LCM Dawn Patrol – 02.10.13 – JPM on global investment banks.

Bonjour,

European markets expected to open flat to slightly down on the Italian political situation (budget debate at 9:30).
US equities finished higher in fairly uneventful trading on Tuesday. The market was largely unfazed by Congress’s inability to avert a partial government shutdown. This dynamic fit with thoughts that despite the lack of a clear path to a deal, the shutdown will be short-lived and not put any meaningful dent in the economic recovery. It was a quiet day on the corporate calendar ahead of the unofficial kickoff of Q3 earnings season next week. Takeaways from the economic calendar were slightly positive, though the data did not have any notable impact on recovery sentiment.
Asian equity markets traded mixed Wednesday morning on quiet news flow

VG1 Futures: Support at 2908/10 then 2893. Resistance 2932 then 2956.

Today, we’ll follow the Italian budget debate at 9:30, the US ADP jobs (we may not get the NFP data on Friday) and the MBA mortgage applicatino. We also get the ECB rate decision at 13:45.

I feel like Bagheera this morning….

 

NEWS

Letta Poised to Save Govt by Splitting Berlusconi’s Party
Draghi Seen Putting Words Before Action as ECB Steers Recovery
Euro Crisis Over Even If Europe Far From Equilibrium, Soros Says
Bank of Spain’s Restoy Says Moderate GDP Growth May Appear Soon
Hollande Giving Workers Say in M&A Deepens Fortress-France Image

GDF Suez– Mitsui has offered €300m for some of co’s Oz assets (Echos)

Sainsbury 2Q LFL Sales Ex-Fuel Match Estimate; Total Sales Up 5%
Tesco 1H Trading Profit GBP1.59b; Est. GBP1.62b
Wolfson Micro Sees 4Q Sales Below Estimates
Vinci wins contract for Metro in Rennes,worth approx €320m.
Aeroflot Submits Requests for Listing in New York, London: IFX
Bollore May Ask to Raise His Mediobanca Stake to 8%: Radiocor
GDF Suez to Operate Uruguay’s First Plant to Import Natural Gas
Henkel CEO Sees Four More Difficult Years for European Economy
Intesa Approves Debt Restructuring Plan for Zaleski’s Tassara
J&J Says Boehringer Dispute May Cause Cancer-Drug Shortage
Tesco, CRE Enter Definitive Pact on China JV
Tokyo Electron Seeks Deals After Applied Materials Takeover

CURRENT STUFF

US takes ‘extraordinary’ measures to pay bills: “The US has begun implementing the “final extraordinary measures” to pay the nation’s bills ahead of an October 17 deadline for Congress to approve new government borrowings, Treasury secretary Jack Lew told congressional leaders on Tuesday.” (Financial Times)

Japan’s Shinzo Abe reveals tax plan as business confidence soars: “Shinzo Abe, Japan’s prime minister, pledged to press ahead with the first increase in sales tax for over 15 years despite objections from some of his closest advisers, gambling that measures to address the country’s massive debts would not hinder his attempts to jump-start the economy.” (Financial Times)

European groups buffeted by emerging market currency volatility: “Unilever’s warning that “significant currency weakening” in emerging markets would cause quarterly sales growth to slow reminded investors this week that currency effects will weigh on European third-quarter corporate results.” (Financial Times)

UPS&DOWNS

Global Investment Bank Tracker (JPM, Abouhossein)
FICC -24% q/q & -35% y/y driven by difficult base effect: top picks UBS followed by DBK at 6.0x P/E

