LCM Dawn Patrol – 15.07.13 – JPM moves OW on Europe, China’ GDP OK, JPM View, GS on Capita and Pernod. JPM on Semis (EU).

Bonjour,

 

Markets to open up this morning in Europe following the release the Chinese GDP which came in line with expectations at 7.5% for Q2. Hope you enjoyed this sunny week end. It seems that the macro is now holding up quite well, everyone is bullish again and we can focus on the fundamentals like earnings again.

 

TODAY: US retail sales. Empire state manufacturing survey. Earnings: Galp (Sales); Citigroup (Q2, est: 1.176$), H&M (June sales) and the GS trial of Fabrice Tourre vs SEC begins.

 

 

 

NEWS

 

JPMorgan Advises Adding to Europe Weight, Upgrades to Overweight

SEB 2Q net income ahead consensus,
Kuehne & Nagel 2Q Ebitda Beats Estimates, 2Q net income CHF153m vs CHF144m
G4S says asked shareholders about rights issue, Sunday Times reports, citing interview with CEO Ashley Almanza.
Vodafone may report declines of more than 10% in Spanish, Italian and Greek revenue between April and
June, the Sunday Times reports, without citing anyone. Vodafone is scheduled to announce 1Q revenue July 19
Centrica may halt a GBP 1.4b plan to convert empty gas field into storage – the Sunday Telegraph
Pirelli moves board meeting for 1H results to Aug. 5.
Barron’s cover story says Citigroup shrs may rise 50% or more in 2-3yrs as its strong presence outside North America, asset sales and tax benefits boost earns., citing est. by Gerard Cassidy of RBC Capital Markets.
Apple on iWatch hiring blitz ahead of possible late 2014 launch acc to FT  & Engadget reports that iPad mini with Retina display rumored to be delayed until early next year http://www.engadget.com/2013/07/12/ipad-mini-retina-display-2014/
Colruyt board member Piet Colruyt sold 30,000 shrs for avg. EU41.48 apiece in transactions on Euronext Brussels July 9, according to regulatory filing posted on FSMA website.

 

 

CURRENT STUFF

 

China’s Q2 GDP growth was 7.5%, the second consecutive quarter of slower growth, underscoring the possibility that the economy may miss official targets for the first time in 15 years. The figure just met the official GDP target for 2013 and was in line with median consensus forecasts from both Bloomberg and Reuters surveys, although the consensus had fallen from 7.8% in the past month. Meanwhile, industrial output – a popular proxy for growth – for June was 8.9% year-on-year, versus expectations of 9.1% and a May figure of 9.3%. (Financial Times)(Bloomberg)

 

JPMorgan Chase and Goldman Sachs are seeking to sell their metal warehousing units just three years after their controversial entry to the industry, even as a proposed LME rule change is likely to reduce the attractiveness of the business. “Both banks have informally started sounding out buyers for their warehousing subsidiaries in recent months, people familiar with the matter told the Financial Times.” (Financial Times)

 

G20 finance ministers plan to launch a new phase of the international corporate tax crackdown this week even as UK business leaders are warning their government to resist “radical new solutions” to profit shifting by multinationals. (Financial Times)

 

Next US fed chairman
When I last checked the online betting side Paddy Power gave 1 to 5 odds (meaning you have to bet $5 to make a $1 profit) on Janet Yellen, the current vice chairman.  She’s still the favorite, but  her odds have drifted slightly lower to 1-to-4 on Friday, on the web betting site Paddy Power. http://www.paddypower.com/bet/current-affairs/us-federal-reserve?ev_oc_grp_ids=1256948

 

Germany’s Anti-Euro party is a disaster: polls show support for the Alternative fuer Deutschland (AfD) languishing around 2 percent, short of the 5 percent needed to enter parliament.
Portugal parties set July 21 as ‘Salvation Pact’ deadline acc to  WSJ : Agreement would keep the country’s international rescue progressing amid early elections.

 

 

 

 

STRATEGY

 

JPM (Loeys) The J.P. Morgan View
What risks are stirring?

Asset  allocation –– We  focus  on  protection  strategies  in  areas  where downside risks are brewing .
Economics  –– Data  are  tracking  a  healthy  rebound  in  Q2  global  growth from Q1. We lower Q2 for US and UK, but raise it for the Euro area. There rem ains downside risk in EM.
Fixed  Income –– The  waning  insurance  benefit  of  holdings  bonds  argues  for higher term premia .
Equities  –– We are  looking  for  a  Q2  EPS  of  $27.5,  3%  above  consensus.  Our more positive view  is driven by Financials and Cyclicals .
Credit –– Stay OW US vs. EM nam es.
FX –– Stay long  dollars versus  Asia (IDR,  CNY) and  Europe (GBP,  EUR)  on the expectation of higher US rates .
Commodities –– We are  fading  this  week’s  rally  in  precious  metals.  Stay  OW energy vs. precious and base metals .

