LCM Dawn Patrol – 10.09.13 – LCM Cross Assets Strategy, Barclays on earnings, JPM on CGG and seismic cos, MS ups TF1 and lots more…

Bonjour,

European stocks are seen rising on Tuesday, tracking gains on Wall Street and in Asia, Obama said he saw a possible breakthrough in the crisis with Syria after Russia proposed that Damascus hand over its chemical weapons for destruction, which could avert planned U.S.-led military strikes. Tapering also remains a significant driver and a small shift towards more benign assumptions also provided a modest boost to sentiment.
US equities were higher on Monday. It was the 5th straight day of gains for the S&P 500. Positive economic data out of China provided a lift at the open as exports were better than expected and inflation remained subdued. An uptick in M&A activity was another source of positive sentiment. All sectors were higher led by materials +1.52%. Treasury yields moved lower. Crude and dollar were lower. Gold was little changed.
Asian equity markets traded higher Tuesday morning. India was back on line after yesterday’s market holiday. Despite a lack of regional directional drivers, reports cited momentum from yesterday’s gains as spilling over into today’s trade. There was also positive sentiment surrounding pending major data releases by China this afternoon. The consensus is that the data will reaffirm that China is recovering.

Today, Final 2Q GDP data in Italy may match early figures showing a decline, economists estimate. France industrial production rises first month in three, Swedishoutput increases for a 2nd month, according to economists. Riksbank, ECB policy makers speak. EFSF, Netherlands, U.K. sell bonds. Germany sells linkers. Glencore Xstrata holds investor meeting, carmakers meet press/investors at Frankfurt auto show. (BBG).

TUESGEAR

(because I like Klipsch speakers). The Gig, a portable Bluetooth speaker with a clip-on arm that doubles as a stand. Packing AptX, NFC and a battery rated for 12 hours of life, the speaker is controlled with a chunky analog knob which reminds us of a childhood wasted playing with audio separates. Sound-wise, the Gig crams in four drivers — two tweeters and a bass up front, while a second bass ’round back balances out the sound. At least, that’s what Klipsch says, anyway. Black and white versions will launch in October for $200
http://www.engadget.com/2013/09/06/klipsch-status-gig-audio/

NEWS

British House-Price Index Rises to Highest Since 2006: RICS
Hungary FX Loan Solution Must Include Govt: Bank Group
EU’s Rehn Questions French Plan for Pension Reform: Le Figaro
German Construction Mkt May Shrink This Year: Berliner Zeitung
Merkel Says Europe Can’t Just Rest on Its Renaissance Laurels
French labor unions stage day of action to protest government plans for pension reform

PetroChina Said to Mull $10b Investment in Siberian Gas Fields
Arrow Global Plans IPO on LSE, Seeks to Raise GBP50m
Sabadell to Raise as Much as EU1.4b With Share Sale
Orange Sees German Wireless Merger Approval Triggering Shakeup
Netflix Added to Virgin Media U.K. Pay TV in Industry First
Barclays to Pay $36m for Securitization Role in Subprime
Deutsche Telekom Said to Select Four Buyout Firms for Scout Bids
Mercedes Benz’s China sales up 27.3% in Aug
Repsol Talking to Banks About Selling EU4.4b Gas Natural Stake
Daimler (DAI GY) worked with Tesla (TSLA US) to develop B-Class electric drive

CURRENT STUFF

Obama to halt attack if Syria destroys chemical weapons: Asked by ABC if he would hold off on air strikes were Syria to relinquish control of its chemical weapons, Mr Obama said: “Absolutely. If in fact that happens.” Mr Obama was speaking hours after Russia launched an unexpected diplomatic initiative to defuse the Syrian crisis when it called on the Assad regime to place its chemical weapons stockpile under international supervision. (Financial Times)

Verizon will sell a combination of fixed and floating-rate debt spread across six different maturities that range from three to 30 years as part of its $130bn acquisition of Verizon Wireless, according to a company filing with regulators. The sale may surpass Apple’s $17bn record sale in April and could be priced as early as Wednesday.(Financial Times)

Foreign firms turn to FX swaps to fund Chinese operations: Multinational companies said that they could raise more money, more quickly and more cheaply by borrowing in dollars and swapping the money into yuan than if they borrowed directly in yuan through the offshore yuan-denominated bond (Dim Sum) market in Hong Kong. (Reuters)

Nine of Europe’s biggest utilities have joined forces to warn that the EU’s energy policies are putting the continent’s power supplies at risk. Gérard Mestrallet, chief executive of GDF Suez, said one of the biggest problems was overgenerous renewable energy subsidies. (Financial Times)

Fed succession – Joseph Stiglitz in the NYT comes out strongly in favor of Janet Yellen to succeed Bernanke as Fed chairman (the NYT has been perhaps the most aggressive in endorsing Yellen over Summers). Stiglitz has worked closely w/both Summers and Yellen and thinks the former lacks the temperament and forecasting skills, along w/having too many ties to Wall St, to effectively lead the Fed. NYT http://goo.gl/l3reOX

STRATEGY

LCM (Abet) Cross Asset Strategy #11
Let’s go a bit more contrarian
Trend following strategies have been losing momentum since the start of the summer.
Markets’ reaction to US economic data confirms the difficulty for investors to feel comfortable in the current context. We think the bond market over-reacted to “tapering prospects”. It is a misunderstanding that the Fed should clarify. Value is back in the US bond market.
We examine the difference of equity valuation between the US market and the European market. The divergence of profitability explains a big part of the European discount. We find however some anomalies. The European Oil&Sector looks attractive, whatever your scenario on oil prices.
Trade recommendation Summary
Buy TIP US (inflation-linked bonds)
Go Long European Oil&Gas sector Short US Peer

Barcap European Strategy Elements: How high can earnings growth be?
We believe earnings growth can be as high as 4% in 2013 and 12% in 2014 for the STOXX 600. This compares to negative earnings growth in 2012 and consensus expectations for 0% growth in 2013. Our forecasts are driven by our view that European profit margins should be at a cyclical trough. Therefore earnings momentum should pickup soon, and European equities should outperform the US.

