LCM Dawn Patrol – 01.08.13 – Earnings, Strategists Targets




European stocks to open up on prospects of further monetary stimulus in the United States and signs of a slight pick-up in China’s factory sector. US equities finished narrowly mixed on Wednesday. Some support was attributed to the slightly more dovish tone of the latest FOMC statement. Despite the focus on monetary policy, the Fed succession issue continued to generate a lot of headlines. Asian equity markets traded higher Thursday morning. Chinese manufacturing PMI data acted as a catalyst for markets this morning. The official manufacturing PMI came in above expectations, while the HSBC manufacturing PMI was in line with the prior flash reading .


Today’s earnings recap in Europe: MEO+, GLE+, BMW=, LR=, MT=, G-, AKE-, SAN-


Today, we’ll monitor BOE and ECB decision and US ISM manufacturing survey.




Socgen announced a strong beat on Net and revs thanks to retail and CIB business. SocGen 2Q net income EU955m, est. EU668m (prior EU436m). CT1 up 73bp since March to 9.4%. Capital increase “not at all” needed to comply with Basel 3 leverage ratio, CEO Frederic Oudea says in Bloomberg Television interview.
Sanofi missed on Q2 revs and lower forecasts
Mittal EBITDA inline with consensus and highlight “robust” China demand for Q2. On the negative side, the co. now expects to report 2013 Ebitda greater than $6.5b; previously was above $7.1b
BMW 2Q EBIT inline with exp, reaffirms outlook for 2013
Metro backs 2013 views, , net income and ebit beats
Arkema 2Q rev a touch lower than exp (2Q rev. EU1.63b vs est. EU1.67b), confirms 2013/16 outlook
Legrand 1H Sales in Line With Ests., Confirms 2013 Targets. 1H organic sales growth -0.2%, close to central point of 2013 organic growth target
Generali 1H Net Profit Rises to EU1.08b; analyst est. EU1.14b – 1H operating profit EU2.38b vs est. EU2.45b. Outlook: reiterates expects improvement in overall operating result in 2013, while continuing with both capital strengthening process and implementation of strategic initiatives announced in Jan.
RBS in talks with BOE over appointing McEwan CEO – FT
RWE may have to repay thousands of gas customers after Germany’s Supreme Court yesterday declared 2003-2005 price increases void, Handelsblatt reported.

Credit Suisse is in advanced talks to sell its private-equity business to Grosvenor Capital Management LP – WSJ


US After-hours:
- NXP Semiconductor EPS beats est. of 66c. – NXPI sees 3Q rev. of $1.24b-$1.29b vs est. $1.24b – NXPI sees 3Q adj EPS 78c-86c vs. est. 79c





FOMC Review
Fed statement somewhat more dovish recognizing “that inflation persistently below its 2% objective could pose risks to economic performance” and offered no clues on tappering
A good recap of yesterday’s FOMC by El-Erian “Federal Reserve punts, for now”


ECB Preview
From JPM : Draghi took a dramatic step at the last meeting (7/4) by adopting forward guidance and this 8/1 press conf was supposed to be a relative non-event (w/the 7/4 guidance reiterated) but the recent collateral adjustments has sparked chatter of an LTRO being scheduled. While the ECB will prob. wind up “doing more”, it doesn’t appear like fresh policy measures will come on 8/1. Instead investors will be listening closely for the ECB’s updated language around growth (European eco trends have shown impressive strength lately).
From GS : We expect Mr. Draghi to re-affirm his ECB-style forward guidance at tomorrow’s Governing Council meeting. With market pricing still pointing to more tightening than was expected in early May, Mr. Draghi may seek to deepen that guidance. The most likely form of such deepening is to make more explicit reference to currentmarket pricing, referring to any expectations of rate hikes embedded in themoney market curve as being unwarranted by the current economic situation. In our view (and consistent with its own statements), ECB-style forward guidance remains focused on correcting market misperceptions rather than pursuing a different ‘optimal control’ strategy towards monetary policy settings. As a result, Fed-style state-contingent ‘thresholds’ for policy rate changes are unlikely at this stage.


