LCM Dawn Patrol – Mkts up, dovish article in WSJ, Citi on Equities, GS on Inditex, JPM on ABI,

Bonjour,

European stocks are seen rising on Friday, after a four day losing streak on better US data that calmed fears over whether the world’s biggest economy could withstand the winding down of the Fed’s stimulus measures. A dovish article by Jon Hilsenrath (the Fed’s mouthpiece) helped the market too (http://on.wsj.com/1bCdwwS).

Today we’ll look at the EZ CPI, the US May PPI, US IP and the Uni of Michigan confidence index. And then we can relax and get ready for a lot of sports this WE…

WEEK END

Resto: Monsieur Bleu. 13 Avenue du Président Wilson 75116, Paris
Sortie: 12ème Salon du vintage & Vinylsback. 66 rue de Turenne. 75003 Paris
Cinéma: The Bling Ring de Sofia Coppola avec Emma Watson (she will be happy if you take her to see this one).
Sport: I’ll be triathloning in Biarritz, but there are some good rugby games ahead (test matches) and the US Open (Golf).

NEWS

WSJ Article: Analysis: Fed Likely to Push Back on Market Expectations of Rate Increase
Fed officials have been trying to convince investors for weeks not to overreact when the central bank starts pulling back…

ECB. Mersch says once again that the ECB is “technically ready to cut [deposit] rate to negative”.
Syria. FT says Obama gives the go-ahead to arm rebels.

RBS. FT front page story that “gears Hester exit will speed [upper management] defections.
Barry Callebaut to place shares to generate CHF279m for M&A deal
Bouygues : S&P maintained its debt rating for the co while cutting the outlook to “negative” from “stable” (BBG)
Elan. J&J sells remaining 25.4m Elan shares

CURRENT STUFF

Bond sales dry up as interest rates rise: “The number of companies tapping the bond market has collapsed as a result of rising interest rates, threatening to halt a global refinancing wave that helped companies boost earnings and strengthen balance sheets. Bond investors have retrenched in the face of increasing market volatility since Fed chairman Ben Bernanke hinted on May 22 at a possible “tapering” of US quantitative easing. This has left companies unable to raise financing on previously beneficial terms.” (Financial Times)

Brazil acts after real hits four-year low: “Brazil has reduced a financial transactions tax on currency derivatives to zero after its currency, the real, hit four-year lows against the dollar on Wednesday. The measure was the second such move in a week to dismantle currency controls as the government sounds a rapid retreat from its earlier “currency war” against foreign capital inflows.” (Financial Times)

STRATEGY

CITI: Pan-Europe Mid-Year Road Ahead 2013: Staying Bullish – The Only Way is Equities
Run the Barbell — Despite the recent pull-back, European equities have returned c25-30% over the past year. We stay bullish and expect a further 20%+ return to end-2014. We stay buyers of dips. Firming US economic growth, less bad Euro Area growth, a trough in European earnings, modest absolute and cheap relative equity valuation, a record wide debt/equity funding gap, a robust corporate sector and signs that capital allocators are being ‘forced’ back to equities support our bull thesis. Within the market, we think earnings leadership is broadening beyond defensive growth to include financials and US cyclicality. We continue to back a barbell approach, with Banks and Health Care as key Overweight sectors in the barbell. We raise Basic Resources to Overweight & lower Industrials to Underweight. This is a valuation call.

MS (Pradhan) Emerging Markets: What If the Tide Goes Out?
The tides of EM outperformance and US monetary easing produced a surge of capital inflows to the EM world. Both forces are now less potent, raising the question: Will the tide go out, taking capital flows with it? If it does go out, will it go out slowly and produce a slowdown in capital inflows, or is there a risk of a ‘sudden stop’ of capital flows?

We provide a metric-based framework for investors to analyze which EM economies are most exposed to the risk of a sudden stop, a framework that will likely hold for smaller shocks Our results? Most-exposed are Brazil, Mexico, S. Africa, Turkey and Ukraine, while Argentina, Hungary, Indonesia and Poland are borderline.

UPS&DOWNS

Anheuser Busch InBev (JPM, Gibbs) Reinstating OW rating; PT of €93; adding to AFL; beer is still a wonderful way to generate cash from low risk equity
Concerns over Brazil have created a buying opportunity in our view. We believe ABI will drive sequential volume improvement in Brazil after the huge shock in March. In Mexico we see rapid synergy capture and accelerating share gains. Marginal cost of debt is still trending towards 2% and we believe ABI will look to distribute “excess” cashflow which could drive 10% cash return to equity in CY15E. Indeed at our €93 PT ABI stills offers a 3.1% dividend yield in CY14E. We view this as a massive “margin of safety” to offset the short term Brazil perturbations. We add ABI (OW) to the European AFL.