GS (Matheny) EM Macro Daily – Russia’s sovereign risk premium
EM sovereign credit has historically exhibited a very close correlation with U.S. high yield credit but this relationship has broken down this year, with U.S. HY trading significantly tighter and EM spreads decoupling.

UPS&DOWNS

Seismic sector update (JPM, Dobbing) Pricing assumptions reduced – PGS (OW) still our top pick; CGG downgraded to N; TGS upgraded to N
We remain positive on seismic – the macro outlook for exploration spending remains supportive and the supply-demand outlook continues to suggest pricing upside, albeit insufficient to deliver the scale of margin upside we had anticipated. Subsector valuation multiples have substantially compressed on this less positive outlook. This is particularly true for PGS, which is most geared to tightness in the vessel market. In our view, further downside risk to pricing should be offset by the lower likelihood of further new build vessel announcements. Consequentially, PGS’s differentiated fleet leaves it well placed and it remains our preferred way to play the seismic sector.

TF1 (MS, Rossi) Vive la France
Up 30% YTD, TF1 is still the worst-performing broadcaster YTD and appears undervalued. Macro is improving, which, coupled with cost savings and regulatory relief, can trigger significant operational gearing. At 11.8x PE, 5.7x EV/EBITDA in 2015e (ex. Pay TV), the stock is lowly rated. We move to OW.

SKF (MS, Almerud) Already discounts all-time high margins
We downgrade SKF to UW – with realistic cost savings already in the price and limited upside from higher savings, we would prefer exposure to the cyclical recovery through Sandvik.

Europe: Utilities (GS, Wilkens) Reiterate CL Buys on EON, GSZ, REE & DRX on earnings/PT update
We update our forecasts for commodities, FX and 1H results, and price targets for valuation roll-forward. We reiterate EON, GSZ, REE and DRAX as CL-Buy. We remove Shanks from the Conviction List (remains Buy) and downgrade Fortum to Neutral from Buy.

AG BARR CUT TO SELL VS HOLD AT SOCGEN
ANGLO AMERICAN PLATINUM RAISED TO BUY VS NEUTRAL AT BOFAML
AQUARIUS PLATINUM CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
AQUARIUS PLATINUM RAISED TO BUY VS NEUTRAL AT BOFAML
BANK OF IRELAND RATED NEW SELL AT SOCGEN
BARCLAYS AFRICA REINSTATED NEUTRAL AT GOLDMAN, PT 143 RAND
BG GROUP CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
CAPITEC BANK RATED NEW SELL AT GOLDMAN, PT 184 RAND
CGG VERITAS CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
FIAT INDUSTRIAL CUT TO SELL VS NEUTRAL AT UBS
FIRSTRAND LTD RAISED TO BUY VS NEUTRAL AT GOLDMAN
FORTUM CUT TO NEUTRAL VS BUY AT GOLDMAN
GETINGE RAISED TO BUY VS NEUTRAL AT BOFAML
ITHACA ENERGY RATED NEW BUY AT LIBERUM, PT 210P
KINNEVIK RATED NEW BUY AT CITI, PT SEK260
LONMIN RAISED TO NEUTRAL VS UNDERPERFORM AT BOFAML
MOSCOW EXCHANGE CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
SAFILO RATED NEW BUY AT BERENBERG
SANDVIK RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT MORGAN STA…
SKF CUT TO UNDERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
SWEDISH ORPHAN BIOVITRUM RATED NEW BUY AT JEFFERIES; PT SEK90
TELEKOM AUSTRIA CUT TO NEUTRAL VS BUY AT CITI
TELKOM SA CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN STANLEY
TF1 RAISED TO OVERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY
TGS RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN

OVERNIGHT MARKETS: middling

Asian markets
Nikkei 225 up +192.64 (+1.36%) at 14,398
Topix up +18.60 (+1.59%) at 1,192
Hang Seng up +134.74 (+0.59%) at 22,885

US markets
S&P 500 up +16.54 (+1.00%) at 1,672
DJIA up +140.62 (+0.94%) at 15,063
Nasdaq up +46.17 (+1.26%) at 3,706

European markets
Eurofirst 300 down -1.79 (-0.15%) at 1,228
FTSE100 down -16.59 (-0.25%) at 6,531
CAC 40 down -8.86 (-0.22%) at 4,040
Dax up +0.65 (+0.01%) at 8,276

Currencies
€/$ 1.33 (1.33)
$/¥ 99.55 (99.57)
£/$ 1.57 (1.57)

Commodities ($)
Brent Crude (ICE) down -0.97 at 112.75
Light Crude (Nymex) down -1.14 at 108.38
100 Oz Gold (Comex) down -9.40 at 1,377
Copper (Comex) unchanged 0.00 at 3.28

10-year government bond yields (%)
US 2.93%
UK 3.00%
Germany 1.97%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.72bps at 91.21bp
Markit iTraxx Europe -3.8bps at 100.74bp
Markit iTraxx Xover -11.39bps at 401.4bp

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