LCM Dawn Patrol – 17.07.13 – LCM Strat (summary), BAML Fund Manager Survey, JPM on Civil Aerospace, Barclays on Chemicals, MS on brands in China…

Bonjour,

 

Europe to open flat according to futures with investors eyes on earnings ahead of Bernanke’s testimony. Volumes were light in the US today, and this will continue this morning. an stocks outside Japan rose, with the Kospi up 1.4% and the Hang Seng 0.2% higher. The MSCI Asia Pacific was little changed as Japan’s markets were slightly softer.

 

Today: Bernanke testifies before the House Financial Services committee. (Financial Times)(Wall Street Journal). Also: US housing data, building permits. Bank of Canada rates decision.

 

Earnings recap in Europe: OR-, ASML-, NDA=, SHBA+, BLT+, NOVN+, TLSN+

 

 

NEWS

 

 

 

Novartis 2Q Core EPS $1.30; Est. $1.31; Raises Outlook

TeliaSonera 2Q Sales Inline; Ebitda, Net Ahead, Keeps Outlook

ASML Sees 3Q Gross Margin Below Ests., Adjusts FY Sales Outlook

Handelsbanken 2Q Net SK3.7b vs SK3.33b

L’Oreal 2Q LFL Sales Growth Misses Est; Group Rev. in Line

Accor 2Q Rev. In-Line Est. With Est., Sees 1H Trends Continuing

SGS First-Half Profit Misses Estimates After Euro Zone Weakens

Elior Owners May Sell Just a Minority Stake, Les Echos Says

Yahoo trims 2013 sales outlook as CEO Mayer’s effort falters

Dell buyout vote delay would not lead to higher offer

 

 

CURRENT STUFF

 

The EU is proposing to cap card transaction fees. A draft plan seen by the FT would introduce a ceiling for charges on all consumer debit and credit card transactions, and would require payment card schemes and the entities that process transactions to be legally separated – a forced split that would remake the business model for the main payment groups. (Financial Times)

 

Chinese premier Li Keqiang said he would keep economic growth, employment and inflation within limits, avoiding “wide fluctuations”, in his first comments since the GDP release on Monday. According to an official summary of a speech made yesterday, Li talked of “scientific macroeconomic policy framework” to offer markets “stable predictability”. Bloomberg says the comments “signal he won’t let expansion slow too much, without indicating any immediate plans for stimulus”. (Bloomberg)

 

Goldman’s 5 questions for Bernanke: http://bit.ly/15EQQKf

 

 

STRATEGY

 

 

LCM Current Cross Assets Strategy:
Trade recommendation Summary by Tristan Abet

–          Buy European Consumer Value Stocks Short Oil Equipment stocks

–          Short Oil prices

–          Buy Implied Volatility on Cyclical Equity Indices

 

 

 

 

BAML (Hartnett) Global Fund Manager Survey
The “Buck” is the trend

Two Key Takeaways: record optimism on the US dollar is writ large throughout the July FMS (see Chart 1); a surge in cash balances sparks a contrarian equity “buy” signal – short-term pain trade for equities remains to the upside (particularly for unloved Emerging Markets).
On Macro: China is the biggest area of concern for investors; number of investors  expecting stronger China growth collapsed to a net -65%, a massive reversal from  67% in Dec’12. In contrast, global growth optimism is stable.
On Risk Appetite & Asset Allocation: cash levels jumped from 4.3% to 4.6%,  triggering a “buy” signal from our FMS Cash Rule; hedge fund net exposure  dropped; asset allocators raised equities, reduced bonds (to a 2-year low) and  maintained a big underweight in commodities.
On Regions & Currencies: a net 83% of investors expect the USD to appreciate  in the next 12 months, a record; equity investors are long “strong-$ plays” e.g. US  & Japanese stocks, and short “weak-$ plays” such as commodities & EM equities  (lowest allocation since 2001).
On Equity Sectors: world’s most popular sector is tech, least popular is utilities;  investors reduced exposure to banks & staples (to largest UW in 2 years).
Contrarian Trades: June’s contrarian pair trade of long energy/short banks  remains in place for July. Other trades: short US dollar, long commodities; short  Japan, long EM; short consumer discretionary, long materials.

