LCM Dawn Patrol – 05.06.13 – lots… GS u/weight US defensives, the Hindenburg Omen, Banking Union, Australia growth weak, what’s a MAMIL?

Bonjour,

Europe should open lower as the Nikkei continues to drop. The Nikkei turned negative after Shinzo Abe’s latest reform announcement. Australian shares dropped 1.4 per cent, hitting a four-month low on weak growth. US markets were quite volatile, it’s still the same story: when will tapering start? Kansas City Fed President Esther George said on Tuesday she supported slowing the pace of bond purchases as an appropriate next step for monetary policy. Also there were comments on weaker growth from Christine Lagarde and an article in the (see below) on the ECB and the Banking Union.

Today, we’ll watch the European PMIs (9:45 to 10:30) and the zone’s GDP (11:00), then in the US we’ll look at MBA Mortgage applications (13:00), the ADP Employment change (14:15) and the ISM non-manufacturing and then I’ll go to the gym.

I’m a MAMIL

MARKETS

It’s always the same story. There is no real support in terms of economic data, investors wonder when the Fed will start slowing QE and in the meantime every single Fed member’s thoughts are deciphered, every economic data is speculated upon: if it’s not great, then it’s good as the Fed will continue and so on. But the truth is that for now Equities continue to be supported only because there is no alternative… And no, poor economic data is not good for stocks. This week, there is only one data that will matter: Jobs.

NEWS

Global Growth. The IMF’s Lagarde says global economic growth may be entering a “soft patch” and said there are “some glimpses of more sombre trends,” Lagarde said in a speech at the Brookings Institution in Washington.

Portugal won’t need a new aid plan and wants to be eligible for the ECB’s bond-buying program, its Secretary of State for Finance said

Dollar Set to Rise 10% as Deutsche Bank Cites Yield: Currencies

COMPANIES

Tesco 1Q UK Comp Sales Ex-fuel Ex-vat Down 1%; Est. 0.7% Fall (worse)

BP’s oil spill deal sours as claims add billions to cost

France Telecom seeks cable cross-selling deals in Europe push

Intel ended up nearly 4% thanks to a bunch of pos. comments (Barron’s and the FBR upgrade) along w/optimism ahead of ITS Haswell chip unveiling.

Voestalpine FY Revenue Misses Estimates; Profit, Div Plan Beat

Kabel Deutschland Deal Would Make Sense For Vodafone: BofAML

Elekta FY Results In Line, Sees Potential for Continued Growth
Natixis Starts Talks Over Jobs With Unions, Les Echos Says

CURRENT STUFF

ECB Faces Resistance on Banking Union. The European Central Bank is likely to hold back from measures to revive growth in the euro-zone amid mounting concern that governments are backtracking on pledges to build a common safety net for their banks. (Wall Street Journal).
Also: Brussels bank resolution blueprint sets up clash with Germany (Financial Times)

Apple could face a US import ban on certain iPhone and iPad models after a trade panel said they infringed Samsung patents. AT&T variants of the iPhone 4, 3GS and 3G, as well as the original iPad and iPad 2 could be affected by the ruling of the International Trade Commission, which said its decision was final. Apple may still appeal what would otherwise be a significant victory for Samsung in its legal disputes with the company. (Financial Times, Reuters)

Abenomics latest: a 3 per cent annual growth target for incomes. Prime Minister Shinzo Abe unveiled the plans for gross national income per capita in a speech overnight, fleshing out the so-called “third arrow” of his strategy for Japan’s economic revival. Incomes would rise by ¥1.5m in ten years under the targe.t (Reuters) Supply-side reforms are also on the agenda, but Abe faces scepticism that they amount to anything more than tinkering. (Financial Times)

Australian growth disappointed in the first quarter. The 0.6 per cent quarterly expansion, below expectations of 0.7 per cent, fed speculation that the Reserve Bank of Australia will cut rates again in August. The economy grew 2.5 per cent compared to a year earlier. (Bloomberg)

The Hindernburg Omen is here…
Read the story on ZeroHedge: http://www.zerohedge.com/news/2013-06-04/hindenburg-cluster-2nd-omen-3-days

STRATEGY

GS (Kostin) US Monthly Chartbook
Further upside to S&P 500 in 2013; we recommend underweight defensive positioning

S&P 500 continued its rally early in May, but came under pressure at month-end with Telecom Services and Utilities returning -7% and -9%, respectively, but Financials up 6%. We forecast the S&P 500 will end 2013 at 1750 (+7.3%), implying a 15.0x P/E, a 1 point premium to fair value. Large-cap core managers have performed in line with the market year-to-date. Although funds are currently overweight cyclicals in Financials and Industrials, we see opportunity to drive outperformance in 2H by reversing current overweight exposure in Health Care and Consumer Staples, where we recommend underweight positioning.

