LCM Dawn Patrol – 30.07.13 – Earnings: DBK-, ALU-, UBS+ (lots more)… MS markets comments, GS on FOMC preview… TuesGear.

Bonjour,

 

European Markets top edge up today on expectations of good earnings. US equities were moderately lower in a quiet session on Monday. There was no specific catalyst for the move. Equities in Asia were weaker, but Europe finished essentially unchanged. M&A activity provided a small tailwind. Pending home sales fell for June, but less than expected. Markets seem to be waiting for more important economic/policy news to be released later this week; especially any updates on Fed policy from Wednesday’ s 31-Jul FOMC statement.

 

MS publishes its Earnings Seasons Monitor. The two key conclusions are
– Earnings in-line thanks to strong performance from Financials
– EM exposed companies seeing biggest disappointments.

 

Today: European consumer confidence, business climate. German CPI. US Pending house sales, Case-Shiller home price index. Italy’s supreme court is expected to decide whether to uphold Silvio Berlusconi’s tax fraud conviction.

 

 

TUESGEAR

Because I lose my keys much more often than I lose my phone…
http://engt.co/18OmXxl

NEWS

 

Liberty Global Has 28.5% Long, 5.11% Short Positions in Ziggo
Samsung Said to Near Purchase of German Screen Company Novaled
German Inflation Seen Slowing for First Time in Three Months
EU to Mediate Over French Ban of Mercedes Models, FT Reports

*BARCLAYS 1H ADJ. PRETAX PROFIT 3.59 BLN PNDS VS 4.34 BLN PNDS
*BARCLAYS PLANS TO RAISE 5.8BLN PNDS IN RIGHTS OFFERING

 

Alcatel Posts EU885m 2Q Loss After Impairment; Est. Loss EU280m
Alcatel-Lucent CEO Says Qualcomm to Take Small Stake
Air Liquide 1H Recurring Oper. Profit in Line; Confirms Forecast
BP 2Q ADJ. PROFIT EX-ITEMS $2.71 BLN; ANALYSTS EST. $3.4 BLN
Clariant 2Q Ebitda Ex-Items Rises, Repeats Sees Higher FY Sales
Deutsche Bank 2Q Net Income EU334m vs Est. EU768m (indicated down 3%)
EDF Boosts 2013 Organic Ebitda Growth Target; 1H Ebitda Beats
Erste Bank 1H Net EU301.2m vs EU453.6m Y/y; Provisions Drop
Fresenius Medical 2Q Ebit Misses Est.; FY Net Forecast Changed
Herbalife Rises Post-Mkt; Co. Boosts 2013 EPS Forecast
Imerys 1H Sales Fall; Sees FY Net Income Closer to Last Year’s
Infineon Sees 4Q Revenue in Line With Estimates, 3Q Sales Beat (+2.4%)
Linde 2Q Operating Profit in Line; Repeats 2013, 2016 Forecasts
Santander 2Q Net Eu1.05 Bln; Analyst Est. Eu1.1 Bln
Temenos publishes good Q2 numbers with a strong EBIT and positive FCF.
UBS Posts Higher Net, Plans to Buy Back Fund From Central Bank (looks v. strong in wealth mgmt).
Umicore 1H Ebit Ex-Items EU162.9m vs Est. EU157m
Valeo 1H Net Income Falls to EU190m From EU193m
Wacker Chemie 2Q Ebitda Beats; Trims 2013 Sales Forecast
Wirecard 2Q Sales Rise 22%; Ebitda up 15%; Reiterates Outlook

CURRENT STUFF

 

Japan’s industrial production rate fell the most since the March 2011 earthquake, with a 3.3% decline in output in June from the previous month. Although it far exceeded consensus forecasts for a 1.5% drop, analysts said the June decline was probably temporary and would be offset by a bigger rise in July. The jobless rate was 3.9%, the lowest since 2008, and better than the 4.1% expected, raising hopes for inflationary pressure. (Bloomberg)(Wall Street Journal)

 

China’s central bank made a net injection via open market operations for the first time since February. Interbank rates have again been rising as the end of the month approaches. (Reuters)

 

Italian banks’ loan books being quietly reviewed: “The Bank of Italy is quietly inspecting the finances of some of the country’s top lenders, which could push some Italian banks to sell assets or take other major steps, according to a central-bank document reviewed by The Wall Street Journal.” (Wall Street Journal)

 

Appetite for subordinated bank debt grows: Global issuance rose 124% in the first half of 2013 compared with the same period last year. According to Moody’s, the issuance rebound has been particularly strong in North America, jumping from $2.1bn in the first half of 2012 to $21.7bn.(Financial Times)

 

US money market funds have nearly doubled their allocations to European banks over the past 12 months, according to Fitch. In the first half of 2013, MMFs allocated about 15% of their $625bn in assets to European bank deposit and securities. (Financial Times)

 

To read
Markets: mind the central banks but otherwise we’ll see you in September (FT)

Fed Tapering Assured As Treasury Projects 30% Slide In Annual Funding (And Monetization) Needs (ZeroHedge)

 

 

STRATEGY

 

GS (Hatzius) US Economics Analyst
FOMC Preview: On Track for a Shift in the Mix of Instruments.

