LCM Dawn Patrol – 08.08.13 – China’s trade is strong. MS on EM unwind. Lots of earnings. And how to warm up when you go surfing…

Bonjour,

The Dawn Patrol is going on Holidays tomorrow. Should you have any feedback, ideas or should you want to contribute, please don’t hesitate… Enjoy your holidays!

European markets are expected to open higher this morning following the strong Chinese trade data. Exports rose 5.1% in July vs expectations of 3% rise and imports rose 10.9% vs expectations of a 2.1% rise. Let commodities fly!
Asian stocks rose as the BoJ maintained easing policy and China’s July trade growth was much higher than expected. The Nikkei rose 1% and the yen weakened 0.2% after rising 1.4% yesterday.
US equities finished modestly lower in quiet, summer trading on Wednesday. The Dow and S&P 500 were both down for a third straight session. As has been the case throughout the week, there did not seem to be any high-profile directional drivers in play. Neither a big selloff in Japan nor a continued improvement in sentiment surrounding Europe had much impact. In addition, the pullback continued to be chalked up to themes that have already been widely hashed out, particularly Fed tapering. GSE reform also remained in focus despite the skepticism surrounding the potential for any meaningful progress. Recovery leveraged sectors such as banks, homebuilders and retail extended their recent underperformance. Defensive and rate-sensitive plays fared better with help from lower Treasury yields.

Bill Gross asks the right question …. Gross: So QE 1, 2 & 3 lifted stock prices by nearly unanimous agreement. When the Fed tapers, stocks will keep climbing?

Today: Earnings – Commerzbank, Rio Tinto H1 estimate, Aviva, Deutsche Telekom, Nestle.

HOLIDAYS

aa

You know how I love surfing. I can’t surf as much as I’d want, so warming up is really important. Here is the exclusive warm up by pro surfer Anastasia Ashley. Please exercise with caution.
http://bit.ly/13lt2cT

NEWS

China July Trade Growth Beats Estimates
German June Current Account Surplus EUR17.3B vs Forecast +EUR16.0B. Exports +0.6% (vs 0.9%e), Imports -0.8% (vs 0.5% e).
BoJ keeps policy steady, as expected. The central bank also said Japan’s economy was starting to recover modestly. (FastFT)(Statement)
European junk debt sales soar in US: Sales are up 70% so far this year to $29bn, according to Dealogic. (Financial Times)
Pearson Said to Seek Up to $500m for Mergermarket Unit
BP Loses Bid to Avoid Paying Gulf Spill Center $130m

After market

Tesla shares surged nearly 14% to $152.78 on heavy volume after the electric-car maker reported adjusted earnings of 20 cents a share on revenue of $401.5 million. Analysts surveyed by FactSet expected a loss of 19 cents a share on revenue of $386.9 million.
Groupon shares jumped 19% to $10.37 on heavy volume after the daily-deals site of 2 cents a share on revenue of $608.7 million. Analysts expected earnings of 2 cents a share on revenue of $606.2 million for the quarter.

Earnings

Adecco 2Q Revenue Matches Ests.; Sees Steady Improvement Into 2H
Adidas 2Q sales a touch below exp, “FY guidance will be more difficult to achieve”. 2Q gross margin 50.1%, est. 49.3%
Aegon 2Q Net EU242m vs Est. EU313m; Interim Div. EU0.11
Aviva 1H Post Tax Profit 776m Pounds Vs 624m Pounds Loss (strong op results, rest is in line)
Commerzbank 2Q Net EU43m; Est. EU4.6m (numbers look in line)
Delhaize 2Q ebit beasts est,  rev. EU5.298b, est. EU5.37b. 2Q underlying op margin 3.6%, co.-compiled consensus est. 3.3%
DTE cuts FCF guidance due to customer addition costs. Reports 2Qadj. Ebitda EU4.42b vs est. EU4.41b, 2Q sales EU15.16b vs est. EU14.57b.
Henkel 2Q Organic Sales Growth Beats Est, Repeats 2013 Outlook
KBC Profit Beats Ests; Pro-Forma Common Equity Ratio at 11.8% (looks like strong numbers).
Nestle 1H Organic Growth 4.1%; Analyst Estimate 4.5%
Rhoen Klinikum confirms 2013 outlook seen at April 25. 1H oper. Ebitda EU151.5m, up 4.1% Y/y; est. EU152.5m
Tod’s 1H rev. & Ebitda beat ests. (EU129.5m, est. EU124m). Confirms expectations to post “further growth” of rev., profits in 2013

