LCM Dawn Patrol – 06.06.13 – Great JPM paper on banks, GS on Chinese capital A/C reforms, and more!

Bonjour

Europe will open lower following the US markets biggest drop in a month and poor Asia ex Japan (who rebounded) performance. Markets seems to be driven more by economic data (see GS note below and we may see a change in investment psychology. While every dip was previously bought, it seems that the ‘buy into these dips’ last longer. Volume remains on the up side though. The big news out of Washington continued to revolve around housing.
Defensives outperformed, banks suffered Software was up and Juniper drove networkers higher.

Today, we’ll enjoy the sun while it lasts and then we’ll keep our eyes on the ECB rate decision and more importantly Draghi’s comments. We’ll also look at the German manufacturing orders, US Jobless claims; Spain, Italy and France to issue bonds.

The 50 Sexiest Cars Of The Past 100 Years
Read more: http://www.businessinsider.com#ixzz2VPjmZKx3

News

Poland: The Polish MPC cut policy rates again by 25bps, to another record low (base rate at 2.75%), motivated by low current and expected inflation and very subdued growth. Still, the MPC announced that the end of the easing cycle was in sight.
India’s rupee is close to its weakest level ever against the US dollar.

Australian dollar reaches 0.9452.

Companies

BARCLAYS: placing by Nomura of 84.5m shares, 50% of SMBC’s holding(Sumitomo Mitsui Banking Corp)…. range 308.5 – market

SAP: from what I read, the Hybris deal is taken positively.

Software AG’s Growth, Financials Are Concern, Berenberg Says

Telecom Italia Investor Fossati Says No Plan to Sell Stake: Sole

VW. MAN  shareholders to vote on VW’s profit transfer and domination agreement at shareholders meeting starting at 10am (BBG)

Lufthansa : raises its estimate for potential earnings from its efficiency program by EU300m

Deutsche Telekom: T-Mobile to invest 1B Zloty in Poland in 2013 (Rzeczpospolita)

CURRENT STUFF

On the Fed. The beige book described economic activity expanding at a “modest to moderate pace,” a slight downgrade from the last report. The description of manufacturing activity was surprisingly positive, given recent data disappointments, while construction activity continued to be a bright spot.

The ESM will likely have a €50bn-€70bn limit on direct investments in banks. The condition on the bailout fund’s draft direct recapitalisation tool was outlined in a policy paper following six months of talks on breaking the “vicious circle” between sovereigns and banks. The limit to recapitalisation funds reflects the higher provisions on this kind of investment compared to the ESM’s more normal practice of lending to governments. (Reuters)

France is threatening to upstage talks on the EU-US trade pact. Paris is said to have made “l’exception culturelle” — protection of subsidies for local film, music and television — a “red line” in advance of the talks’ scheduled launch at this month’s G8 summit. (Financial Times) The French government has also led the charge over a budding EU trade war over tariffs on Chinese solar-power exports. Beijing retaliated with an investigation into imports of French wine. (Wall Street Journal)

The IMF conceded major mistakes over its handling of the Greek bailout. Failures to restructure Greece’s debt earlier and to forecast the extent of its economic collapse have dogged the programme since its beginning, the fund said in a paper published late on Wednesday. (Wall Street Journal)

STRATEGY

GS (Cui) Emerging Markets Macro Daily
China: Capital account reforms—charting a roadmap
Bottom line
: China has pledged to accelerate capital account liberalization. This is likely to be pursued alongside interest rate and exchange rate reforms. Capital controls have been effective in maintaining a wedge between the onshore and offshore interest rate. A normalization of global rates will provide a catalyst for faster reforms in our view. In the near term, allowing greater FX volatility (including band widening), expanding outflow channels to offset inflow pressures, and further developing the offshore CNY markets are likely to be priorities.

GS (Wu) US Daily: “Market Movers” – Economic Data Back in the Spotlight
In our semiannual review of the largest single-day moves in the equity, fixed income, and foreign exchange markets, our analysis shows that US and European policy news are no longer the dominant drivers as economic releases have started to gain more attention across markets.
The equity market responded mainly to policy news before shifting towards economic releases. The fixed income market similarly became more focused on data releases given increasing discussions on Fed tapering QE purchases. The dollar exhibited positive correlations with risk sentiment, in contrast with the negative relationship seen during 2012.
As markets continue to scrutinize economic conditions and Fed communications for signs of policy shift, we expect any related news to become key movers in late 2013.

