LCM Dawn Patrol – 09.09.13 – JPM view and JPM on Europe. MS +ve on ORANGE, lots more…

Bonjour,

European stocks expected to open up today, on better economic data and despite the fears of a US led action against Syria.
Asian stocks rose, with Japan’s benchmark index reaching a one-month high, and the yen weakened after Tokyo was selected to host the 2020 Olympics. Metals rallied and the won gained on improving Chinese exports and easing concerns over a reduction in U.S. stimulus.

This week, our eyes will be on political events such as the US congress vote on Syria and the Italian debate on Berlusconi. In terms of data: global IP (EU, Japan and China), US retail sales and lots of Chinese data. Have a great week!

NEWS

SYRIA LATEST: Congress to Begin Deliberations Ahead of Vote
Dalio (founder of Bridgewater) sees France or EM as next crisis areas
China Rebound Gets Overseas Boost as Exports Beat Estimates
Asian Stocks Rise as Yen Declines on Tokyo Winning Olympics
Osborne to Say Tighter Market Conditions May Curb U.K. Recovery
Italy – Berlusconi has appealed his decision to Europe’s human rights court

Vivendi Shareholder Bollore to Run for Company Presidency: Echos
Suntory Said to Buy Glaxo’s Lucozade, Ribena Brands for $2b
Vodafone May Not Get Approval for Kabel Deutschland Offer: FT
Google Made New Offer to Settle EU Probe, Almunia Says
SCA Group Offers $1.4b for Vinda International
Telecom Italia Is Said to Propose Reorganization to Directors
Glaxo Probed by U.S. on Chinese Bribery Allegations: Reuters
Nestle’s Brabeck Ponders L’Oreal Conundrum as Growth Sags
VW Targets 2013 Op. Result on 2012 Level, Boersen-Zeitung Says

CURRENT STUFF

China August CPI, PPI in line with expectations; trade balance widens more than expected: China reported August CPI increased 2.6% y/y, matching expectations, and PPI decreased 1.6%, less than the expected 1.8% decline. Sentiment around the release was positive, with many reports citing the data as a vindication that China is recovering from a temporary slowdown. Over the weekend, China also reported that its trade balance in August widened to $28.6B vs the consensus of $20B. The data showed that exports rose 7.2% y/y, above the consensus expectation of a 6% increase, out pacing import growth of 7%, below the expected 7.2% growth in imports. Reuters reported that regional exports were strong as exports to ASEAN increased 30.8%. The report cited caution among Chinese manufacturers as the catalyst for the import slowdown. The data releases were a catalyst for a regional advance in markets.

Fed/Tapering. J Hilsenrath update in the WSJ which says the issue of tapering isn’t settled yet. One option that has gained popularity at the Fed lately is a taper by a small amount (say $10B) and then emphasise to the market how further reductions will be very data dependent and not automatic. The initial taper should be thought of as a “cautious first step”. According to Fed models, the timing of tapering isn’t all that critical although it sends an important signal to markets which could then begin discount the end of the program earlier than FOMC officials would want. WSJ

J.P. Morgan economist bump up estimates for 2H global growth after the business surveys now points to global growth momentum building rapidly—to a pace well above our forecast of trend growth over the coming quarters (see below). We now forecast global growth of 2.8% and 3% in 3Q and 4Q respectively (from previous 2.7% and 2.9% growth.)

US investors have pumped more money into European equities than at any time since 1977. Pension funds and other big US groups invested $65bn in European stocks in the first six months of 2013, the highest in 36 years over that time period, according to research compiled by Goldman Sachs’ European strategy team from US Treasury data. (Financial Times)

Europe’s corporate bond market has raised a total of nearly $29bn over the past two weeks, a dramatic surge after one of the quietest summer lulls on record. There were a total of 39 issues, according to figures from Dealogic. (Financial Times)

Japan’s second quarter economic growth has been revised up to 0.9 per cent quarter on quarter from 0.6 per cent on the back, in part, of stronger capital expenditure than initially reported. (FastFT)

“Pressure from disappointed investors is forcing hedge funds to roll back their fees, putting the standard charge of 2% of assets under management and 20% of investment profits on the endangered list… Today, the average hedge fund charges an annual management fee of about 1.6% of assets, while claiming around 18% of investment gains.” (Wall Street Journal)

Benign inflation adds to sense Chinese economy recovering: Consumer prices rose 2.6 per cent from a year earlier, just a touch below July’s 2.7 per cent pace, the statistics bureau said on Monday. The data follow good trade figures released on Sunday that beat expectations and improving producer price inflation. (Financial Times)

STRATEGY

JPM (Loeys) The J.P. Morgan View

What ideas to buy?
Asset allocation –– We focus on six ideas to drive perform ance: growth rotation across countries; a rebound in manufacturing; crossing the mid point of the cycle; tightening monetary policy; Value; and Momentum.
Economics –– Strong PMIs show the manufacturing rebound is coming. But upside risks on growth are held in check by higher bond yields and oil prices. UK 2014 growth is raised from 2.6% to 3.1%.
Fixed Income –– Bearish on the long end, but seeing some value at the front end.
Equities –– Cut EM equity underweights but do not go long yet.
Credit ––US HG spreads should tighten to145bp by year end.
FX –– Sell Euro crosses (EUR/GBP, EUR/NZD) and buy some commodi ty currencies (AUD/CHF, CAD/JPY).
Commodities –– We have turned tactically long commodities and OW vs. cash and fixed income.

