LCM Dawn Patrol – 29.05.13 – MS global expousre and equity strat summaries. Watch the US10y. GS: Buy Inditex, Sell H&M

Bonjour,

European shares are likely to open lower on Wednesday, with strong U.S. economic data reigniting concerns that the Federal Reserve could scale back its accommodative monetary policy. U.S. figures showed on Tuesday consumer confidence was the strongest in May in over five years, while home prices accelerated in March by the most in nearly seven years.
Today, we may see the European commission giving up on austerity measure and sign off on a waiver on the 3% budget deficit target for France, Spain and the Netherlands (Financial Times).
On the economic data we’ll monitor the Eurozone M1 and M3 data for April and CPI in Germany.

Also note the US10 year momentum… The selling pressure is on and the yield is 22bps above last week’s.

NEWS

Peugeot to Seek EU100M/Year Savings in Talks With Unions: Echos

Swiss Banks to Disclose Staff Data to U.S. in First Step: T-A

Generali Considering Sale of Banca Generali Unit, Sole Says (and then it’s denied…)

BG Sees 2, 3 Yrs of Exploration to Justify Expanding LNG Project

Dassault Systemes to Buy Apriso of California for About $205M

CURRENT STUFF

EU to ease hard line on austerity for key countries: “In its annual verdict on national budgets of all 27 EU members France, Spain and the Netherlands will be given a waiver on the annual 3 per cent deficit limit. Brussels will also free Italy from intensive fiscal monitoring despite its new prime minister’s decision to reverse a series of tax increases imposed by his predecessor.” (Financial Times)

Germany’s biggest seven banks are still €14bn short of meeting Basel III capital requirements short of the capital needed to meet incoming Basel III banking rules at the end of last year, according to new estimates by German regulator BaFin. The banks, which include Deutsche Bank and Commerzbank, cut their collective capital shortfall from €32bn in the second half of 2012, although none raised equity and BaFin calculates most capital improvements came from spinning off assets and recalculating risk weightings. (Financial Times)

STRATEGY

MS (Patel) European Strategy: Global Exposure Guide 2013.

This is a very interesting proprietary database of global revenue exposure by style, region, countries and with tables of companies benefitting from a weaker Euro. If you’re a MS client on Bloomberg you can access the MS baskets with specific exposure as well like European companies with top China exposure. Alternatively you could ask your favorite broker…

MS (Secker & Carr & Co) European Strategy.
MS doesn’t expect a significant correction in the market but returns could be more and more volatile in H2. They don’t advise to sell, they recommend to switch you sector allocation. Their proprietary MTI (timing and valuation indicator) remains in buy territory, but they are now looking more for EPS growth than PE expansion, they want value over growth and cyclicals over defensives. You can also refer to the utilities/energy rich list of the 9 undervalued stock they recommended last week.

UPS&DOWNS

Euler Hermes (GS, Malhotra): Taking profits after outperformance, downgrade to Neutral
We downgrade Euler Hermes to Neutral (Buy) after outperformance since its 3Q12 results. The stock has rerated stronger than sector and we remain 10% above consensus for FY2014 with a 2pp better loss ratio 2014/2013. New 12M PT €74 (€72.8) .

Technicolor (GS, Schafer): Rally leaves a more balanced risk-reward: Downgrade to Neutral
We continue to expect sound balance sheet deleveraging and a healthy IP portfolio that generates stable cash flows. However, we downgrade TCH to Neutral from Buy given a more balanced risk-reward profile.

Europe: Retail: Specialty Apparel & Accessories (GS, Walding) Implications of online channel shift; Buy Inditex, Sell H&M
We reiterate our CL-Buy on Inditex and downgrade H&M to Sell. The migration towards online clothing will have profoundly different implications for the two companies in our view; H&M will suffer from profitability pressures, in contrast to Inditex.

Bodycote Plc (JPM, J Wilson) Downgrade to Underweight.
Outperformance to reverse on lack of volume growth.