UPS&DOWNS

European Banks (JPM,  Abouhossein) Fed tapering: Who is afraid of EM sell-off? We are! Running Eurobank exposure at risk
We analyse the impact on European Banks, Global IBs and Turkish Banks from the 3rd worst bond sell-off since Lehman collapse and the most volatile EM period with contagion across all product classes. We assess four factors: i) FICC trading and issuance revenue loss in EM, ii) potential contagion risk exposure into securitization, iii) traditional credit exposure risk of Eurobanks in EM, iv) local to local bank risk with focus on Turkey. We conclude, Fed communication about tapering is a concern leading us to i) put “new money” only in UBS within our Global IB coverage at the moment, ii) watchlist RBS and CSG due to EM/ABS IB revenues gearing, and iii) wait-and-see strategy on Spanish banks with material LatAm exposure BBVA/ SAN & also Turkish Banks.

Publicis & WPP (JPM,  Lo Franco) It’s a new world: IT budgets offer $3 trillion addressable market.
We add PUB and WPP to our Analyst Focus List

RSA (MS, Rivaldi) Double Upgrade to OW
We see opportunity in RSA’s lagging stock performance post the FY12 dividend cut, raising our rating to Overweight and increasing our PT 10%.

FIAT (MS, Pearson) Time to Focus on Capital Structure; UW
Fiat has re-rated in anticipation of an accretive Chrysler deal. However, we believe the stock could now de-rate as concern shifts to an unattractive capital structure. While raising €2-4bn in capital would be desirable in our view, the risk of a) inaction or b) material dilution keeps us UW.

BANK ST. PETERSBURG RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
BHP BILLITON RAISED TO BUY AT BOFA MERRILL
ELEKTA CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
ENKA INSAAT RAISED TO BUY VS NEUTRAL AT CITI
ING GROEP RATED NEW BUY AT JEFFERIES, PT EU10
MAERSK RATED NEW UNDERPERFORM AT JEFFERIES, PT DK 30,000
NYRSTAR CUT TO SECTOR PERFORM VS OUTPERFORM AT RBC
ORACLE CUT TO SELL FROM BUY AT BERENBERG
PEGASUS RATED NEW OVERWEIGHT AT BARCLAYS, PT 27.20 LIRA
PHILIPS RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
RSA RAISED TO OVERWEIGHT VS UNDERWEIGHT AT MORGAN STANLEY
SANTANDER CUT TO HOLD VS BUY AT BANKHAUS LAMPE
SIBANYE RAISED TO NEUTRAL VS SELL AT GOLDMAN
SOFTWARE AG CUT TO SELL FROM HOLD AT BERENBERG
THROMBOGENICS RATED BUY IN NEW COVERAGE AT ING; 12M PT EU73
VMWARE CUT TO SELL FROM HOLD AT BERENBERG

OVERNIGHT MARKETS: DOWN

Asian markets
Nikkei 225 down -8.40 (-0.06%) at 13,006
Topix down -18.64 (-1.71%) at 1,071
Hang Seng down -252.25 (-1.14%) at 21,186

US markets
S&P 500 down -22.48 (-1.38%) at 1,608
DJIA down -216.95 (-1.43%) at 14,960
Nasdaq down -43.78 (-1.27%) at 3,401

European markets
Eurofirst 300 down -18.57 (-1.53%) at 1,192
FTSE100 down -139.27 (-2.12%) at 6,419
CAC 40 down -73.39 (-1.87%) at 3,852
Dax down -99.78 (-1.20%) at 8,196

Currencies
€/$ 1.30 (1.30)
$/¥ 99.16 (100.19)
£/$ 1.53 (1.53)

Commodities ($)
Brent Crude (ICE) down 0.06 at 102.98
Light Crude (Nymex) up 0.11 at 93.85
100 Oz Gold (Comex) up 0.60 at 1,399
Copper (Comex) down 0.01 at 3.36

10-year government bond yields (%)
US 2.09%
UK 2.01%
Germany 1.51%

CDS (closing levels)
Markit iTraxx SovX Western Europe at 84.67bp
Markit iTraxx Europe +3.3bps at 107.5bp
Markit iTraxx Xover +19ps at 443.4bp
Markit CDX IG +4.1bps at 85.5bp

Sources: FT, Bloomberg, Markit

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