LCM Dawn Patrol – 03.10.13 – Strong China/Japan data, MS lowers chemicals sector growth, USD drops, More…

Bonjour,

US equities were lower on Wednesday, but finished off their worst levels for the session. There was no specific driver cited for the pullback that followed some unexpected resilience in the prior session in the face of the government shutdown. Some of the blame was chalked up to the softer ADP private payrolls data, though the report seemed to have little impact on labor market recovery expectations. As expected, the fiscal drama in Washington continued to dominate the headlines. However, it seemed as if today’s developments could be spun in a number of different directions. Once again, the market failed to get any real direction from developments from overseas, including a selloff in Japan and some less dovish takeaways from the ECB meeting. It was also another very quiet day on the corporate calendar, though there was some more focus on the headwinds going into the unofficial start of Q3 earnings season next week.
Asian markets were stronger this morning despite talks over budget impasse drags on. A strong China services PMI lifted spirits across the region and boosted stocks in Hong Kong. In Japan, news of a new leak at another tank at TEPCO’s (9501.JP) Fukushima plant weighed on sentiment.
European markets to open flat to slightly lower on the US gov’t shutdown and strong Chinese economic data

Today, we’ll close la Stampa but stick with the Washington Post to see how the US govt is going to find a solution as both Obama and the congressional leaders refuse to negotiate. We’ll also watch the European PMIs ‘composite), then we’ll get the jobless claims and the ISM non manufacturing.

DXY (USD vs major currencies)

NEWS

Boehner Says Obama Refused Negotiations in White House Meeting
Draghi Said to Task ECB Panel to Consider Bank Liquidity Options
Schaeuble Urges Euro-Area Patience in Reunification Comparison
China. The official Services PMI from NBS came in at a six month high today of 55.4 from 53.9 in August.
Japan. The services PMI marked 53.0, after 51.2 in August and 50.6 in July.

JPM (Loeys) reduces its Equity allocation to Neutral

Santander, BBVA Among Banks Studying NCG Banco Data, Pais Says
Applied Materials Seen Winning Approval for Takeover: Real M&A
KPN Shareholders Approve Sale of German Unit to Telefonica
Oi to Combine With Portugal Telecom Into $17 Billion Giant
Tesco Says Future China Deals to Go Through China Resources Retail Venture
Aviva Says Sale of U.S. Business to Athene Brings $2.6b
Mercedes-Benz Global Sales Post Record in September, Bild Says
KPN: German Cartel Office Renews Call for E-Plus Scrutiny: Koelner Stadt-Anzeiger.
Goldman Sachs Buys $1.46b Stake in Denmark’s Dong Energy
Portugal Says Won’t Interfere in Portugal Telecom, Oi Merger
Prosecutors Said to Seek JPMorgan Indictment in Paschi Case
Marc Jacobs’s Vuitton Exit Seen as Double Boost to LVMH

Samsung 3Q: Boost From Robust DRAM, Smartphone Sales (Bloomberg Preview).
ESTIMATES (consolidated):
• 3Q oper. profit est. 9.96t won (8.8t-11t) (32 analysts)
• 3Q sales est. 59.7t won (57t-64t) (36 analysts)

CURRENT STUFF

China’s service sector hits six-month high: The non-manufacturing PMI rose to 55.4 in September, up from 53.9 in August. Any reading above 50 indicates expansion. (FastFT)

Draghi pledges to keep interest rates low: While the ECB reiterated its “forward guidance” policy that promises to keep rates at or below current levels for an extended period, the council remained divided, for the second month in a row, over whether it should cut further. (Financial Times)

Italy’s coalition government comfortably survived the crucial Senate vote of confidence by 235 votes to 70. Mr Berlusconi was jeered by onlookers as he left the chamber, his 20-year unchallenged grip on Italy’s centre-right severely weakened by his parliamentary humiliation and the looming prospect of being ousted from the Senate and banned from holding public office following his conviction for tax fraud in August. (Financial Times)