ANADOLU EFES CUT TO SELL VS NEUTRAL AT GOLDMAN
BODYCOTE CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
CELESIO RAISED TO BUY VS HOLD AT JEFFERIES
COCA COLA ICECEK CUT TO NEUTRAL VS BUY AT GOLDMAN
EULER HERMES CUT TO NEUTRAL VS BUY AT GOLDMAN
H&M CUT TO SELL VS NEUTRAL AT GOLDMAN
ILLOVO SUGAR CUT TO SELL VS NEUTRAL AT UBS
LSE RAISED TO HOLD VS REDUCE AT NUMIS
MITCHELLS & BUTLERS CUT TO ADD VS BUY AT NUMIS
PEUGEOT RAISED TO NEUTRAL VS UNDERWEIGHT AT HSBC
PFEIFFER VACUUM CUT TO HOLD FROM BUY AT KEPLER CHEUVREUX
PFEIFFER VACUUM RAISED TO NEUTRAL VS UNDERWEIGHT AT HSBC
PORTUGAL TELECOM CUT TO HOLD VS BUY AT BERENBERG
SASOL CUT TO HOLD VS BUY AT DEUTSCHE BANK
Sectra Raised to Buy from Sell at Nordea
SMITHS GROUP CUT TO HOLD VS BUY AT DEUTSCHE BANK
SPIRAX-SARCO RATED NEW OVERWEIGHT AT JPMORGAN, PT 3,250P
TECHNICOLOR CUT TO NEUTRAL VS BUY AT GOLDMAN
TELE2 UPPED TO OUTPERFORM VS UNDERPERFORM AT CREDIT SUISSE
TUI AG RAISED TO BUY AT BANKHAUS LAMPE

ECONOMIC DATA

Time Event Survey Actual Prior
01:50 JN Bank of Canada Rate May-29 1.00% 1.00%
01:50 JN Business Confidence May 88.1 87.6
01:50 JN MBA Mortgage Applications May-24 -9.80%
09:00 GE Euro-Zone M3 s.a. (YoY) Apr 2.90% 2.60%
09:00 GE Unemployment Change (000’s) May 5K 4K
09:55 GE Consumer Price Index (MoM) May P 0.20% -0.50%
09:55 GE Unemployment Rate (s.a) May 6.90% 6.90%
10:00 GE Consumer Price Index (YoY) May P 1.30% 1.20%
10:00 GE CPI – EU Harmonised (YoY) May P 1.40% 1.10%
10:00 GE Euro-Zone M3 s.a. 3 mth ave. Apr 2.90% 3.00%
10:00 GE CPI – EU Harmonised (MoM) May P 0.20% -0.50%
GE Economic Sentiment May 74.6
GE EC OECD May Economic Outlook
GE Average Weekly Earnings YoY Mar 3.10%
GE EU Climate Commissioner Speaks in EU Parliament’s Committee

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 up +131.68 (+0.92%) at 14,444
Topix up +20.62 (+1.77%) at 1,189
Hang Seng down -156.90 (-0.68%) at 22,767

US markets
S&P 500 up +10.46 (+0.63%) at 1,660
DJIA up +106.29 (+0.69%) at 15,409
Nasdaq up +29.75 (+0.86%) at 3,489

European markets
Eurofirst 300 up +16.09 (+1.31%) at 1,246
FTSE100 up +107.67 (+1.62%) at 6,762
CAC 40 up +55.40 (+1.39%) at 4,051
Dax up +97.57 (+1.16%) at 8,481

Currencies
€/$ 1.29 (1.29)
$/¥ 102.22 (102.36)
£/$ 1.50 (1.50)

Commodities ($)
Brent Crude (ICE) down -0.14 at 104.09
Light Crude (Nymex) down -0.24 at 94.77
100 Oz Gold (Comex) unchanged 0.00 at 1,379
Copper (Comex) unchanged 0.00 at 3.31

10-year government bond yields (%)
US 2.16%
UK 1.95%
Germany 1.50%

CDS (closing levels)
Markit iTraxx SovX Western Europe -1.57bps at 81.42bp
Markit iTraxx Europe -4.04bps at 94.19bp
Markit iTraxx Xover -16.56bps at 384.88bp
Markit CDX IG -0.02bps at 75.71bp

Sources: FT, Bloomberg, Markit

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