LCM Dawn Patrol – 20.06.13 – GS and JPM take on the Fed, China PMIs, GS on Tech, everyone loves ALU (cinant).


Europe to open lower today following the US after Bernanke confirmed the tapering later this year as the economy appears to be on the right track. US 10y yields reached 2.37%. Also, the HSBC PMI for China came in lower than expected at 48.3 and there won’t be any intervention from the PBOC to ease Chinese banks liquidity. Oh, and it’s pouring rain in Paris…

Today, we’ll focus on the Eurozone flash PMIs (which may be poorly affected by the recent floods in Germany) and the US PMIs.

Asian markets
Nikkei 225 down -129.67 (-0.98%) at 13,115
Topix down -11.51 (-1.04%) at 1,095
Hang Seng down -528.72 (-2.52%) at 20,458

US markets
S&P 500 down -22.88 (-1.39%) at 1,628
DJIA down -206.04 (-1.35%) at 15,112
Nasdaq down -38.98 (-1.12%) at 3,482

‘Sopranos’ Star James Gandolfini Has Died


Germany. Economic indicators suggest a gradual recovery in German economic activity in the second quarter, Germany’s Finance Ministry said in its monthly report for June.

Singapore: Pollution reaches new highs.

Disney removed from GS conviction Buy List

Schindler says impairment affects 2Q result from financing activities, reduces 2013 annual net profit.

Credit Suisse and Julius Baer may face delays in reaching settlements after the Swiss Parliament rejected a bill that 
would have freed the industry to send information to the U.S.

Repsol shareholders La Caixa, Sacyr and Pemex have asked Chairman AntonioBrufau to resume talks with Argentina on compensation for the seizure of YPF, Expansion reports citing people with knowledge of the situation.

French Prosecutor opens probe into EDF Contract acc Le Monde

Special Situations:

Microsoft had ‘advanced talks’ over Nokia takeover this month. The two sides are said to have met in London as recently as this month to discuss a deal, but sources tell the paper that it is unlikely that discussions will continue.

Oerlikon is exploring strategic options including possible sale for its Advanced Technologies unit:

D.E Master says board recommends Joh. A. Benckiser Offer. Acceptance period runs from 9am CET June 20 to 5:40pm Aug. 15. NOTE: April 12, investor group led by Joh. A. Benckiser agrees to buy D.E Master for EU12.50/shr, ~EU7.5b.

Forest mulls bid for Elan


Bain Capital in talks to buy Maisons du Monde


Sony will study Third Point’s proposal for the company to spin off its entertainment arm, its chief executive told shareholders. But Kazuo Hirai reiterated that the business was not forsale


China & its banking system :
Great article from LEX (FT) about the spike in China’s interbank rates : despite this sign of stress, they highlight that since Chinese officials could have eased the stress had they chosen to, it is also a signal of official determination to cool credit growth – a good move but a tricky one

GS on the Fed (Hatzius)
The FOMC was more hawkish than we had expected. First, Chairman Bernanke suggested that tapering would start “later” this year and might conclude in mid-2014 assuming a 7% unemployment rate at that point. Second, the committee moved down its unemployment rate forecasts by about 0.2 percentage points throughout the forecast horizon. Third, the committee noted that downside risks had “diminished” since last fall; while that is obvious at some level, it is noteworthy that they chose to emphasize it. Fourth, although inflation projections moved down, the chairman was somewhat dismissive of the recent inflation drop, attributing much of it to special factors. Fifth, the chairman was a bit more reluctant to push back on the increase in short-term rate expectations than we had expected, although he did state explicitly that the 6.5% unemployment threshold might eventually move down.
Our takeaway is that the risk to our forecast of QE tapering starting in December has increased. However, our own GDP forecast for the second half of 2013 is more than ½ percentage point below the committee’s, and our labor market forecasts are also less optimistic.

JPM on the Fed (Feroli)
The most significant change in the post-meeting statement was the comment that they see “downside risks to the outlook for the economy and the labor market as having diminished since the fall.” Most economy-watchers wouldn’t regard this as a controversial judgment; nonetheless, in the past the Committee had been extremely hesitant to modify their downside risk assessment. The forecasts also changed in a modestly more hawkish manner. The center of their unemployment rate projections at the end of 2015 is now 6.0%, versus 6.25% at the March meeting. Perhaps because of this, fewer FOMC participants see extremely low rates as appropriate at the end of 2015. Whereas at the March meeting 8 participants saw the appropriate policy rate as 50bps or less, now only 3 participants see rates that low as consistent with best policy.

Nokia shares rose more than 5% following a report in The Wall Street Journal that said the Finnish telecom company held talks to sell its device business to Microsoft Corp. MSFT -1.11% . The talks reportedly broke down over issues such as a final price.

Ben Bernanke said that QE could end completely by mid-2014, and that it would be “appropriate to moderate the monthly pace of purchases later this year” on current economic trends. Ten-year Treasury yields hit their highest level since March 2012 after the Fed chairman’s press conference on Wednesday, rising to 2.36 per cent (Wall Street Journal, Reuters).

