European Markets could mark a today ahead of a key U.S. jobs data release which could determine when the Federal Reserve starts tapering.
US equities finished with modest gains in fairly uneventful trading on Thursday. The path of least resistance remained slightly to the upside with the continued pickup in recovery expectations. While there were some mixed takeaways from today’s economic data, the expansion in the services sector and signs of further traction in the labor market recovery seemed to get the most attention. The continued backup in Treasury yields was cited as an overhang, though the bigger headwind was on the rate sensitive and dividend plays. Despite a busy day of central bank policy meetings and better emerging markets sentiment, macro did not seem to be a directional driver.
UST10y yields broke above 3% in NY trade after Europe’s close and remain above 3% in Asian trade this morning. Currently yielding 3.0012, +0.0075 but versus 2.9097% this time yesterday morning.
Asian stocks fell, snapping a six-day rally.
We’ll watch the US payrolss as it is the last key data point before the 18th of September FOMC meeting and the beginning of the tapering. Some expect that if the number is below 145k-150k it could delay the process…
Today: Europe: German IP, UK IP. US: Non-farm payrolls.
FILMO: PAIN & GAIN. Their American Dream Is Bigger Than Yours. The rock is a better actor than I thought. Not worth watching though unless you’re into steroids.
RESTO: GUILO GUILO. Eijchi Edakuni puts on a show for his counter-side customers at this delicious Japanese restaurant. Treats include melting foie gras sushi, astonishing soups and crunchy asparagus beignets. Reserve well in advance! 8 rue Garreau 75018.
DISCO. The Deftones at le Zenith. Arcade Fire to release a new single and a video on Monday. Trailer (http://pitchfork.com/news/52147-watch-arcade-fire-share-trailer-for-reflektor/)
SPORT: U.S. Open… and cycling Sunday morning.
Syria. An intercepted message says Iran plans to attack US in Iraq in event of Syria strike -U.S
France may cut company tax rate to 30% although no final decision has been taken on Cos that make a profit of more than 38,000 euros a year currently pay tax of 33.33%. Les Echos.
Moody’s raises German banks outlook to stable from negative.
MAN Plc could be a target for Julius Baer (in the Mail).
Volkswagen’s Piech may step down in coming months according to Handelsblatt for health reasons.
Pro Sieben TMG last night launched a sale of its holding, 13.1m shares.
Air France-KLM August Passenger Traffic Rises 4.9%
Optimism grows for developed economies: Yields on sovereign debt, which move inversely to prices, broke above key levels in Europe and the US, even after Mario Draghi, the European Central Bank president, warned about the fragility of the eurozone’s nascent economic recovery. Yields on two-year US Treasuries rose above 0.5 per cent for the first time since June 2011 and markets priced in the first US Federal Reserve interest rate rise as early as December next year. In the UK, 10-year government bond yields rose above 3 per cent for the first time in two years. (Financial Times)
Summers would face key ‘no’ votes for Fed: At least three Democrats on the Senate Banking Committee are expected to oppose Larry Summers if he’s nominated to chair the Federal Reserve. “Democrats hold a two-vote majority on the 22-member panel, so the loss of three Democrats would make it impossible” for Summers to get to the full Senate vote unless some Republicans on the Committee provide backing. (Wall Street Journal)
Blockbuster Verizon bond sale to test debt appetite: With Verizon likely to seek more than $20bn of financing from US investors in the coming weeks, the company and the banks underwriting the sale will soon discover whether that sharp jump in yields since May means that this debt package can attract buyers, who have not done well since Apple’s offering. (Financial Times)
German Election (JPMorgan)
GS (Nielsen) GOAL: Asset Allocation Update
From build-up to resolution of uncertainty: We remain pro-risk
Macro outlook: Improving global growth We see the macro outlook as supportive for risky assets and expect global growth to continue to improve. Recent data has been strong and even though uncertainty has increased we think most of this will be resolved in coming months. We expect monetary policy to remain very accommodative in developed markets. We think the fear of tapering is overdone. It is occurring in light of better growth data and in our view represents more of a change in policy instruments than a tightening of the overall monetary stance.
Our views across asset classes
Equities:We remain overweight over both 3 and 12 months. Returns should be supported by better global growth, accelerating earnings growth and still high risk premia. Regionally, we remain overweight Japan and Europe and underweight the US and Asia ex-Japan over 12 months.
Commodities:Spare oil capacity is very limited and inventories are very low creating upside risks to prices in the very near term. This is balanced by our view that prices will decline towards year-end as the supply situation improves. We remain neutral commodities over 3 and 12 months.
Corporate credit:We expect the search for yield environment to remain strong and push spreads a bit tighter from here. Corporate re-leveraging is the main risk to this view (but this is not our baseline). Within credit we prefer high yield over investment grade. We stay neutral on the asset class.