 

 

JPM (Matejka) – Time to revisit Europe – Moving to OW in the regional contect.
At the market level, our call remains that equities will learn to live with higher yields – we advised adding risk and increasing the Beta of the portfolio on 24th June. Regionally, European equities are back to last July’s relative lows vs the US, completely unwinding the post Draghi bounce. We advise adding to European weight – moving to OW in a regional context – as:
1) Central bank policies are decoupling. Fed is in tapering mode, while ECB and BoE are emphasizing “low for longer”. The diverging rates backdrop could spill over into currencies – helping earnings and exports,
2) European PMIs are picking up – suggesting EPS downgrades could end,
3) European valuations are attractive again and the region could benefit if “Value” style recovers- it typically works when yields are rising.
Attractive areas: 1) Discretionary at 33% P/B discount to the US – we upgraded Autos to OW on 24th June, 2) Energy at 28% relative discount 3) Banks at 37% P/TB discount, 4) domestic Eurozone and UK recovery plays.

 

UPS&DOWNS

 

Capita Group (GS, Wilson): Retain Buy, off Conviction List; better opportunities elsewhere
We retain our Buy rating but remove Capita from the Conviction List, as we see better opportunities elsewhere in the sector. Our estimates and price target are unchanged.

 

Pernod Ricard (GS, Collett) Buy: Attractively valued, structurally well positioned; reiterate CL-Buy
We reiterate our CL Buy view on Pernod Ricard as we believe the recent pull-back in the shares presents an attractive opportunity to buy one of the best positioned companies in consumer staples. Our 12-month PT of €142.7 implies 59% upside potential.

 

European Semiconductors (JPM,  Deshpande) 2Q13 preview
Focus on companies with most earnings leverage. Smartphone plays less attractive.

Though European semi stocks have been trading in a range in the past couple of months, almost none are at peak margin or close and consensus is not at peak margin either. Thus though recovery is uneven we remain bullish with Infineon and STMicro our key picks. ASML remains our top mid/long term pick but with the stock at an all-time high and no substantial near-term catalysts, other stocks have more near-term upside potential.

 

 

AFRICA OIL RATED NEW HOLD AT SOCGEN, PT SK48
AGGREKO PLC CUT TO SECTOR PERFORM VS OUTPERFORM AT RBC
AIR FRANCE CUT TO NEUTRAL VS OVERWEIGHT AT HSBC
ALPIQ HOLDING RATED NEW NEUTRAL AT CREDIT SUISSE, PT SF106
AUSTRIAN POST RATED NEW BUY AT BOFAML, PT EU35
AZ Electronic Materials Rated New Overweight at JPMorgan
CAP GEMINI RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
CAPITA GROUP REMOVED FROM CONVICTION BUY AT GOLDMAN; STILL BUY
CARACAL ENERGY RATED NEW OVERWEIGHT AT BARCLAYS; PT 580P
CARREFOUR RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
ELISA CUT TO HOLD VS BUY AT NORDEA
FRESENIUS SE RAISED TO ’BUY’ AT JEFFERIES
GAZPROM OAO RAISED TO OVERWEIGHT VS UNDERWEIGHT AT BARCLAYS
KABEL DEUTSCHLAND CUT TO NEUTRAL VS OVERWEIGHT AT HSBC
MONDI CUT TO UNDERPERFORM VS NEUTRAL AT BOFAML
NYRSTAR CUT TO SELL VS NEUTRAL AT CITI
PHARMSTANDARD CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
RECORDATI CUT TO NEUTRAL VS BUY AT BOFAML
SCA RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML
SCANIA CUT TO HOLD VS BUY AT NORDEA
TNT EXPRESS RATED NEW UNDERPERFORM AT BOFAML, PT EU5.45
TULLOW OIL CUT TO HOLD VS BUY AT SOCGEN

 

OVERNIGHT MARKETS: UP

 

Asian markets
Nikkei 225 up +33.67 (+0.23%) at 14,506
Topix up +7.22 (+0.60%) at 1,202
Hang Seng up +91.55 (+0.43%) at 21,369

US markets
S&P 500 up +5.17 (+0.31%) at 1,680
DJIA up +3.38 (+0.02%) at 15,464
Nasdaq up +21.78 (+0.61%) at 3,600

European markets
Eurofirst 300 down -1.41 (-0.12%) at 1,195
FTSE100 up +1.53 (+0.02%) at 6,545
CAC 40 down -13.89 (-0.36%) at 3,855
Dax up +53.97 (+0.66%) at 8,213

Currencies
€/$ 1.31 (1.31)
$/¥ 99.24 (99.21)
£/$ 1.51 (1.51)

Commodities ($)
Brent Crude (ICE) up +0.07 at 108.88
Light Crude (Nymex) up +0.01 at 105.96
100 Oz Gold (Comex) up +14.60 at 1,292
Copper (Comex) unchanged 0.00 at 3.17

10-year government bond yields (%)
US 2.59%
UK 2.32%
Germany 1.55%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.43bps at 100.2bp
Markit iTraxx Europe +1.64bps at 113.57bp
Markit iTraxx Xover +9.58bps at 455.56bp
Markit CDX IG +1.12bps at 86.56bp

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