LCM Dawn Patrol – 17.06.13 – EADS Paris show, MS d/grades Saipem, the JPM View, Poor China data, EM outflows, JPM View…

Bonjour,

Europe to open mixed today… Asia is better this morning with the Nikkei up 2%. The FOMC meeting is the key event of the week and we’ll see what they’ve got for us (see GS below).

The New Miss USA Works In Finance

(She works for LCM)

Oh… And I didn’t run the triathlon this WE…

NEWS

Jet Airways falls on Etihad deal turbulence

Samsung turns to Jay-Z to solve smartphone woes

Elan puts itself on the block as Royalty saga takes another twist

Kion Group set its IPO price range of €24 to €30 for its listing on June 28.

Pimco’s Bill Gross does not believe we are at the beginning of a bear market for bonds, only that the deleveraging process will accelerate.

EADS. Paris airshow begins today and EADS will ask the the German govt to pay the remaining €600m of the 1.1bn it was promised as start up financing for the A350 project.

Kabel Deutschland’s board is understood to have rebuffed a €10bn takeover offer tabled recently by Vodafone.

Saipem guided down 2013 lower late on Friday – post market close) EBIT guidance lowered by €650-750m (old guidance of €750m, so nil-€100m EBIT for 2013).

Vivendi Pursues Etisalat talks as Qtel withdraws Maroc bid.

CURRENT STUFF

On the FOMC
Just read the GS comments and they don’t expect the committee to “deviate from the existing message” and try to calm the markets. Economic data has improved, inflation is still low and financial conditions have tightened.

Violence Spreads in Turkey.
Violence flared across Istanbul as tens of thousands of protesters clashed with police after authorities violently cleared a park at the center of antigovernment protests the previous night. (WSJ)

Market turmoil forces G8 leaders to focus on global economy: “Turmoil in financial markets is once again overshadowing a Group of Eight summit, turning world leaders’ attention away from trade, tax and transparency and back to the bumps on the road to recovery. With global bond markets swooning on the hint that the US might slow its money-printing operations and currency market volatility leaping as investors try to gauge the right level of the dollar and the yen, G8 leaders know the world economy remains a dangerous place.” (Financial Times)

On China.

Data out of China this weekend was disappointing as power demand during May increased by 5.0% Y/Y, lower than Apr 2013’s 6.8% Y/Y. The weaker power demand growth was mainly due to lower demand growth from heavy industrial users (+4.3% Y/Y vs. +7.9% Y/Y in Apr 2013) and primary industry users (-0.1% Y/Y vs. +5.9% Y/Y in Apr 2013).

JPMorgan set to launch asset tracking service: “JPMorgan Chase will on Monday unveil its attempt to capture a slice of the growing business of managing the billions of dollars worth of cash and securities that funds and companies will need to stump up to back their derivatives trades. The US investment bank says it has created a hub that will allow clients to track and optimise all of their available “collateral” – even those assets held at other banks and custodians.” (Financial Times)

On EM Funds (BBG)
Weekly redemptions from EM equity & debt funds were $9b for week ending June 12, 3rd largest ever, (exceeded Mar 07 & Jan 08) BofAML’s Michael Hartnett writes, citing EPFR Global data.
* $14.5b weekly outflows from bond funds; record $27b in weeks shows “complete washout” in fixed income, describes  as “bond fund carnage:” BofAML
* Equities are “collateral damage,” $9b redemptions on risk-off trade: BofAML
* EM buy signal coming soon; $8-$10b of EM equity outflow next week triggers first ‘buy’ signal in over 2 years: BofAML

STRATEGY

JPM (Loeys) The J.P. Morgan View

How much longer?

 Asset allocation –– The correction is not far from over in DM, and risks being extended in EM. This should be helped by a dovish FOMC and Bernanke next week. We stay long equities to bonds and UW EM across asset classes.

 Economics –– EM growth remains subject to downside risk.

 Fixed Income –– Modestly and tactically bullish in DM.

 Equities ––Combine long equity positions with long VIX positions.