Bernanke: “when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7 per cent, with solid economic growth supporting further job gains” (Financial Times).

Chinese manufacturing activity slumped further in June. The HSBC-Markit flash PMI came in at 48.3, lower than forecasts of 49.1, and May’s reading of 49.1 (Bloomberg). The Australian dollar fell to its lowest level against the US dollar since September 2010, below $0.93, following the PMI release (Wall Street Journal).

President Obama kept calling George Osborne “Jeffrey” at the G8. (Financial Times)


Goldman: The Threat to Tech Stocks (via Barron’s)
Investors should worry about earnings for Microsoft, Intel, Seagate andnine other companies, says Goldman Sachs. Here’s how to protect against losses.
With so much attention focused on Wednesday’s conclusion of the Federal Reserve rate-setting committee, it is easy to forget that stocks are affected by anything else.
But earnings season will soon be here, creating opportunities to profit from the dislocation between expectation and reality as companies miss, hit, or exceed estimates. According to a new Goldman Sachs study, July has been themost popular month for earnings preannouncements over the past two years. The technology sector has represented more than half of the companies lowering estimates.
“Despite this, put prices for tech stocks are not elevated ahead of July preannouncement season,” The strategists have created a trading menu of 13 stocks that they recommend investors hedge with bearish puts. They suggest puts that expire in three months and that are 5% below the current share price, in anticipation the companies preannounce results that disappoint. All of the companies are Sell or Neutral rated by Goldman Sachs. All of the companies are expected to reportearnings in July or August.The preannouncement trading list includes, Seagate Technology (ticker: STX), Juniper Networks (JNPR), Lexmark International (LXK), Western Digital (WDC), JDS Uniphase (JDSU), LSI Corp. (LSI), KLA-Tencor (KLAC), Paychex (PAYX), Symantec (SYMC), Microsoft (MSFT), Intel (INTC), Lam Research (LRCX) and Xerox (XRX).


ALU raised to Buy at ML and raised to Neutral vs Sell at UBS, JPM upgrade Nordea to OW and reiterate OW on EADS after meetings at Paris Air show. Socgen like Unibail, Gecina, Klepierre, Wereldhave  and Cofinimmo. Zurich Ins.  and Munich Re raised to buy at Berenberg while Swiss Re raised to Hold vs Sell. Drax raised to Buy at Citi.
MS says OW Nestle as underperformance is an opportunity and reiterate OW on Aegon.
GS move Specialty Finance, SEGRO onto CL Buy, IGas down to Neutral, reiterate Buy on Heritage Oil, APR Energy and VerbundDELB added to UBS’s least pref replacing Colruyt while Sodexo raised to Buy

US & EU Staples (Khoo) Which Stocks Are Most Geared to US Improvement?
The evidence of our AlphaWise survey suggests a modestly improved outlook for the US Consumer. Stocks positioned to benefit most from this: Nestle, Mead Johnson, and Estee Lauder.

Related Stock Research:

Nestle: Solid Mid-Teens TSR

Buy on Weakness

L’Oreal: Valuation looks unappealing as Beauty market slows; UW

Europe: Specialty Finance (GS, Turner) Moving more neutral on asset managers vs. exchanges & IDBs
The value of many financial assets

especially those in EM

has declined recently. We expect these trends to weigh on the AUM and net inflows of asset management stocks in 2Q13. Azimut & Tullett Prebon to CL-Buy; Aberdeen, Ashmore & BME to Neutral.


Asian markets
Nikkei 225 down -129.67 (-0.98%) at 13,115
Topix down -11.51 (-1.04%) at 1,095
Hang Seng down -528.72 (-2.52%) at 20,458

US markets
S&P 500 down -22.88 (-1.39%) at 1,628
DJIA down -206.04 (-1.35%) at 15,112
Nasdaq down -38.98 (-1.12%) at 3,482

European markets
Eurofirst 300 down -3.23 (-0.27%) at 1,180
FTSE100 down -25.39 (-0.40%) at 6,348
CAC 40 down -21.21 (-0.55%) at 3,839
Dax down -32.43 (-0.39%) at 8,197

€/$ 1.325 (1.339)
$/¥ 96.92 (95.21)
£/$ 1.544 (1.56)

Commodities ($)
Brent Crude (ICE) down -1.33 at 104.79
Light Crude (Nymex) down -1.31 at 96.93
100 Oz Gold (Comex) down -29.50 at 1,344
Copper (Comex) down 0.03 at 3.12

10-year government bond yields (%)
US 2.36
UK 2.13
Germany 1.56

CDS (closing levels)
Markit iTraxx Europe -0.8bps at 107.3bp
Markit iTraxx Xover +0.1bps at 442.5bp
Markit CDX IG +5.7bps at 87.3bp

Sources: FT, Bloomberg, Markit


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