LCM Dawn Patrol – 26.09.13 – JPM downgrades Tesco, GS likes Roche, Samsung creates the buzz

Bonjour,

European Markets to open steady as there are more concerns regarding a possible US government shutdown.
US equities finished mixed in somewhat choppy trading on Tuesday. Selling pressure picked up late in the session and the Dow and S&P both ended down for a fourth straight session. While there were no meaningful directional drivers for the market, there were a number of items in focus. There seemed to be some good news surrounding the heightened potential for a diplomatic solution with Iran. However, sentiment faded after Tehran decided against a meeting between the leaders of the two countries at the UN this week. The industrials sector remained a standout with help from a favorable recovery/liquidity backdrop. However, financials lagged as banks extended their recent pullback, a dynamic that was also cited as a broader market headwind.
Asian shares slipped and the dollar inched higher in early Asian trade on Wednesday, as concerns about the U.S. Federal Reserve’s policy outlook made investors hesitant to take aggressive positions. (Reuters) (Bloomberg)

Today, we’ll watch the Gfk consumer confiance in Germany, US Durable goods and New home sales.

BUZZZ

Samsung is so jealous of Apple’s fan herd movement that it decided to create lines in front of its store when launching new products. The new Galaxy Note 3 is out today (probably a great product) and Samsung is offering a Galaxy Gear smartwatch to the first 200 customers…
(picture by me…)

NEWS

Akzo Nobel Restructuring on Track, to Book Most Charges in 4Q
ANZ Bank Said to Drop Out of Bidding for Lloyds Australia Assets
• Asian Stocks Fall Second Day as U.S. Consumer Confidence Drops
• Brazil Phone Watchdog Said to Favor Tim Sale Over Breakup
Centaur Media Ex-CEO Says He’s Considering Bid for Co.
EADS Seeks Edge in Korean Fighter Jet Contest Against U.S.
Immofinanz 1Q Net EU117.7m vs EU9.6m Y/y
Intesa Sanpaolo CEO Facing Efforts to Remove Him From Post: FT
• Italy’s Letta Says Markets Underestimate Risk of U.K. Leaving EU
New York Life to Acquire Dexia Asset Management for $512m
Raiffeisen Plans EU400m-EU450m Cost Cuts by 2016
SocGen Seeking Partners to Support Eastern Europe Expansion: FT
• Sweden to Sell Remaining $3.4b Stake in Nordea Bank
Telecom Italia Unions Vow to Fight Cuts as Telefonica Takes Hold
Volkswagen Said to Plan China Expansion in Guangdong: Reuters

CURRENT STUFF

Debt Ceiling
Moody’s provided some reassuring words saying that that a debt ceiling impasse and a government shutdown are unlikely to affect the US sovereign rating. Note that Moody’s is the only major rating agency that still rates the US government at the equivalent of AAA with a stable outlook. Fitch also rates the US government at AAA but has a negative outlook while S&P is at AA+ with a stable outlook

Obama and Rouhani revive nuclear diplomacy: The US president told the UN that there was “the basis for a meaningful agreement” with Iran. (Financial Times) Although “Rouhani’s decision against meeting Mr. Obama—or even exchanging a handshake—at the U.N. General Assembly in New York on Tuesday soured what American and European officials had hoped would mark an advancement in efforts to wind down tensions.” (WSJ)

Fed probes for leaks ahead of policy news: “The US Federal Reserve is contacting news organisations to check they followed its procedures after claims that some traders obtained early access to this month’s decision on monetary policy.” (Financial Times)

Currency manipulation should be part of trade talks, Senators say: “A bipartisan majority of the US Senate demanded that US President Barack Obama address “currency manipulation” in trade negotiations with 12 Pacific nations, throwing up a potential roadblock as the talks approach their final stages.” (Financial Times)

UPS&DOWNS

JPM on UK Food Retailing (Jaime Vazquez) A price/ range problem and a painful solution. Tesco downgraded to Underweight.
We downgrade Tesco to UW and add it to the EMEA AFL (while removing Ahold), reduce our 2013/14 and 2014/15 EPS by 1% and 5% respectively and cut our Jun-14, PE-based TP to 350p. We believe the UK food retailing industry has structural problems, and think Tesco will be most impacted. The discounters (Aldi, Lidl) are disrupting the price/range architecture that the big 4 used for two decades, the customer is demanding a simplified product range, and there is a need for reduced mid-tier pricing. With Tesco’s initiatives having had limited success, weak LFLs, and margins persistently above peers’, we think Tesco is more likely to go through a painful rebasing of pricing and the gross margin (synonymous to a profit warning). In the UK our preference remains for Booker (OW).

