LCM Dawn Patrol – 12.06.13 – Some interesting stuff… MS note on oversupply in Chinese steel, MS upgrades Peugeot. Inditex numbers slightly below. JPM on Cap Goods (mining)

Bonjour!

European stocks expected to drop again today following the US markets yesterday. Fears of fed tapering, the Yen rally and the German hearings on the OMT were the main themes or explanations for the weaker markets. Emerging markets took another beating and the Nikkei is (now) down 0.42%. Treasuries recovered somewhat. The Indian Rupee is somewhat recovering as well.

Today, we’ll see that French non-farm payrolls are down 0.1% (as expected), that the German CPI will be in line at 0.4%, then we’ll await for the Euro Area IP at 11:00.

Last night I saw a documentary on French tax avoidance schemes. I don’t have the answer to the problems countries are now facing, and trying to pay the lowest tax possible in a legal way is part of the game and a consequence of globalisation. I’d rather see governments (at least ours) try to help the companies hire people (and then tax them) by lowering social charges and corporate taxes rather than increase taxes on a daily basis. Anyway…

Blackstone’s Byron Wien Discusses Lessons Learned in His First 80 Years
Bald men are always the wisest… (I’m not bald, I shave my head).http://bit.ly/12l3y32

NEWS

Airbus says A350 wide-body jet to make first flight on June 14
CGG awarded first proprietary BroadSeis 3D survey in Colombia, extending Latin American coverage
Elan Drops Lawsuit Against Royalty Pharma
Fonciere des Regions to Spend Close to EU1B in Stock on FDL
French air traffic control strike to end a day early on June 13 (Yaaaawn)
Greece first developed market cut to emerging as UAE raised in the MSCI indices
Inditex 1Q Net EU438m; Analyst Estimate EU440m
Japan Machine Orders for April printed at -8.8% Mom vs. a -8.1% estimate and -1.1% YoY versus a -4.3% estimate.
Long River’s offer for Severn Trent has gone up the Swanee, at least for six months. http://bit.ly/12EQFSZ
Newcrest insists didn’t brief analysts ahead of huge write-down
News Corp new structure: http://bit.ly/19oIonJ, may lead to another bid on BSkyB
SFR Says Profitability Won’t Improve This Year Or in 2014
Springer shares said to be offered at EU32.18 to market
Technicolor plans refinancing to improve financial structure
U.K.’s Royal Mail said to set terms for 1.4b-pound loan
Volkswagen resolves to issue new mandatory conv notes

CURRENT STUFF

Strauss-Kahn May See Charges Dropped .French prosecutors recommended dropping charges of aggravated pimping against former International Monetary Fund chief Dominique Strauss-Kahn as part of an investigation into an alleged prostitution ring

Dimon pledges to fight Whale suits: “Jamie Dimon hit back against allegations that JPMorgan Chase executives misled investors over the bank’s “London whale” trading losses, pledging to fight “to the end” against any lawsuits filed in the affair. “There was no hiding, there was no lying, there was no bullshitting. Period,” the JPMorgan chief executive said at an industry conference on Tuesday. ” (Financial Times)

Investors vent fury at Facebook meeting: “Facebook faced a barrage of complaints from shareholders over the company’s depressed stock price at its first annual general meeting on Tuesday, prompting chief executive Mark Zuckerberg to express his own disappointment. The social network’s share price remains about 40 per cent below its issue price of $38 more than a year ago. Some investors who bought shares on the private secondary market before the flotation paid more than $40.” (Financial Times)

Apple bonds lose 9% in six weeks: “Investors are nursing losses of up to 9 per cent on Apple’s record-breaking $17bn bond offering, less than six weeks after the securities landed in their portfolios. The technology giant tapped the white-hot bond market for the largest debt fundraising to date on April 30, but a sharp turn in interest rates has caused a sell-off in corporate bonds and wiped hundreds of millions of dollars off the value of the offering.”below its sale price (FT).

Metals and Mining note by MS. Steeling for Oversupply – Revisiting China by Alexander A Haissl. Risk from China is still skewed to the downside, as overcapacity looks more severe than the market expects. Moreover, capacity exit and consolidation remain difficult due to high fragmentation and limited prospects for central government intervention. The Chinese industry therefore could face extended losses for a substantial period, in our view. Our field trip to China provides an opportunity to revisit our cautious view. Overall, our trip confirmed that growth appears to be structurally slowing due to China’s economic transition. More importantly, overcapacity could be even higher than we thought, as a great deal of it is not officially registered. Consolidation and shutdowns are likely to be driven by market dynamics rather than government intervention, but this means it needs to get worse from here before smaller players will be pushed out and the market rationalised to some extent.

