European stocks to open down today, falling for a third straight day and tracking losses on Wall Street as uncertainty about when the U.S. Federal Reserve will start scaling back its stimulus measures keeps investors on edge.
In the US, SPX closed down by 0.47% with Utilities and Techs outperforming while Financials and Consumer discretionary lagged.
Asian stocks dropped, dragging down the benchmark gauge from a four-month high, as Japanese exporters retreated on a stronger yen.
Today, we’ll look at US home prices in the US. In Europe, we’ll focus on the IFO expectations. In terms of Fed speakers, we get Pianalto (non voting) and George (hawk) today.
SX5E Futures: Support at 2893 then 2873. Resistance 2910 then 2932 (intra-day gap)
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• German Ifo Business Confidence Seen Increasing for Fifth Month
• Draghi Says ECB Prepared to Offer More Long-Term Loans
• BOE’s Broadbent Says Faster Jobless Drop May Demand Rate Rethink
• London Fund Managers More Optimistic About Economy
• Schaeuble Tells Leipziger Higher Euro Area Deficits No Solution
• Aberdeen Said to Join Bids for Lloyds’ Scottish Widows Fund Unit
• Telefonica Said to Reach Agreement to Boost Telecom Italia Stake
• Schindler Names Silvio Napoli Chief to Replace Juergen Tinggren
• Patrizia to Buy 36 Office Properties in Hesse From CA Immo
• Monte Paschi Seen Boosting Cost-Cutting Goals to Meet EU Demands
• Air France Bides its Time on Alitalia as Board Shows Reluctance
• Airlines Face Carbon-Reduction Verdict on $708 Billion Industry
• Danone’s Dumex to Release Its Bribery Probe Results This Month
• Lixil Said to Discuss Acquiring Grohe in 3 Billion-Euro Deal
• BlackBerry in Tentative Deal With Fairfax Group to Go Private
“Activision Blizzard and parent Vivendi have filed an emergency appeal of a ruling that blocked Vivendi’s $8.2 billion sale of most of its controlling stake in the videogame maker. A preliminary injunction issued last week says shareholders must vote before Vivendi is permitted to pare its 61% stake in Activision.” (WSJ)
BlackBerry has agreed to be bought by a consortium of Canadian investment companies, led by Prem Watsa’s Fairfax Financial, for $4.7bn in cash and taken private, in a last-ditch move to ensure the survival of one of the pioneers of the global smartphone industry. (Financial Times)
“Our European policy course will not change,” declared a triumphant Angela Merkel at her first press conference, declaring that her re-election for a third term as German chancellor was “a very strong vote for a united Europe”, and an endorsement of Germany’s interests in Europe and the world. (Financial Times)
China is seeking to join US-led talks aimed at updating the ageing rules on the $4tn annual trade in global services in a move that is raising concerns in Washington over Beijing’s motives. US officials are concerned that if China joins the discussions, it may seek to water down the services agreement. (Financial Times)
Chrysler files for IPO as a last resort following a dispute between majority owner Fiat and the healthcare trust that owns the rest of the US carmaker. According to the filing, the company has set a place holder amount of $100m to calculate fees ahead of a possible listing. The number of shares and the offering price have not been determined. (Financial Times) (WSJ)
Apple sold more than 9m of its latest iPhones over the launch weekend, up from 5m last year and much higher than analysts had expected, sending its shares 5 per cent higher. (Financial Times)
LCM Cross Asset Strategy Report #13 : Waiting for the ECB’s Reaction
The European Central Bank has to answer to the Fed’s commitment towards very accommodative monetary policy.
– The Fed had to adjust its strategy due to the increase in markets’ interest rates over the past three months. This increase was not part of its expected scenario. Bernanke thought that very transparent communication would ensure a smoothed recovery of interest rates. In fact, he underestimated the positioning risk and the herd behaviour of investors.
– EM assets rallied on the news, in a symmetric way to their collapse earlier this year when the first signs of potential tapering appeared. We want to “sell the news” and take this opportunity to short again EM assets against developed peers.
– The pressure has moved from the Fed to the ECB. The European Central Bankshould not accept the tightening of financial conditions in Europe due to the exchange rate appreciation. We think Mario Draghi will not remain passive and will react in the coming days. Despite the recovery of PMIs in the Eurozone, the ECB has no other choice than to reflate the economy. Domestic value assets in Europe will benefit further from this policy’s strategy.
– We run a Principal Component Analysis (PCA) on European Sectors. PCA is astatistical technique that aims to identify common factors to several series. We explain the difficulty for European investors to read equity markets this year: we demonstrate the coincidence of three themes: high risk/low risk, cyclical/non-cyclical and domestic/global. The moving correlation between these three themes leads to an unclear picture. We stick to our preferred theme which is to favour domestic stocks (both high and low risky stocks).
Trade recommendation Summary– Overweight the Energy sector in Europe (Oil&Gas is a strong underperformer and value (trap) sector in Europe. The decline in EURUSD and potential M&A could be the trigger to unlock the intrinsic value.)
– Sell Implied Volatility on EZ Banks and Buy Implied Volatility on European Autos Makers (The divergence in Implied Volatility is not justified anymore. The realised volatility is converging, we propose a 0 premium strategy.)
– Short EM equities (We have been looking for good entry points to short EMassets. We think we have now a very nice window to short EM equities naked.)
– Buy Implied Volatility US Materials (Implied Vol is very low and risk/reward of buying put spreads is interesting.)
AMEC CUT TO NEUTRAL VS BUY AT UBS
AZIMUT RATED NEW BUY AT CITI, PT EU20
BANCA GENERALI RATED NEW BUY AT CITI, PT EU20
BENETEAU CUT TO HOLD VS BUY AT KEPLER
EVONIK RATED NEW NEUTRAL AT HSBC; PT EU32
FORTUM CUT TO HOLD VS BUY AT NORDEA
GIVAUDAN RAISED TO BUY VS NEUTRAL AT NOMURA
MAIRE TECNIMONT RAISED TO OUTPERFORM VS NEUTRAL AT EXANE
POLARCUS CUT TO NEUTRAL VS BUY AT UBS
PROSENSA CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
STORA ENSO CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
TELEFONICA DEUTSCHLAND RAISED TO OUTPERFORM AT BERNSTEIN
TENARIS CUT TO SELL VS NEUTRAL AT UBS
TOTAL RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT BARCLAYS
UPM CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE
Nikkei 225 down -83.18 (-0.56%) at 14,659
Topix down -5.69 (-0.47%) at 1,213
Hang Seng down -223.49 (-0.96%) at 23,148
S&P 500 down -8.07 (-0.47%) at 1,702
DJIA down -49.71 (-0.32%) at 15,401
Nasdaq down -9.44 (-0.25%) at 3,765
Eurofirst 300 down -6.50 (-0.51%) at 1,256
FTSE100 down -39.06 (-0.59%) at 6,557
CAC 40 down -31.58 (-0.75%) at 4,172
Dax down -40.44 (-0.47%) at 8,635
€/$ 1.35 (1.35)
$/¥ 98.77 (98.82)
£/$ 1.60 (1.60)
Brent Crude (ICE) down -0.01 at 108.15
Light Crude (Nymex) down -0.06 at 103.53
100 Oz Gold (Comex) unchanged 0.00 at 1,327
Copper (Comex) unchanged 0.00 at 3.31
10-year government bond yields (%)
CDS (closing levels)
Markit iTraxx SovX Western Europe -0.75bps at 87.24bp
Markit iTraxx Europe +1.1bps at 100.26bp
Markit iTraxx Xover +7.05bps at 400.61bp
Sources: FT, Bloomberg, Markit