LCM Dawn Patrol – 07.06.13 – NFPs, WEEK END, On the ECB, the BoJ, Junk bonds. MS likes EDF. Citi changes sector views.

European shares set to open higher today, with a late recovery on Wall Street, although trading is likely to be choppy ahead of U.S. jobs data. The Nikkei entered bear territory after the strong yen pushed it down more than 1.3% at some point, but now it up again…
Yesterday, US markets closed higher after another volatile session with a rally starting around 18:30 (CET). Long onlys didn’t really participate and most of the action occurred via futures and ETFs. Networkers, Telcos, Homebuilders and Banks outperformed, while Airlines, Semis, Media and Consumer Staples underperformed. After Juniper the day before, Ciena posted some strong numbers.

Today, we’ll watch the change in NFP at 14:30 (consensus: 165k, I run the bets). We’ll also throw a quick glance at the German trade balance, the Spanish and German IPs.

WEEK END

EXPOS: Mécanhumanimal. Musée des Arts et Métiers. http://enkibilal.arts-et-metiers.net
RESTOS: Parisian terraces are here: http://bit.ly/14DNRQC
RESTOS: Oyster Bar Dessirier, 9, place du Maréchal-Juin, 75017
VIDEOS: Suits. http://www.imdb.com/title/tt1632701/combined

NEWS

Germany to Cede Control of Water Tariffs, Handelsblatt Reports

China may tax European Luxury-Car imports (Echos)

Bullard said he won’t support taper until inflation rises, and “any tapering moves should be “small”

Abe Says Japan Economy Improving, Declines Comment on Markets

http://www.businessinsider.com/jobs-report-is-going-to-be-huge-2013-6

COMPANIES

MAN CEO says an offer from VW to purchase the rest of MAN below the current market value is fair given poor economic conditions in Europe
MW/VW/Daimler: China may tax European Luxury-Car imports (Echos)
QUIKSILVER posted another set of poor numbers with a 12c loss vs 4c profit expected.
Gemalto to Replace Aperam in AEX-Index on June 24, NYSE Says
Kabel Deutschland Takeover a Wild Card, Jefferies Says
Acciona to Sell 30% Stake in Energy Business, Expansion Reports
Banco Santander to Sell 20% of U.K. Unit in IPO, Expansion Says
INVENSYS REMOVED FROM UBS’S M&A WATCH LIST

CURRENT STUFF

On Payrolls
(GS) From a market perspective, Friday’s report looks even more important than usual given the increase in volatility since Chairman Bernanke’s Congressional testimony on May 22. However, payrolls are only one input into the decision whether to taper QE, and there are still three more reports to come before the September FOMC meeting. A strong report would not guarantee tapering in September, and a weak one would not preclude it. Our baseline forecast for the first reduction in purchases remains the December FOMC meeting.

Investors pull record amount from junk bond funds. US high yield bond funds saw a record $4.63bn in outflows from mutual funds and exchange traded funds in the week ending June 5, according to data just released from Lipper. Outflows from exchange-traded products that follow bonds also accelerated sharply in the past week, to the tune of more $4bn.

On the BoJ
Japan’s finance minister ruled out immediate intervention in the yen despite its 2.2 per cent jump against the dollar on Thursday and continued strength on Friday. “We are carefully watching, but we don’t have any immediate intention of taking any action, such as intervention,” Taro Aso said. (Bloomberg) The US dollar had at one point on Thursday dipped 3 per cent against the yen, a sell-off attributed to investors reversing views on how long the Fed will maintain QE3. (Financial Times)

On the ECB

Here are the main takeaways from president Mario Draghi’s press conference in Frankfurt:
The ECB’s growth forecasts for 2014 are slightly more optimistic — the bank has moved its growth expectation from 1 per cent to 1.1 per cent.
Draghi reiterated that the ECB stands "ready to act" on negative deposit rates (effectively charging lenders to park money overnight)
Today’s decision not to move its main refinancing rate was taken "in consensus" with members – but was not a unanimous decision.
Draghi maintained his view that the economy would gradually recover later this year driven by exports, lower inflation and accommodative monetary policy
Here’s how the market reacted:
The euro hit its strongest level in nearly a month, rising more than half a cent against the dollar to trade above $1.3150, hitting a high of $1.3171.
The FTSE Eurofirst 300 is down 0.7 per cent to 1,184.77. Across Europe benchmark indices were firmly in the red. Paris fell 0.8 per cent to 3,838.78, Milan dropped 1.9 per cent to 16,660.70 Frankfurt is trading down 0.5 per cent at 8,153.87 Spain slipped 0.5 per cent to 8,251.6
Ten-year gilt yields are up 3 basis points to 2.04 per cent. German Bund yields advancing 5bp to 1.56 per cent.