UPS&DOWNS

European Capital Goods (JPM, Whight) Mining Capex: pricing the next leg down in a world of cost and capital conscious miners
We reduce our 2014E estimates 3-12% across our mining capex coverage. We believe 2013/14 mining capex volume declines (25% JPMe) are now consensual but expect pricing pressure and a less resilient aftermarket business to form the catalyst for further earnings downgrades and compression of trading multiples. Our new 2014E EBIT estimates are 5%-18% below consensus. Metso appears most vulnerable to pricing pressure, driven by its exposure to the competitive crushing segment. Weir (OW) is top pick; we prefer Atlas Copco over Sandvik (both Neutral) and see the most risk to consensus estimates at Outotec (UW).

Voestalpine (GS, Benson): Removing from Conviction List following outperformance; still Buy
We remove Voestalpine from the Conviction List but maintain our Buy rating following share price outperformance, as the risk reward vs. our sector has become less compelling. We maintain our 12-month price target of €31.

European Autos (MS, Lebke) W. EU Trough, Not Trick! Upgrading PSA to EW
After encouraging May car sales, the glass in West EU feels more half full than half empty, with 3M trailing SAAR on an upward trajectory in 3 of the 5 major markets. It is too early to call a recovery, but we make modest increases to EU forecasts and upgrade PSA to EW on more balanced risk-reward.

ASPEN PHARMACARE RAISED TO BUY VS NEUTRAL AT BOFAML
BIDVEST CUT TO UNDERWEIGHT VS NEUTRAL AT HSBC
BUZZI UNICEM RAISED TO EQUALWEIGHT AT MORGAN STANLEY
ELECTROCOMPONENTS CUT TO SECTOR PERFORM VS OUTPERFORM AT RBC
FIAT CUT TO NEUTRAL VS BUY AT UBS
HEIDELBERG CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN STANLEY
Lloyds Banking Group Raised to Equalweight at Barclays
MERCER INTL. CUT TO ’SECTOR UNDERPERFORM’ AT CIBC
OCEAN WILSONS RESUMED AT BUY AT CANTOR; PT 1,345P
PEUGEOT RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT MORGAN STANLEY
RBS RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
RIGHTMOVE RATED NEW HOLD AT DEUTSCHE BANK; PT 2,200P
SCHRODERS CUT FROM CONVICTION BUY LIST AT GOLDMAN, STILL A BUY
TUPRAS RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
VOESTALPINE CUT FROM CONVICTION BUY LIST AT GOLDMAN, STILL BUY
WARTSILA RATED NEW OVERWEIGHT AT JPMORGAN; PT EU41
YARA RAISED TO BUY VS NEUTRAL AT SWEDBANK (EARLIER)

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -233.75 (-1.76%) at 13,084
Topix down -14.67 (-1.33%) at 1,086
Hang Seng down -260.43 (-1.20%) at 21,355

US markets
S&P 500 down -16.68 (-1.02%) at 1,626
DJIA down -116.57 (-0.76%) at 15,122
Nasdaq down -36.82 (-1.06%) at 3,437

European markets
Eurofirst 300 down -13.70 (-1.15%) at 1,180
FTSE100 down -60.37 (-0.94%) at 6,340
CAC 40 down -53.80 (-1.39%) at 3,811
Dax down -85.23 (-1.03%) at 8,222

Currencies
€/$ 1.33 (1.33)
$/¥ 96.29 (96.01)
£/$ 1.56 (1.56)

Commodities ($)
Brent Crude (ICE) down -0.41 at 102.55
Light Crude (Nymex) down -0.60 at 94.78
100 Oz Gold (Comex) up +0.10 at 1,377
Copper (Comex) unchanged 0.00 at 3.19

10-year government bond yields (%)
US 2.20%
UK 2.19%
Germany 1.60%

CDS (closing levels)
Markit iTraxx SovX Western Europe +1.88bps at 89.22bp
Markit iTraxx Europe +3.58bps at 110.9bp
Markit iTraxx Xover +11.54bps at 463.08bp
Markit CDX IG +1.52bps at 85.46bp

Sources: FT, Bloomberg, Markit

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