LCM Dawn Patrol – 26.06.13 – GS’12 value stock, MS likes Volkswagen, Italy at risk (FT), SAP bullish…

Mohin,

Yesterday’s US session was better with the S&P up 95bp despite the rise in US10y yields on the PBoC remarks that helped Chinese stocks rebound.  Homebuilders, Financials, Semis outperformed while Healthcare, Staples and software (ORCL) underperformed. Philly Semiconductor Index (SOX) +2.43% to 462.5109; MLNX RBCN MRVL LRCX TSM gained most. It seems that markets are now driven by EM/commos like they were by the Nikkei a few weeks ago. It may still not be the beginning of the rally, but worth noting that the S&P bounced on its 100d moving average.

Today, Draghi and other ECB members speak but nothing is expected… Otherwise, we’ll have the German consumer confidence index, US personal consumption, the US 1Q GDP.

NEWS

Gold Drops to Cheapest Since September 2010 on U.S. Data as Silver Slumps
Swatch may reach CHF2.5bn in sales this year (vs 2014/15 previously).
SAP Co-CEO says Europe cloud business growing in double digits (Definitely worth another look at 55!)
Colruyt FY Ebitda beats est., div. increase beats forecast
Nissan-Renault FY16 Sales to reach 10m Units acc to Nikkei
Technip awarded subsea contract for the Snøhvit CO2 project in Norway
Sanofi, GSK place non-binding bids for Elder Pharma’s domestic formulations unit, Economic Times reports citing unidentified people familiar with the plan.

CURRENT STUFF

Chinese interbank lending rates dropped after the PBoC made clear it would provide liquidity support where needed, and said it had already provided such support. The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, slid 16bps to 3.91% by late morning in Shanghai, according to Bloomberg calculations. The overnight and seven-day repo rates fell 40bps and 78bps respectively. (Bloomberg)(Financial Times)

“Italy risks potential losses of billions of euros on derivatives contracts it restructured at the height of the eurozone crisis, according to a confidential report by the Rome Treasury that sheds more light on the financial tactics that enabled the debt-laden country to enter the euro in 1999.” (Financial Times)

 

Bond yields could undermine recovery in global banks’ balance sheets: Under new capital rules, unrealised losses in these “available for sale” portfolios hit banks’ equity capital. “I would think most institutions are going to have a fairly sizeable hit to their equity,” said a senior executive of a top US bank. (Financial Times)

Other Stuff

  • US is number one foreign investment destination for the first time in 12 years. (Reuters)
  • Ralph Atkins: Draghi must act so the eurozone is not a major casualty of US tapering. (Financial Times)
  • (yesterday but important): EU ready to explore loan guarantees of up to 100 bln euros (Reuters)
  • Pimco’s Bill Gross : “Investors who are selling Treasuries in anticipation that the Fed will ease out of the market might be disappointed,”  Fed’s unemployment forecast “a long shot”; Fed view on inflation “may be the foggiest of all”
  • More big-name hedge funds nurse wounds from bond sell-off reut.rs/1cjxpJj

STRATEGY

What the rel. rotation charts are telling us ?

Looking at rel. rotation charts, defensives sectors (Utilities, Telecoms and Healthcare) turn DOWN while Materials, Banks and Constructionsshow some signs of strength. As I said earlier this yesterday, we have 3 defensives stock rotating down as well: Danone (upgrades behind us now), Swedish Match and Reed.

rel

GS SUSTAIN (Hartley) Long-term winners, near-term value June 2013: What happens to quality as yields rise?

Nick Hartley, Nimit Agarwal, Richard Manley, Derek R. Bingham, Warwick Simons, Hamish Tadgell, Olivia Treharne, Samir Siddhanti, Nasra Hussein

We run our valuation overlays on the companies included on the GS SUSTAIN Focus List, highlight 12 high-quality stocks flagged by one or more of the value screens, and analyse what happens to quality stocks as rates rise.
12 stocks are flagged by one or more of our value  screens this month. Stocks highlighted on  absolute and/or relative value are: BBVA, Belle,  Diageo, Novo Nordisk, Qualcomm, Fortum,  Halliburton, Novatek, Roche and Shire. Stocks that  have de-rated recently (with consensus earnings  upgrades, but sector-relative underperformance)  are: BBVA, Diageo, Novo Nordisk, Qualcomm,  ARM, and Itau Unibanco.