(extract)
In Wednesday’s statement, we expect a modest downgrade in the  committee’s assessment of the economy in light of the weak second  quarter. It is less clear whether they will explicitly hint at QE tapering  in September. If the committee decides to drop such a hint, it would  probably offset the impact via a similarly subtle hint at a strengthening  of the forward guidance. But it is also possible that they decide not to  change any of the policy language at this point.
Whether or not they decide to foreshadow these moves next week, we still expect Fed officials to strengthen the guidance when they do taper QE. Our expectation remains that this will occur at the September 17-18 FOMC meeting.

 

 

MS (Secker) European Equity Strategy
Market Comment

The macro backdrop has proved a sweetspot for European equities in recent weeks. First,  Europe’s economic data has continued to improve, with business (PMIs) and consumer  confidence indicators now at 2-year highs. Second, and equally important we feel, US bond  yields have stopped rising and even started falling again at the 2-year level. This latter  development has allowed equity valuations to start rising again at the same time as better  macro data offers hope for stronger corporate profit growth ahead.
While positive, this improvement in the macro backdrop has already led to a meaningful rise in  investor sentiment (for example the AAII ‘netbulls’ index has been above 20 for 3 consecutive  weeks) that suggests further progress from here will require additional improvements in macro  newsflow and/or continued acquiescence from bond markets. Such a scenario may persist for  a little longer, however investors should be cognizant that we think a return to rising yields is  likely at some point.
Despite good performance recently, we continue to recommend investors focus on stocks that  offer a combination of cyclicality, value and European exposure. In our European model  portfolio we are currently overweight Banks, Consumer Discretionary, Diversified Financials  and Pharmaceuticals. We are underweight Staples, Industrials, Materials and Telecoms.

 

 

UPS&DOWNS

 

Technicolor (GS, Schafer): An underappreciated mean reversion opportunity; CL Buy
We raise our PT to €5.5 from €5.0 on a better financial position from higher free cash flow generation. TCH remains a compelling mean reversion opportunity: it trades in line with history while we expect a 45% improvement in cash returns vs. history.

 

Aberdeen Asset Management (MS, Hamilton) EM macro and investment performance reduce appeal
We expect EM uncertainty and weakening performance (especially global) to limit growth and re-rating from here. Positives from flow resilience and capital return are now largely priced in; we move to EW. Prefer risk-reward at LSE and SDR.

 

ABERDEEN CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN STANLEY
DEUTSCHE BOERSE CUT TO NEUTRAL VS BUY AT BOFAML
MAN GROUP CUT TO NEUTRAL VS BUY AT BOFAML
THROMBOGENICS RATED NEW NEUTRAL AT JPMORGAN; PT EU34
TMK RAISED TO BUY VS NEUTRAL AT UBS ON POTENTIAL U.S. BOUNCE

OVERNIGHT MARKETS

 

Asian markets
Nikkei 225 up +194.79 (+1.43%) at 13,856
Topix up +20.70 (+1.83%) at 1,149
Hang Seng up +146.17 (+0.67%) at 21,996

US markets
S&P 500 down -6.32 (-0.37%) at 1,685
DJIA down -36.86 (-0.24%) at 15,522
Nasdaq down -14.02 (-0.39%) at 3,599

European markets
Eurofirst 300 up +0.85 (+0.07%) at 1,206
FTSE100 up +5.46 (+0.08%) at 6,560
CAC 40 up +0.07 (0.00%) at 3,969
Dax up +14.12 (+0.17%) at 8,259

Currencies
€/$ 1.32 (1.33)
$/¥ 98.31 (97.94)
£/$ 1.53 (1.53)

Commodities ($)
Brent Crude (ICE) down -0.18 at 107.27
Light Crude (Nymex) down -0.23 at 104.32
100 Oz Gold (Comex) down -1.10 at 1,327
Copper (Comex) down -0.01 at 3.09

10-year government bond yields (%)
US 2.60%
UK 2.33%
Germany 1.67%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.4bps at 92.24bp
Markit iTraxx Europe +0.81bps at 103.31bp
Markit iTraxx Xover +1.4bps at 414.47bp
[CDX IG will be back soon]

Sources: FT, Bloomberg, Markit

 

 

 

 

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