 Credit –– We expect cash bonds to underperform CDS in Europe.

 Currencies –– AUD is the only market where significant liquidation has occurred.

 Commodities –– OW Energy vs Metals is our main allocation within commodities.

JPM (Matejka) EMEA Equity Strategy Update.
We raise Basic Resources from UW to N.
“Equities are now down 6% from the May peak amid continuing EM and Japanese asset volatility. The question is should one join this and go short stocks? We don’t think so. We kept a long standing bearish stance on commodities, Miners and Steel in particular but we are closing this UW as Mining is down 20% ytd and is near ’08 relative lows. The space is a consensus short now, valuations are attractive and DXY has rolled over. Rio Tinto and Glencore Xstrata are our top picks in the sector. We see this as a tactical trade as we remain concerned about EM growth outlook and about the Chinese rebalancing away from infrastructure spend. We think it is very likely that Miners end up underperforming again on a 1-2 year horizon, but they could be given the benefit of the doubt with regard to newly found cost cutting focus for some time. We advise against an outright long Cyclicals stance as their valuations are just in line with Defensives vs historical. JPM FI team does not expect much further backup in yields in the near term. Within Defensives, we maintain the preference for Pharma (OW) and Staples (OW) – we note these two were big outperformers during 1994 – vs Telecoms (UW) and Utilities (UW). We keep OW Banks expecting an improvement in Eurozone’s activity

UPS&DOWNS

Spain: Utilities (GS, Barrasi) Next round of measures could be announced soon; Buy REE
New measures to address the electricity tariff deficit in Spain could be announced as soon as next week. We forecast cuts for renewables and regulated activities, and expect regulatory clarity to act as a positive catalyst for REE (CL Buy).

Saipem (MS, Rats) Further Negative Surprises Highlight Greater Uncertainty
Saipem’s 2nd profit warning in 6 months increases the uncertainty, in our view, regarding the pace of earnings rebound & the likelihood of other negative surprises. We lower our forecasts & PT accordingly

Intermediate Capital (ICP.L): SocGen raises to buy from hold
Ipsen (IPN.PA): SocGen raises price target to 28.2 euros from 19.2 euros; rating hold
Ryanair (RYA.I): Morgan Stanley ups target to 8.1 euros from 8 euros; rating overweight
Saipem (SPMI.MI): Morgan Stanley cuts target to 20 from 27.50 euros; rating overweight
Sopra Group (SOPR.PA): SocGen cuts price target to 70 euros from 79 euros; rating buy
Tullow Oil (TLW.L): Jefferies cuts price target to 1500p from 1800p; rating buy
Wessanen (BSWSc.AS): ING raises price target to 2.70 euros from 2.30 euros; rating hold

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +290.56 (+2.29%) at 12,977
Topix up +24.14 (+2.29%) at 1,081
Hang Seng up +282.03 (+1.34%) at 21,251

US markets
S&P 500 down -9.63 (-0.59%) at 1,627
DJIA down -105.90 (-0.70%) at 15,070
Nasdaq down -21.80 (-0.63%) at 3,424

European markets
Eurofirst 300 up +1.94 (+0.17%) at 1,176
FTSE100 up +3.63 (+0.06%) at 6,308
CAC 40 up +7.18 (+0.19%) at 3,805
Dax up +32.57 (+0.40%) at 8,128

Currencies
€/$ 1.33 (1.33)
$/¥ 94.65 (94.07)
£/$ 1.57 (1.57)

Commodities ($)
Brent Crude (ICE) down -0.21 at 105.72
Light Crude (Nymex) down -0.22 at 97.63
100 Oz Gold (Comex) up +2.70 at 1,390
Copper (Comex) up +0.03 at 3.23

10-year government bond yields (%)
US 2.14%
UK 2.06%
Germany 1.52%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.45bps at 90.45bp
Markit iTraxx Europe -3.32bps at 109.4bp
Markit iTraxx Xover -19.31bps at 452.67bp
Markit CDX IG +1.14bps at 83.36bp

Sources: FT, Bloomberg, Markit

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s