Government bonds:Bond yields are somewhat above our estimates of current fair value and we see the near-term risk-reward as balanced. Longer term we continue to expect yields to rise as growth improves. We remain neutral over 3 months and underweight over 12 months.
Vodafone (JPM, Dattani) Incorporating the VZW sale, KD acquisition & Project Spring. Vodafone’s growth profile looks attractive
Our new estimates reflect major changes including the proposed sale of VZW1 for $130bn, the return of $84bn in shareholder returns, the consolidation of the €11bn KD acquisition from October and the £6bn “Project Spring” investment plan. We also update FX rates thereby incorporating mounting EM headwinds. Nevertheless, this leaves us modeling a restructured Vodafone that offers low single digit EBITDA growth which in turn supports high single digit EPS and DPS growth. In addition to this attractive growth profile and a solid balance sheet position, we continue to believe AT&T’s interest in Europe may lead it to see Vodafone as a potential acquisition target.
Nokia (JPM, Deshpande) SoTP scenarios on what remains
By and large the market was taken by surprise by Nokia’s announced sale of its D&S business to Microsoft for €5.44bn in cash. This note addresses a key question post the announcement of how to value a restructured but now profitable Nokia. Per our calculations shown here, using an EV/sales multiple range for NSN and EBIT multiple for the patents, produces a range between €4.42 and €6.14. Using the same EV/sales multiple for NSN and a growth of between 0-8% for the patent EBIT values the stock between €4.62 and €10.53. Again using the same EV/sales multiples for NSN and the Nortel precedent to value the patent portfolio, values the stock between €5.03 and €6.55.
AXEL SPRINGER RAISED TO HOLD VS REDUCE AT KEPLER CHEUVREUX
BMW RATED NEW BUY AT NOMURA PT EU85
CAMPARI RAISED TO BUY VS HOLD AT KEPLER CHEUVREUX
CLARIANT RAISED TO BUY VS REDUCE AT NOMURA
DAIMLER RATED NEW NEUTRAL AT NOMURA; PT EU55
DIAGEO RAISED TO BUY VS NEUTRAL AT CITI
ENEL RAISED TO BUY VS NEUTRAL AT UBS, PT EU3.20
ERICSSON RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
EUROPEAN AUTOS & AUTO PARTS RATED NEW NEUTRAL AT NOMURA
LANCASHIRE RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
MHP RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT MORGAN STAN…
MICHELIN CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS
RAUTARUUKKI RATED NEW SELL AT UBS, PT EU4
SAFARICOM RAISED TO OVERWEIGHT VS EQUALWEIGHT AT MORGAN…
SIBANYE RAISED TO BUY VS NEUTRAL AT BOFAML
SIEMENS RAISED TO BUY VS HOLD AT SOCGEN
SONOVA RAISED TO BUY VS NEUTRAL AT UBS
SSAB RATED NEW SELL AT UBS, SEK38
STADA RATED NEW UNDERWEIGHT AT BARCLAYS; PT EU27.5
SVENSKA CELLULOSA RATED NEW OVERWEIGHT AT BARCLAYS; PT SE…
TELENET RATED NEW SELL AT SOCGEN, PT EU34
VOESTALPINE CUT TO NEUTRAL VS BUY AT BOFAML
VOLKSWAGEN RATED NEW NEUTRAL AT NOMURA; PT EU170
WILLIAM DEMANT CUT TO NEUTRAL VS BUY AT UBS
ZIGGO RATED NEW BUY AT SOCGEN, PT EU36
ZON OPTIMUS RATED NEW HOLD AT SOCGEN, PT EU4.2
OVERNIGHT MARKETS: varied
Nikkei 225 down -123.62 (-0.88%) at 13,941
Topix down -7.85 (-0.68%) at 1,150
Hang Seng up +56.45 (+0.25%) at 22,654
S&P 500 up +2.00 (+0.12%) at 1,655
DJIA up +6.61 (+0.04%) at 14,937
Nasdaq up +9.74 (+0.27%) at 3,659
Eurofirst 300 up +8.72 (+0.72%) at 1,224
FTSE100 up +57.70 (+0.89%) at 6,532
CAC 40 up +26.38 (+0.66%) at 4,007
Dax up +39.06 (+0.48%) at 8,235
€/$ 1.31 (1.31)
$/¥ 99.79 (100.11)
£/$ 1.56 (1.56)
Brent Crude (ICE) down -0.04 at 115.22
Light Crude (Nymex) up +1.20 at 108.37
100 Oz Gold (Comex) down -1.10 at 1,372
Copper (Comex) unchanged 0.00 at 3.24
10-year government bond yields (%)
CDS (closing levels)
Markit iTraxx SovX Western Europe +1.01bps at 90.5bp
Markit iTraxx Europe +0.43bps at 105.6bp
Markit iTraxx Xover -2.53bps at 414.98bp
Sources: FT, Bloomberg, Markit