LCM Dawn Patrol – 02.08.13 – JPM ups Renault, Moody’s on Peugeot. Inflows, Week End, JPM Strat… More

Bonjour,

European stocks are expected to extend the rally ahead of today’s US jobs data. Out of the 7 NFPs published this year, 5 were better than expected and the market rallied 6 times… US equities finished sharply higher on Thursday, closing at all-time highs. Some better-than-expected manufacturing and employment data provided some support, while a busy day on the earnings calendar also received attention. Cyclical sectors outperformed, while the defensive pockets of the market lagged. Treasuries sold off, with the 10-year yield at a 2-year high, under pressure from the economic data, while crude oil rose sharply. Gold was little changed on the session. Asian stocks rose, following record closes in the S&P500 and Dow. The Nikkei rose 1.7%, helped by strong earnings from companies including Suzuki and Sony yesterday, and the MSCI Asia Pacific was up 0.7%.

Today: US non-farm payrolls (180k expected), factory orders. Fed’s Bullard speaks on the economy. UK construction PMI.

WEEK END

abs

SPORT: It’s too late, the abs won’t show, but you can still go swimming, cycling and running… You’ll feel better.
FOOD: Restaurants that are open in August (yes there are some): http://bit.ly/1780bvi
BOOK: Post Office (Bukowski), yes it’s a classic but it’s really good.
FILM: Now You See Me (Insaisissables in French). Really really bad. I’m really good at seeing bad movies these days.

NEWS

Berlusconi has been definitively convicted for the first time.
Greece. German economists see 50% Greek haircut as unavoidable- Welt
Google’s Motorola Unveils Moto X Phone in Bid to Revive Business
Apple Buying Power-Efficient Chip Company Passif Semiconductor
Spanish Banks Selling Bad Loans at 96% Discount, Expansion Says
Tourre Loses SEC Case Claiming Fraud in $1 Billion CDO
U.S. ETFs Post $38.13b July Inflows, 4th-Biggest Month on Record

Allianz 2Q Net Income Beats Estimates, Sticks to Forecast. Solid numbers thanks to P&C and PIMCO.
Amadeus 1H Profit EU326.3M Vs EU298.8m a Year Earlier
Axa First-Half Net Income Falls 3% on Flood and Hedging Costs
Inmarsat 1H Sales Miss, Sees Risk of Global Xpress Delay
Liberty Global Reports Second-Quarter Loss on Virgin Media Costs
Lufthansa 1H Sales Miss Estimates, Confirms 2013 Forecast
Moody’s Changes Peugeot Outlook to Negative From Stable
Telecom Italia 1H Sales in Line, Announces EU2.2b Writedown
Tenaris 2Q Ebitda, Sales Beat Ests.
TOYOTA RAISES FY NET FORECAST TO 1.48T YEN FROM 1.37T YEN

CURRENT STUFF

Inflow of $6.6b went to equity funds for week ended July 31, as $1.6b left bond funds, analysts led by Markus Rosgen writes in note, citing data from EPFR Global.
Most of inflow went to U.S. funds, Japan-focus funds posted $383m outflow, first in 28 weeks, Emerging-market funds drew $707, Asian funds saw $396m outflow,  Foreigners bought $1.1b of Asian stocks.  Net purchase of Taiwan reached $600m, Korea $500mn; Japan net sell of $536m in week of July 24

July Global manufacturing PMI (JPM) released yesterday carries with it three key takeaways. First, the output  component edged up and remains consistent with a modest sub-par 2.5%ar gain in global factory output.  Second, more encouraging are signs that the recent stretch of soft IP growth and somewhat better gains in  final demand are combining to set in motion an inventory correction that will facilitate an acceleration in  activity. Third, tempering the positive message from inventories is a notable divergence in outcomes, with  Europe (including CE) and the US seeing sizable improvements and Asia deteriorating. While some easing  in Japanese growth is expected, the slide deeper below 50 in the EM Asia PMIs suggests the lift from  improving DM growth has been more than offset by regional domestic  demand weakness. The reported 1.9% contraction in Korean exports in July following a 1.1% dip in June underscores concerns about  regional activity.

Indonesia’s growth rate fell more than expected, with Q2 GDP rising 5.8% year-on-year, compared to consensus forecasts of 5.9%, and a comparable rate of 6.02% in Q1. The country is contending with both slowing investment and rising inflation as energy costs rise. (Bloomberg)

Brazil actually does support IMF’s Greek aid: “Brazil reversed its hardline stance on Greece’s bailout on Thursday, saying it had not authorised its representative to the International Monetary Fund to withhold support for the latest aid to Athens.” Finance minister Guido Mantega said Brazi’s abstention from the vote on a €1.8bn tranche of aid was a ‘mistake’. (Financial Times)

Australia’s budget deficit will widen to A$30.1 billion ($26.8 billion) this fiscal year as the economy slows and unemployment rises, underscoring Prime Minister Kevin Rudd’s challenge as he prepares for an election.” (Bloomberg)

STRATEGY

JPM (Lee) US Equity Strategy Update.
We continue to favor Cyclicals, high-FCF yield and, basically, applying  an early cycle playbook given the turn in Europe. We have compiled a list of 21 stocks, looking for  companies that have already reported 2Q13 results with demonstrated top-line growth and operating  leverage.