China’s July PMIs paint a conflicting picture: The official manufacturing PMI rose to 50.3, from 50.1 in June, defying expectations for a sub-50 reading. However HSBC/Markit’s final PMI for July was 47.7, in line with its earlier flash reading. “The discrepancy between the two readings will renew speculation that Beijing is trying to present a more optimistic picture of the economy in order to shore up confidence in slowing Chinese growth,” writes the FT.


Portugal to ask lenders for leniency: “Lisbon is expected to press international lenders for permission to ease up on austerity after a month of political turmoil that threatened to bring down the coalition government and derail the country’s €78bn bailout programme.” A senior western diplomat in Lisbon said on Wednesday the government was certain to ask the EU and IMF for more leeway on fiscal targets, something analysts have been anticipating since fractures in the ruling coalition over austerity policies caused political turmoil in the past month. (Financial Times)


To read:
4 arguments against (and rebuttals for) Larry Summers for Fed chair
“China’s New Inflation Constraint” — Yu Yongding on why China has limited room to use policy stimulus.
Why QE Never Caused The Raging Inflation That So Many People Expected
A new article by Mohamed A. El-Erian, “Federal Reserve punts, for now”
Elliott Management: “The Entire Developed World Is On A Slippery Slope”





DB raise Siemens to OW, Barclays cut to Mkt perform vs OW at Bernstein while MS reiterate OW, MS upgrade Tenaris to OW, Yoox PT raised by 32% at ML, Bilfinger raised to Buy vs Neutral at UBS. Barclays reiterate OW on Rightmove, EW on Suez Env and UW on HugoBoss and JPM keep pushing InBev.
SBMO.AS and HOTG.DE off CL still Buy at GS, VLOF down to Neutral, reiterate CL Buy on RXL.PA and FGB.AD, reiterate Sell on WLSN, reiterate CL Sell on ABI, Initiate ANHA as Buy.


Barclays Bank (MS, Manners) Five key debates on the raise
Barclays capital raise, unfortunately, posed as many questions as it sought to answer. We see five key debates investors need to engage the company on. Whilst communication and execution pitfalls are concerns, at 0.9x new TNAV & trading at ~6.5x 15e EPS, ~7.5% 15e cash yield, we see upside.





With close to half the season having reported, aggregated results are stabilizing and pointing to a small positive surprise. 148 companies have reported 2Q/1H results that had at least two estimates (out of a total 310 we expect to include). 32% of companies reporting have beaten estimates by more than 5% (below the average over the past 12 quarters of 43%) and 37% have missed estimates by more than 5% (in line with the historical average). On an absolute basis, 49% of companies have beaten estimates while 51% have missed. The average equal-weighted EPS surprise has been +1.3%.This is better than the previous earnings season (1Q 2013: -0.8%) as well as the 5-year average (+0.8%). Results have been better on a cap-weighted basis with only 27% of the reporting market capitalization missing estimates by more than 5%. Financials continue a better season than the rest of the market although the gap between financials and non-financials has narrowed since our last update. Excluding financials, only 30% of companies beat estimates.






The following table shows strategists’ estimates for where benchmark European stock indexes will finish 2013, as well as 12-month rolling forecasts where applicable. Implied moves are based on closing prices on July 30.

Year-End Forecasts

Firm                European Index    2013 Close   Implied Move
Exane BNP Paribas   MSCI Europe           104         1.5%
Barclays            Stoxx 600             330          10%
Citigroup           Stoxx 600             330          10%
Deutsche Bank       Stoxx 600             315         5.2%
JPMorgan            MSCI Europe Local   1,350         7.5%
UBS                 Stoxx 600             325         8.5%
SocGen              Stoxx 600             278        -7.2%
Natixis             Stoxx 600             300         0.2%
HSBC                Euro Stoxx 50       2,900         5.1%
Commerzbank         Euro Stoxx 50       2,800         1.5%
Nomura              Euro Stoxx 50       3,050          11%
Macquarie           MSCI Europe Local   1,220        -2.9%
UniCredit           Euro Stoxx 50       2,700        -2.2%
Credit Suisse       Euro Stoxx 50       2,900         5.1%
Average                                               3.8%

Twelve-Month Rolling Forecasts

Goldman Sachs       Stoxx 600             330          10%
Bank of America     Stoxx 600             330          10%
Morgan Stanley      MSCI Europe Local   1,230        -2.1%
Average                                               6.1%



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