 

 

UPS&DOWNS

 

European Civil Aerospace (JPM, Perry, CFA)
Our deep dive into the industry suggests over 30% upside for European civil aero stocks by end 2014

With better than expected aircraft orders in H1 2013, very upbeat company comments at the recent Paris Air Show, and global growth set to improve in H2 2013, our confidence in the current civil aero up-cycle is enhanced. We increase our price targets for all five civil aero stocks we cover, mainly by moving our price targets to an end Dec-14 basis from end Dec-13. We see an average of 32% upside potential for these five stocks over the next 18 months. Our top picks are EADS, MTU and Rolls-Royce.

 

Barcap European Chemicals: Still in troubled waters
2Q13 should provide better earnings sequentially, but only for seasonal and technical reasons. In contrast to our optimistic expectations a quarter ago, demand has stabilised, but not improved. We recommend investing only selectively in cyclical stocks. We prefer Arkema and BASF among the cyclical stocks. We see defensive stocks still as expensive with limited share price upside. We therefore downgrade Croda and Givaudan to Underweight. Our core picks, DSM and Clariant, continue to prove their strength and changed investor perception in the current adverse stockmarket environment. We upgrade Akzo Nobel to Equal Weight after the share price correction since the end of March. We believe Akzo Nobel’s self-help programme should pay off in 2014, leading to above-sector- average earnings growth.

 

 

Brands(MS, Singlehurst) China Sports Goods Survey – Nike and Adidas extend lead
This 5th edition of our AlphaWise survey confirms a brand savvy consumer. Adidas & Nike dominate our brand equity scorecard, extending their lead over domestic names. Li Ning looks most vulnerable. We see risks of saturation in Tier 1 cities for sporting goods, with smaller regions key to growth.

 

AIR FRANCE RATED NEW UNDERPERFORM AT JEFFERIES, PT EU5.80

AKZO NOBEL RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT BARCLAYS

BABCOCK RAISED TO BUY VS HOLD AT PANMURE, PT 1350P VS 1050P

CAPITA CUT TO UNDERPERFORM VS SECTOR PERFORM AT RBC

COMPUTACENTER CUT TO HOLD VS BUY AT PANMURE, PT 473P

CRODA CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS

EASYJET RATED NEW HOLD AT JEFFERIES, PT 1,420P

FNAC RATED NEW BUY AT SOCGEN, PT EU24

GIVAUDAN CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS

GLOBALTRANS RAISED TO BUY VS NEUTRAL AT UBS

IAG RATED NEW BUY AT JEFFERIES, PT 320P

JOHNSON MATTHEY CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE

LUFTHANSA RATED NEW BUY AT JEFFERIES, PT EU20.3, A TOP PICK

PRUDENTIAL ADDED TO CONVICTION BUY AT GOLDMAN

RSA INSURANCE RAISED TO BUY VS NEUTRAL AT CITI

RYANAIR RATED NEW BUY AT JEFFERIES, PT EU8.8, A TOP PICK

SPECTRIS RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML

SUEDZUCKER RAISED TO BUY FROM HOLD AT WARBURG RESEARCH

SWEDBANK CUT TO HOLD FROM BUY AT DEUTSCHE BANK; PT SEK151

SWEDBANK CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN

THOMAS COOK RAISED TO BUY VS NEUTRAL AT UBS

TULLETT PREBON CUT FROM CONVICTION BUY AT GOLDMAN, STILL BUY

UNILEVER CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE

 

 

OVERNIGHT MARKETS: MIXED

 

Asian markets
Nikkei 225 down -40.81 (-0.28%) at 14,558
Topix up +0.46 (+0.04%) at 1,211
Hang Seng up +43.52 (+0.20%) at 21,356

US markets
S&P 500 down -6.24 (-0.37%) at 1,676
DJIA down -32.41 (-0.21%) at 15,452
Nasdaq down -8.99 (-0.25%) at 3,599

European markets
Eurofirst 300 down -8.77 (-0.73%) at 1,191
FTSE100 down -29.76 (-0.45%) at 6,556
CAC 40 down -27.55 (-0.71%) at 3,851
Dax down -33.76 (-0.41%) at 8,201

Currencies
€/$ 1.31 (1.32)
$/¥ 99.30 (99.09)
£/$ 1.51 (1.52)

Commodities ($)
Brent Crude (ICE) down -0.13 at 108.01
Light Crude (Nymex) down -0.29 at 105.71
100 Oz Gold (Comex) unchanged 0.00 at 1,291
Copper (Comex) unchanged 0.00 at 3.20

10-year government bond yields (%)
US 2.54%
UK 2.26%
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

 

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