UPS&DOWNS

European volume manufacturers (JPM, Asumendi) Cash and Earnings vs Earnings only. Upgrade Renault to Overweight.
In this note, we outline the key arguments why we believe there could be a soft recovery in the European car market in FY14 followed by a stronger recovery in FY15 as pent up demand could drives sales in Europe. Within the framework of cash over earnings, and having been positively surprised by strength in pricing power of the OEMs, we reiterate our OW rating on VW, PT €217 (€213) and upgrade Renault from Neutral to Overweight, PT €74 (€59).

Edenred (GS, Edelman): Strong 1H13 but reducing estimates for FX, off CL List, remains Buy
We lower our estimates and 18m price target (€28.90 from €29.30) for FX and remove Edenred from the Conviction List. Notwithstanding, we continue to see Edenred’s strong organic growth and cash generation and high return on capital as attractive; Buy.

Europe: Banks (GS, Omahen) FICC cuts: Travelling at different speeds, and down different roads; Buy UBS, Sell DBK
UBS has cut its IB RWAs by 33% over the past year. By contrast, CS and DBK are pursuing a modest IB reduction (FICC cuts half those of UBS). Unlike many investors, therefore, we see no “quiet UBS” strategies at CS or DBK.

AB INBEV PT RAISED TO EU78.40 FROM EU73.80 AT ING

ABB CUT TO NEUTRAL VS BUY AT GOLDMAN

AIR FRANCE RAISED TO BUY VS NEUTRAL AT CITI

ANTOFAGASTA CUT TO REDUCE VS NEUTRAL AT NOMURA

BAE RAISED TO HOLD VS SELL AT SOCGEN

CSR CUT TO SELL VS NEUTRAL AT UBS

ENEL RAISED TO BUY VS HOLD AT SOCGEN

FCC RAISED TO BUY VS HOLD AT DEUTSCHE BANK

GLENCORE RAISED TO NEUTRAL VS REDUCE AT NOMURA

ISRAEL CHEMICALS CUT TO NEUTRAL VS BUY AT GOLDMAN

ITALCEMENTI CUT TO SELL VS NEUTRAL AT CITI

KOMERCNI BANKA RAISED TO BUY VS NEUTRAL AT BOFAML

LLOYDS BANKING RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS

POLYUS GOLD INTL CUT TO NEUTRAL VS BUY AT BOFAML

RENAULT RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN

RTL GROUP RATED NEW OUTPERFORM AT CREDIT SUISSE; PT EU77

SOCIETE GENERALE RAISED TO BUY VS HOLD AT DEUTSCHE BANK

UBM CUT TO HOLD VS BUY AT DEUTSCHE BANK

URALKALI CUT TO SELL VS NEUTRAL AT GOLDMAN

VONTOBEL RAISED TO NEUTRAL VS SELL AT UBS

WEIR RAISED TO BUY VS HOLD AT BERENBERG

YAPI KREDI CUT TO HOLD VS BUY AT SOCGEN

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 up +251.14 (+1.79%) at 14,257
Topix up +19.22 (+1.65%) at 1,183
Hang Seng up +123.83 (+0.56%) at 22,213

US markets
S&P 500 up +21.14 (+1.25%) at 1,707
DJIA up +128.48 (+0.83%) at 15,628
Nasdaq up +49.37 (+1.36%) at 3,676

European markets
Eurofirst 300 up +13.00 (+1.08%) at 1,221
FTSE100 up +60.92 (+0.92%) at 6,682
CAC 40 up +50.04 (+1.25%) at 4,043
Dax up +134.76 (+1.63%) at 8,411

Currencies
€/$ 1.32 (1.32)
$/¥ 99.28 (99.53)
£/$ 1.51 (1.51)

Commodities ($)
Brent Crude (ICE) up +0.47 at 110.01
Light Crude (Nymex) up +0.71 at 108.60
100 Oz Gold (Comex) down -5.30 at 1,306
Copper (Comex) down -0.01 at 3.15

10-year government bond yields (%)
US 2.71%
UK 2.42%
Germany 1.67%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.99bps at 90.54bp
Markit iTraxx Europe -3.37bps at 96.62bp
Markit iTraxx Xover -6.16bps at 398.01bp
(CDX IG will return shortly)

Sources: FT, Bloomberg, Markit

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