Rhoen-Klinikum (JPM, Adlington) Surprise change in 90% threshold means acquisition will be seen as a high probability event. Upgrade to N.

Severn Trent (GS, Mead) Buy: No bid for now; upgrade to Buy
We upgrade Severn Trent to Buy, from Neutral, as we see the shares trading at substantial discount to a potential private equity valuation. The shares have over 20% upside to our unchanged 12-month price target of 2211p/share.

Inditex (GS, Walding): Structural winner, but insufficient upside; off Conviction List; Buy
We remove Inditex from our Conviction List, but remain Buy rated. We continue to view Inditex as one of the highest quality companies in our apparel coverage, well positioned to benefit from the structural shift to online, but now with insufficient upside

ASOS plc (GS, Walding) Buy: Momentum continues; reiterate Conviction List – Buy
We reiterate as CL-Buy following strong 3Q13 sales. We raise our sales forecasts by 2.2% and 1.7% for FY13 and FY14. We are 22% and 29% ahead of Reuters consensus for revenue and PBT in FY15. Our 2-year price target remains 6750p, implying 67% upside.

AB INBEV ADDED TO EUROPEAN ANALYST FOCUS LIST AT JPMORGAN
AMLIN ADDED TO UBS’S LEAST PREFERRED LIST
ANGLOGOLD CUT TO SELL VS NEUTRAL AT UBS
BASWARE BASWARE LOWERS ’13 ESTIMATES
BOIRON RAISED TO BUY VS HOLD AT SOCGEN
CATLIN RATED NEW NEUTRAL AT UBS, PT 475P
CGG Cut to Sell at Citigroup; Aker Solutions, Seadrill Defensive
DAIMLER AG CUT TO SELL VS HOLD AT BANKHAUS LAMPE
ENI RAISED TO OUTPERFORM VS MARKET-PERFORM AT BERNSTEIN
GN Store Nord Raised to Outperform at Bernstein
GREAT PORTLAND RAISED TO BUY VS NEUTRAL AT UBS
HISCOX RATED NEW NEUTRAL AT UBS, PT 560P
HOLCIM CUT TO UNDERPERFORM VS NEUTRAL AT BOFAML
INDITEX REMOVED FROM CONVICTION BUY AT GOLDMAN; STILL BUY
KAZMUNAIGAS RAISED TO NEUTRAL VS SELL AT UBS
LANCASHIRE RATED NEW BUY AT UBS, PT 850P
LLOYDS BANKING RATED NEW HOLD AT JEFFERIES, PT 65P
Lloyds Raised to Outperform vs Neutral at Mediobanca
PERNOD-RICARD CUT TO NEUTRAL VS BUY AT CITI
RBS RATED NEW BUY AT JEFFERIES, PT 390P
RHOEN KLINIKUM RAISED TO NEUTRAL VS UNDERWEIGH AT JPMORGAN
SEADRILL RATED NEUTRAL AT GOLDMAN, WAS NOT RATED; PT NK268
SEVERN TRENT RAISED TO BUY VS NEUTRAL AT GOLDMAN
Shell Raised to Outperform at RBC Capital
TAG IMMOBILIEN RAISED TO BUY VS HOLD AT BANKHAUS LAMPE

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +298.97 (+2.40%) at 12,744
Topix up +25.02 (+2.40%) at 1,069
Hang Seng up +206.46 (+0.99%) at 21,094

US markets
S&P 500 up +23.84 (+1.48%) at 1,636
DJIA up +180.85 (+1.21%) at 15,176
Nasdaq up +44.93 (+1.32%) at 3,445

European markets
Eurofirst 300 down -0.81 (-0.07%) at 1,174
FTSE100 up +5.18 (+0.08%) at 6,305
CAC 40 up +4.28 (+0.11%) at 3,798
Dax down -47.88 (-0.59%) at 8,095

Currencies
€/$ 1.33 (1.34)
$/¥ 94.91 (95.36)
£/$ 1.57 (1.57)

Commodities ($)
Brent Crude (ICE) down -0.15 at 104.80
Light Crude (Nymex) up +0.06 at 96.75
100 Oz Gold (Comex) up +6.30 at 1,384
Copper (Comex) up +0.03 at 3.21

10-year government bond yields (%)
US 2.15%
UK 2.15%
Germany 1.56%

CDS (closing levels)
Markit iTraxx SovX Western Europe +1.35bps at 90.9bp
Markit iTraxx Europe +0.51bps at 112.72bp
Markit iTraxx Xover +0.95bps at 471.98bp
Markit CDX IG -5.14bps at 82.22bp

Sources: FT, Bloomberg, Markit

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