Global Autos (MS, Pearson) Clash of the Titans – Revisit: Platform Strategies in Focus
The Race for Global Leadership: The race is on to develop more cars, for more markets, in less time, and with fewer components. A million units per platform is no longer enough – we see 2-3 million units as the new minimum, as innovative and highly flexible architectures up the ante. We follow up on our original benchmarking analysis of the industry Titans (VW, Hyundai-Kia, Toyota, & GM), taking a closer look at how the rest of the industry measures up, specifically in terms of platform strategy. Our analysis shows VW has a clear lead over peers in platform strategy – perhaps as much as 2 years over the closest, and 5+ over the furthest.

Spanish Banks Raised at Citi on Better NIMS; Bankinter a Buy

AHOLD RATED NEW SELL AT SOCGEN, PT EU10.3
BANCO SANTANDER RAISED TO NEUTRAL VS SELL AT CITI
BANKINTER RAISED TO BUY VS SELL AT CITI
BBVA RAISED TO NEUTRAL VS SELL AT CITI
CAIXABANK RAISED TO NEUTRAL VS SELL AT CITI
CARREFOUR RATED NEW HOLD AT SOCGEN, PT EU21
CASINO RATED NEW BUY AT SOCGEN, PT EU90
CRODA RAISED TO NEUTRAL VS SELL AT UBS
DIA RATED NEW BUY AT SOCGEN, PT EU7.4
EUROTUNNEL RATED NEW BUY AT CITI, PT EU7.50
G4S RAISED TO OUTPERFORM VS SECTOR PERFORM AT RBC
ICAP CUT TO HOLD VS BUY AT SOCGEN
Inditex Raised to Outperform vs Market Perform at Raymond James
JD GROUP RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
LIBERTY GLOBAL RATED NEW OUTPERFORM: MACQUARIE, PT $90(EARLIER)
LONMIN RAISED TO NEUTRAL VS SELL AT UBS
METRO AG RATED NEW HOLD AT SOCGEN, PT EU26
NETGEAR CUT TO SELL VS NEUTRAL AT GOLDMAN
POLYMETAL RAISED TO NEUTRAL VS SELL AT CITI
Rabobank Lowers 2013 Australia Sugar Cane Est. on Syndrome
RWE RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
SPANISH MID-CAP BANKS RAISED TO NEUTRAL VS UNDERWEIGHT AT CITI
TESCO RATED NEW SELL AT SOCGEN, PT 290P
UNIBAIL RAISED TO BUY VS NEUTRAL AT UBS
VAKIFBANK CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE
VICTREX RAISED TO NEUTRAL VS SELL AT UBS

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 down -0.21 (0.00%) at 12,969
Topix down -2.26 (-0.21%) at 1,076
Hang Seng up +202.08 (+1.02%) at 20,058

US markets
S&P 500 up +14.94 (+0.95%) at 1,588
DJIA up +100.75 (+0.69%) at 14,760
Nasdaq up +27.13 (+0.82%) at 3,348

European markets
Eurofirst 300 up +16.18 (+1.45%) at 1,130
FTSE100 up +72.81 (+1.21%) at 6,102
CAC 40 up +54.19 (+1.51%) at 3,650
Dax up +118.85 (+1.55%) at 7,811

Currencies
€/$ 1.31 (1.31)
$/¥ 97.78 (97.80)
£/$ 1.54 (1.54)

Commodities ($)
Brent Crude (ICE) down -0.47 at 100.79
Light Crude (Nymex) down -0.73 at 94.59
100 Oz Gold (Comex) down -23.30 at 1,252
Copper (Comex) unchanged 0.00 at 3.07

10-year government bond yields (%)
US 2.60%
UK 2.55%
Germany 1.80%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.03bps at 97.83bp
Markit iTraxx Europe -4.06bps at 128.16bp
Markit iTraxx Xover -16.74bps at 511.79bp
Markit CDX IG -5.49bps at 92.1bp

Sources: FT, Bloomberg, Markit

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