Apple will start offering trade-in for iPhones next month. Brightstar will run the exchange programme for Apple, which is trying to get more consumers to upgrade to iPhone 5s to combat the decline in its sales growth. (Bloomberg)

UPS&DOWNS

EDF (MS, Turpin) Risk Profile Improving: Increasing PT to EUR22 – OW
Recent newsflow around the Energy Debate is encouraging, on tariffs and nuclear life extension, increasing the probability of our bull case and lowering that of our bear case. The stock is still attractive on short-term multiples, with a sustainable DY of 6.3%. We move our PT to €22 and remain OW.

Belgacom (MS, Prota) Upgrade to Equal-weight: Stock Fairly Valued Now
We like Belgacom’s strategy, network and balance sheet. Our previous UW was based on valuation and earnings risks. A weak 2013 outlook has triggered a 25% relative underperformance; the stock now looks fairly valued with an attractive DY, and we expect a rational spectrum auction. We move to EW.

ABERDEEN ASSET CUT TO UNDERPERFORM VS NEUTRAL AT BOFAML
AHOLD RATED SELL AT GOLDMAN, WAS NOT RATED
ALSTRIA CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
BELGACOM RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT MORGAN STAN…
BMW, VW, Renault Are Top EU Auto Picks, Kepler Cheuvreux Says
BT GROUP RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
CTXS, ORCL, VMW Cut to Sell at Berenberg on L-T Growth Concerns
DELHAIZE CUT TO SELL VS NEUTRAL AT GOLDMAN
DEUTSCHE TELEKOM RAISED TO BUY VS HOLD AT JEFFERIES
ELEKTA CUT TO UNDERPERFORM VS NEUTRAL AT BOFAML
EU CHEMICALS CUT TO UNDERWEIGHT BY CITI STRATEGISTS
EU FINANCIAL SERVICES RAISED TO OVERWEIGHT BY CITI STRATEGISTS
EU MEDIA CUT TO NEUTRAL BY CITI STRATEGISTS
EUROPEAN TRAVEL RAISED TO OVERWEIGHT BY CITI STRATEGISTS
FONCIERE DES REGIONS CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
GAGFAH RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
GEM DIAMONDS RAISED TO BUY VS NEUTRAL AT GOLDMAN
GLAXOSMITHKLINE RAISED TO HOLD VS UNDERWEIGHT AT LIBERUM
HELICAL BAR CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
HOCHTIEF CUT TO HOLD FROM BUY AT BERENBERG
IPSEN RAISED TO BUY VS NEUTRAL AT GOLDMAN
KPN RAISED TO OUTPERFORM VS MARKET PERFORM AT BERNSTEIN
LAND SECURITIES RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
LUNDBECK RAISED TO NEUTRAL VS SELL AT GOLDMAN
MILLENNIUM & COPTHORNE CUT TO NEUTRAL VS BUY AT GOLDMAN
PATRIZIA IMMOBILIEN CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
PETRA DIAMONDS RAISED TO BUY VS NEUTRAL AT GOLDMAN
RECORDATI CUT TO NEUTRAL VS BUY AT GOLDMAN
ROCHE RAISED TO BUY VS HOLD AT LIBERUM
SCOR RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
SHAFTESBURY CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
SONGBIRD RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
UBISOFT RAISED TO ACCUMULATE AT NATIONAL ALLIANCE
VALE RAISED TO OUTPERFORM VS UNDERPERFORM AT BERNSTEIN
VINCI RAISED TO BUY VS NEUTRAL AT BOFAML
WOLFSON MICRO CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN

OVERNIGHT MARKETS: DOWN

Asian markets
Nikkei 225 down -256.42 (-1.99%) at 12,647
Topix down -22.23 (-2.08%) at 1,048
Hang Seng down -288.74 (-1.32%) at 21,549

US markets
S&P 500 up +13.66 (+0.85%) at 1,622
DJIA up +80.03 (+0.53%) at 15,040
Nasdaq up +22.57 (+0.66%) at 3,424

European markets
Eurofirst 300 down -14.18 (-1.19%) at 1,178
FTSE100 down -83.20 (-1.30%) at 6,336
CAC 40 down -38.16 (-0.99%) at 3,814
Dax down -97.37 (-1.19%) at 8,098

Currencies
€/$ 1.32 (1.30)
$/¥ 96.38 (99.16)
£/$ 1.559 (1.53)

Commodities ($)
Brent Crude (ICE) up 0.16 at 103.77
Light Crude (Nymex) up 0.08 at 94.84
100 Oz Gold (Comex) down 3.10 at 1,412
Copper (Comex) unchanged at 3.31

10-year government bond yields (%)
US 2.07%
UK 2.02%
Germany 1.52%

CDS (closing levels)
Markit iTraxx SovX Western Europe at 84.67bp
Markit iTraxx Europe +4.8bps at 112.4bp
Markit iTraxx Xover +24.6ps at 468.6bp
Markit CDX IG -1.8bps at 83.6bp

Sources: FT, Bloomberg, Markit

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