CURRENT STUFF

Next Fed Chairman (according to Paddypower sport)

fed

Chinese trade data beat: Exports rose 5.1% for July, year-on-year, compared to a median forecast of 2%. Import growth was even stronger at 10.9%, while the median forecast was for only 1%. (Bloomberg)(Financial Times)

Vale’s profits plunge as real weakens: Profits at the world’s biggest iron ore producer fell more than 80% in Q2, after currency losses and lower sales led to one of its worst results in a decade. Net income for the three months ended June 30 fell 84 per cent to $424m, compared with a profit of $2.64bn a year earlier. (Financial Times)

STRATEGY

MS (Fels) The Global Macro Analyst
The Great EM Unwind

The unwinding of US QE, China’s leverage and EM  domestic growth where it has been ‘excessive’ around  the same time creates a very difficult environment for  EM growth. This triple unwind affects EM capital  accounts via the impact of QE unwinding, EM current  accounts via China’s leverage unwind, and EM  domestic demand directly where economies that have  allowed/encouraged/sought high credit growth now  have to rein it in. In today’s note, Manoj Pradhan and  Patryk Drozdzik provide an economic and practical  framework to navigate the great EM unwind.  Specifically, they ask: Which economies stand to be  buffeted the most? What is the economic framework for  the headwinds from this triple unwind? What is the  practical framework for ‘placing’ economies according  to their exposure to a particular headwind? How is  exposure to each headwind measured? How will EM  play out from here?

UPS&DOWNS

Oil & Gas (MS, Rats) Upgrading Total, Downgrading Shell
TOTAL: EW to OW, PT €41.10 to €46.10
RD Shell: OW to EW, PT 2,500p to 2,320p

Total’s FCF is set to start rising from next year onwards, placing its dividend on a more secure footing and likely driving a contraction in yield. At the same time, we no longer see Shell’s dividend capacity reaching the level we once anticipated for 2015. In that context, upside appears modest.

Sodexo SA (MS, Rollo) Target Too Big To Swallow?
We cut forecasts 6-8% to reflect a variety of headwinds in all regions, and think there is a high probability the company pushes out its 2015 6.3% margin target (vs 5.0% 2013e). The attractions of Sodexo’s markets and margin catch-up potential are clear, but its valuation looks too rich to us.

ACTELION RAISED TO BUY VS NEUTRAL AT UBS
CARILLION RATED NEW EQUALWEIGHT AT MORGAN STANLEY; PT 345P
CATTOLICA ASSIC CUT TO REDUCE VS HOLD AT KEPLER CHEUVREUX
CONTINENTAL EUROPE RAISED TO OVERWEIGHT AT CREDIT SUISSE
FERREXPO CUT TO NEUTRAL VS BUY AT GOLDMAN
LAFARGE PT CUT TO EU51 VS EU59 AT BERENBERG; KEPT AT HOLD
LUNDIN PETROLEUM CUT TO NEUTRAL VS BUY AT BOFAML
PUMA CUT TO SELL VS HOLD AT BERENBERG
SCANIA CUT TO SELL VS NEUTRAL AT GOLDMAN
SHELL CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN STANLEY
STANCHART PT LOWERED 2% TO HK$204 AT BARCLAYS AMID ESTIMATE CUTS
TOTAL RAISED TO OVERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY

OVERNIGHT MARKETS: UP

Asian markets
Nikkei 225 up +145.97 (+1.06%) at 13,971
Topix up +5.72 (+0.50%) at 1,161
Hang Seng up +166.39 (+0.77%) at 21,755

US markets
S&P 500 down -6.46 (-0.38%) at 1,691
DJIA down -48.07 (-0.31%) at 15,471
Nasdaq down -11.76 (-0.32%) at 3,654

European markets
Eurofirst 300 down -3.25 (-0.27%) at 1,218
FTSE100 down -93.00 (-1.41%) at 6,511
CAC 40 up +5.92 (+0.15%) at 4,038
Dax down -39.25 (-0.47%) at 8,260

Currencies
€/$ 1.33 (1.33)
$/¥ 96.73 (96.29)
£/$ 1.55 (1.55)

Commodities ($)
Brent Crude (ICE) up +0.39 at 107.83
Light Crude (Nymex) up +0.47 at 104.84
100 Oz Gold (Comex) up +7.50 at 1,294
Copper (Comex) unchanged 0.00 at 3.18

10-year government bond yields (%)
US 2.60%
UK 2.49%
Germany 1.69%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.96bps at 88.99bp
Markit iTraxx Europe +1.03bps at 96.52bp
Markit iTraxx Xover +5.06bps at 400.11bp

Sources: FT, Bloomberg, Markit

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