT, Bloomberg, Markit



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