GS (Terry) Global: Technology: Internet: Global Ecommerce to Accelerate
Ecommerce growth is accelerating globally, driven by shrinking store-based retail footprints, favorable demographics, mobile commerce, and faster growing emerging markets. Opportunities in Amazon, eBay, ASOS, Kinnevek, YOOX Across our global coverage we believe the best opportunities in ecommerce are in Amazon, eBay, ASOS, Kinnevik, Naspers, VIPshop, Yahoo (exposure to Alibaba group), Yandex, and YOOX

UPS&DOWNS

Rallye (JPM, Olcese) Downgrade to UW
We downgrade Rallye to UW on the expectation that Casino’s share price falls to our new target of €75.00 and that Rallye’s discount to NAV narrows from 29% currently to 26%.

Burberry (GS, Hutchings) Buy: Burberry Beauty: Building a big brand; reiterate CL-Buy
We reiterate our CL-Buy post the FY13 results. We believe Burberry will be able to drive continued multi-faceted growth through distribution expansion, category extension, price stretch and supply chain investments. Our 12m PT implies 47% upside.

ARM (BofA) Weakness a Buying Opportunity
See recent weakness in Arm as a particular buying opportunity, BofAML says after presentation at BofAML Tech Conference by Arm’s incoming CEO Simon Segars.

• Arm’s ecosystem is likely to prevail long term: BofAML

• Reiterates buy, PT 1,372p

3I RAISED TO BUY VS HOLD AT SOCGEN

AHOLD CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN

ARCELORMITTAL SOUTH AFRICA RAISED TO BUY VS NEUTRAL AT BOFAML

ASOS CUT TO HOLD VS BUY AT SOCGEN

Club Med Cut to Neutral vs Buy at Goldman, Terminates Coverage

DS SMITH CUT TO NEUTRAL VS BUY AT GOLDMAN

ECONOCOM PT RAISED TO EU7.50 FROM EU6.30 AT ING

ENDESA CUT TO HOLD FROM BUY AT BERENBERG

Indosat Upgraded to Buy From Neutral by Citigroup, Shares Gain

KOPEX RAISED TO BUY VS HOLD AT ING

RALLYE CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN

WOLTERS KLUWER CUT TO HOLD VS BUY AT ING

ZURICH INSURANCE CUT TO NEUTRAL VS BUY AT NOMURA

OVERNIGHT MARKETS: DOWN

Asian markets
Nikkei 225 down -54.79 (-0.40%) at 13,478
Topix down -13.25 (-1.18%) at 1,112
Hang Seng down -176.20 (-0.79%) at 22,109

US markets
S&P 500 down -9.04 (-0.55%) at 1,631
DJIA down -76.49 (-0.50%) at 15,177
Nasdaq down -20.11 (-0.58%) at 3,445

European markets
Eurofirst 300 up +3.69 (+0.31%) at 1,211
FTSE100 up +33.46 (+0.51%) at 6,558
CAC 40 up +5.16 (+0.13%) at 3,925
Dax up +10.16 (+0.12%) at 8,295

Currencies
€/$ 1.30 (1.30)
$/¥ 100.19 (99.61)
£/$ 1.53 (1.53)

Commodities ($)
Brent Crude (ICE) up 0.12 at 103.36
Light Crude (Nymex) up 0.42 at 93.73
100 Oz Gold (Comex) up 8.70 at 1,405
Copper (Comex) unchanged at 3.37

10-year government bond yields (%)
US 2.15%
UK 2.06%
Germany 1.54%

CDS (closing levels)
Markit iTraxx SovX Western Europe at 86.71bp
Markit iTraxx Europe -2.8bps at 103.9bp
Markit iTraxx Xover -12.5ps at 424.1bp
Markit CDX IG +3.1bps at 81.5bp

Sources: FT, Bloomberg, Markit

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