We estimate Q3 IB revenues to be down -18% q/q and -14% y/y and think the best IB exposure is found in UBS (given its business mix) and Deutsche Bank (given valuation). Our analysis forecasts IB weakness to be mainly driven by FICC (-24% q/q and -35% y/y). Although a c15-20% decline is due to seasonal weakness alone, positioning in Q2 13 (on EM volatility and FX) and credit spread basis tightening in Q3 12 (iTraxx Europe -15bps in 3Q13E vs. -30bps in 3Q12) which did not repeat in Q3 13 have added to the negative momentum. We think Equity will outperform FICC (esp. cash equity). We play this through UBS (1.5x P/NAV 15E for RoNAV of 15.9%) given its WM/ equity gearing & material capital return potential. We also remain buyers of Deutsche Bank given it is the cheapest bank in our coverage on 6.0x P/E & 0.7x P/NAV for RONAV of 12.7% in ‘15E (see note). In the US, we prefer MS over GS due to its WM/Equity gearing, lower FICC gearing (13% of ‘15E revenues vs. 28% at GS) & FICC restructuring. Our pecking order within Global IBs is: UBS, DB, SG, CSG, MS, BNP & GS.

ARM HOLDINGS CUT TO NEUTRAL VS BUY AT NATIXIS
AUTOGRILL CUT TO SELL VS NEUTRAL AT UBS
AXA SA RATED NEW BUY AT BANKHAUS LAMPE, PT EU21
BARCLAYS RAISED TO BUY VS HOLD AT SOCGEN
BILIA CUT TO NEUTRAL VS BUY AT SWEDBANK
EBRO FOODS CUT TO NEUTRAL VS BUY AT UBS
EUROPEAN OIL E&P SECTOR CUT TO NEUTRAL VS BULLISH AT NOMURA
FRESNILLO CUT TO SELL VS NEUTRAL AT CITI
ICADE CUT TO NEUTRAL VS BUY AT UBS
IMI RAISED TO OUTPERFORM VS SECTOR PERFORM AT RBC
M6 RAISED TO NEUTRAL VS REDUCE AT NATIXIS
MAX PETROLEUM RAISED TO OUTPERFORM VS NEUTRAL AT MACQUARIE
MEDIVIR AB CUT TO HOLD VS BUY AT JEFFERIES
OPHIR ENERGY CUT TO NEUTRAL VS BUY AT NOMURA
POLYUS GOLD CUT TO NEUTRAL VS BUY AT CITI
RANDGOLD CUT TO SELL VS NEUTRAL AT CITI
SAUDI CEMENT COMPANY CUT TO UNDERPERFORM VS NEUTRAL AT BOF…
UNILEVER CUT TO NEUTRAL VS BUY AT UBS
YANBU CEMENT CUT TO UNDERPERFORM AT BOFAML

OVERNIGHT MARKETS:

Asian markets
Nikkei 225 down -237.71 (-1.64%) at 14,247
Topix down -16.67 (-1.40%) at 1,177
Hang Seng up +254.21 (+1.11%) at 23,114

US markets
S&P 500 up +13.45 (+0.80%) at 1,695
DJIA up +62.03 (+0.41%) at 15,192
Nasdaq up +46.50 (+1.23%) at 3,818

European markets
Eurofirst 300 up +8.83 (+0.71%) at 1,256
FTSE100 down -2.21 (-0.03%) at 6,460
CAC 40 up +53.16 (+1.28%) at 4,197
Dax up +94.74 (+1.10%) at 8,689

Currencies
€/$ 1.35 (1.35)
$/¥ 97.89 (97.89)
£/$ 1.62 (1.62)

Commodities ($)
Brent Crude (ICE) down -0.43 at 107.51
Light Crude (Nymex) down -0.51 at 101.53
100 Oz Gold (Comex) up +2.60 at 1,289
Copper (Comex) unchanged 0.00 at 3.27

10-year government bond yields (%)
US 2.65%
UK 2.76%
Germany 1.81%

CDS (closing levels)
Markit iTraxx SovX Western Europe -2.04bps at 86.1bp
Markit iTraxx Europe -4.97bps at 99.41bp
Markit iTraxx Xover -10.03bps at 398bp

Sources: FT, Bloomberg, Markit

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