Roche (GS, Parekh) Buy: R&D day preview: Newer, under-appreciated assets in focus CL-Buy
We believe Roche’s R&D day (Oct. 1) will focus on several assets (lampalizumab, PD-L1, etrolizumab, etc) which could each have peak sales >$1 bn, but are not yet reflected in sell-side estimates or valuation. Reiterate CL Buy.

Volkswagen Prefs. (JPM, Asumendi) Deep dive into VW’s pricing strategy
In this note, we give our view on what VW’s 2014 budget and forecasts will look like, concluding that EBIT of €13.4bn is a realistic target for next year. Our calculations reassure us on our Overweight recommendation, even though our PT falls slightly to €214. Following confirmation during our China trip in June that VW is considering launching a low-cost brand, we also analyze what such a strategy will entail. We conclude here that this is a positive step for VW over the longer term, allowing it to gain market share in emerging markets, and to defend the higher-priced strategy of its core brands in Europe

ACS RAISED TO NEUTRAL VS UNDERPERFORM AT EXANE
AIR PRODUCTS RATED NEW NEUTRAL AT UBS, PT $110
AXIS RAISED TO BUY VS NEUTRAL AT SWEDBANK
BANK VOZROZHDENIE CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
CLARIANT AND DSM REMOVED FROM UBS’S MOST PREFERRED LIST
DNO CUT TO NEUTRAL VS OVERWEIGHT AT HSBC
EBRO FOODS CUT TO NEUTRAL VS OUTPERFORM AT EXANE
ELISA OYJ RAISED TO HOLD VS SELL AT BERENBERG
EUROTUNNEL RAISED FROM MARKET PERFORM AT RAYMOND JAMES
HAYS RAISED TO OVERWEIGHT VS NEUTRAL AT HSBC
OTP BANK RATED NEW SELL AT UBS
RAUTARUUKKI CUT TO SELL VS HOLD AT NORDEA
SANOMA RAISED TO BUY VS HOLD AT NORDEA
SIG RAISED TO BUY VS NEUTRAL AT UBS
SNAM RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
TRAVIS PERKINS RAISED TO BUY VS NEUTRAL AT UBS
VTB CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -43.64 (-0.30%) at 14,689
Topix down -4.33 (-0.36%) at 1,211
Hang Seng up +31.20 (+0.13%) at 23,210

US markets
S&P 500 down -4.42 (-0.26%) at 1,697
DJIA down -66.79 (-0.43%) at 15,335
Nasdaq up +2.97 (+0.08%) at 3,768

European markets
Eurofirst 300 up +2.07 (+0.16%) at 1,258
FTSE100 up +14.09 (+0.21%) at 6,571
CAC 40 up +23.53 (+0.56%) at 4,196
Dax up +29.31 (+0.34%) at 8,665

Currencies
€/$ 1.35 (1.35)
$/¥ 98.70 (98.70)
£/$ 1.60 (1.60)

Commodities ($)
Brent Crude (ICE) up +0.16 at 108.80
Light Crude (Nymex) up +0.24 at 103.37
100 Oz Gold (Comex) unchanged 0.00 at 1,316
Copper (Comex) up +0.01 at 3.27

10-year government bond yields (%)
US 2.66%
UK 2.83%
Germany 1.84%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.18bps at 87.06bp
Markit iTraxx Europe -2.72bps at 97.54bp
Markit iTraxx Xover -12.35bps at 388.26bp

Sources: FT, Bloomberg, Markit

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