JPM (Matejka) Equity Strategy
When will earnings revisions turn up?

We find the buyside is more sceptical with respect to the European recovery than the sellside is. The concern is over the lack of stabilization in earnings so far => all the performance was driven by multiple expansion. We believe that current levels of PMIs are already enough for positive EPS growth. For the revisions themselves to turn outright positive, we historically needed higher PMIs, in the 54-55 range. We are not far from these levels, and internals look encouraging. We think we will get there as consumer, capex, net trade, fiscal side and inventory rebuild could all act as tailwinds. If one looks at the past three inflection points in earnings, ’94, ’03 and ’10, the magnitude of EPS upgrades relative to initial IBES projections was of the order of 10%. Who benefits? Cyclicals, especially Autos and Banks were the sectors most leveraged to PMI improvement. At country level, periphery is likely to stop contracting by year end. UK PMIs are already consistent with as much as 20% earnings growth rate.

UPS&DOWNS

Orange (MS, Purewal) Re-iterating the OW
Steep price declines in domestic mobile are now better priced in, combined with a 2-3 year time advantage over Iliad (the disruptive price challenger) on 4G (offering speed differentiation and scope for prices to rise). Fibre subsidies, cost direction and a low valuation also keep us OW.

JPM on French Banks (Delphine Lee) : Fieldtrip feedback
On a recent fieldtrip to Paris, we met with the regulator, Agence France Trésor as well French banks. Key take aways were: a) French retail performance has been better than expected given the context, and b) the French regulator continues to be supportive of the banks business model although the SSM could create risk for the capital treatment for insurance used by French banks (Danish Compromise). Within the French banks, we still better risk reward with SG (OW) at 8.9x PE and 0.7x NAV 2014e vs. BNPP (N) at 10.6x PE & 0.9x NAV and CASA (N) at capital adj. 9.7x PE and 0.8x NAV in 2014e.

AKSIGORTA RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML
ATRESMEDIA RAISED TO NEUTRAL VS SELL AT CITI
BASHNEFT RAISED TO BUY VS NEUTRAL AT CITI
BAT AFRICA RAISED TO BUY VS NEUTRAL AT BOFAML
BAT RAISED TO BUY AT BOFAML
BOUYGUES CUT TO SELL VS HOLD AT SOCGEN
DIXY GROUP CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
E.ON CUT TO UNDERPERFORM VS NEUTRAL AT BOFAML
ENQUEST CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS
HEINEKEN CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE
IMPERIAL CUT TO SELL VS NEUTRAL AT UBS
INFORMA CUT TO NEUTRAL VS BUY AT CITI
ITV CUT TO MARKET PERFORM VS OUTPERFORM AT BERNSTEIN
JCDECAUX RAISED TO BUY VS NEUTRAL AT CITI
LEGAL & GENERAL RAISED TO OUTPERFORM AT BERNSTEIN
NOBEL BIOCARE RAISED TO OUTPERFORM AT BERNSTEIN
REED ELSEVIER RAISED TO BUY VS NEUTRAL AT CITI
SALAMANDER ENERGY CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARC…
STRAUMANN RAISED TO OUTPERFORM VS MARKET PERFORM AT BERNS…
SUPER GROUP RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML
TATE & LYLE CUT TO SELL VS NEUTRAL AT UBS
TFI RAISED TO BUY VS NEUTRAL AT CITI
TURKISH AIRLINES CUT TO NEUTRAL VS BUY AT BOFAML

OVERNIGHT MARKETS: up

Asian markets
Nikkei 225 up +305.64 (+2.21%) at 14,166
Topix up +24.86 (+2.17%) at 1,173
Hang Seng up +166.07 (+0.73%) at 22,787

US markets
S&P 500 up +0.09 (+0.01%) at 1,655
DJIA down -14.98 (-0.10%) at 14,923
Nasdaq up +1.23 (+0.03%) at 3,660

European markets
Eurofirst 300 up +6.18 (+0.51%) at 1,230
FTSE100 up +14.89 (+0.23%) at 6,547
CAC 40 up +42.39 (+1.06%) at 4,049
Dax up +40.69 (+0.49%) at 8,276

Currencies
€/$ 1.32 (1.32)
$/¥ 99.65 (99.10)
£/$ 1.56 (1.56)

Commodities ($)
Brent Crude (ICE) down -0.03 at 116.09
Light Crude (Nymex) down -0.28 at 110.25
100 Oz Gold (Comex) up +1.20 at 1,388
Copper (Comex) up +0.02 at 3.28

10-year government bond yields (%)
US 2.95%
UK 2.99%
Germany 1.95%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.01bps at 90.49bp
Markit iTraxx Europe -1.06bps at 104.54bp
Markit iTraxx Xover -2.19bps at 412.79bp

Sources: FT, Bloomberg, Markit

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s