US private payrolls growth is sluggish in September: “US companies created fewer than expected jobs in September in an indication that the country’s labour market is struggling to pick up pace. Private sector payrolls rose by 166,000 last month on a seasonally adjusted basis, following a downwardly revised 159,000 rise in August, data from ADP, the private payrolls processor, showed on Wednesday. Economists had expected an increase of 180,000.” (Financial Times)

UPS&DOWNS

Europe: Consumer Staples (GS, Collett) Short-term pain, long-term gain: Unilever off CL-Buy
European staples has de-rated and is now trading at its 10yr av premium versus the market despite now offering better EBITDA growth and CROCI than the market. This presents an opportunity in a sector with long-term growth from global economic realignment.

Schibsted ASA (GS, Iwar): Growing online classifieds earnings globally; Conviction List Buy
We initiate on Schibsted with a Buy and add it to the Conviction List. The company is quickly shifting focus to online classifieds, which offer much higher and more stable growth prospects. We forecast a 14% EBITDA CAGR to 2030 for online classifieds.

Global Chemicals (MS, Walsh) China trip 2013 – Rebasing to lower growth
Our trip this year left us with a consistent message – no industrial upturn, persistent overcapacity, and little acceleration likely, even mid-term. China’s focus is on trying to improve returns, and using market forces to achieve that. In our view, this selectively puts 2014 earnings at risk.

CSR PLC (MS, Meunier) ‘Internet of My Things’ play with Bluetooth Smart – OW
Initiate at OW, PT 580p

CSR started as a single-product company but has now diversified, operating in many niche markets with more pricing power and gross margins close to 60%. We argue that operating margins are now 10-15% providing 500p support to the shares. We think Bluetooth Smart offers enough upside risk for an OW.

AER LINGUS RATED NEW ’OVERWEIGHT’ AT HSBC
AGGREKO CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
BANKERS PETROLEUM RAISED TO BUY VS NEUTRAL AT GOLDMAN
CHINA MEDICAL RATED NEW BUY AT UBS
COASTAL ENERGY CUT TO NEUTRAL VS BUY AT GOLDMAN
CSR RATED NEW OVERWEIGHT AT MORGAN STANLEY, PT 580P
FRESNILLO RAISED TO OUTPERFORM VS SECTOR PERFORM AT RBC
GERRESHEIMER DOWNGRADED TO NEUTRAL FROM OUTPERFORM AT C.S…
GTC RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
HERITAGE OIL CUT TO NEUTRAL VS BUY AT GOLDMAN
KWS SAAT RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT BARCLAYS
LINDT & SPRUENGLI RAISED TO NEUTRAL VS SELL AT GOLDMAN
MAIL RU GROUP RATED NEW BUY AT CITI, PT $44
MONDI RAISED TO NEUTRAL VS SELL AT CITI
NYRSTAR RESUMED UNDERWEIGHT AT MORGAN STANLEY, PT EU3
RAIFFEISEN BANK RAISED TO BUY VS HOLD AT SOCGEN
SABMILLER CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
SOLVAY CUT TO UNDERWEIGHT VS EQUALWEIGHT AT BARCLAYS
SOPRA RAISED TO ’OVERWEIGHT’ AT HSBC
STANDARD CHARTERED CUT TO HOLD VS ADD AT NUMIS
TATE & LYLE RAISED TO NEUTRAL VS SELL AT GOLDMAN
TESCO RAISED TO NEUTRAL VS SELL AT CITI
TMK RAISED TO BUY VS NEUTRAL AT BOFAML
UNILEVER REMOVED FROM CONVICTION BUY AT GOLDMAN, STILL BUY
YANDEX RATED NEW BUY AT CITI, PT $46
YARA RATED NEW EQUALWEIGHT AT BARCLAYS, PT NK270

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -11.51 (-0.08%) at 14,159
Topix up +1.42 (+0.12%) at 1,177
Hang Seng up +222.56 (+0.97%) at 23,207

US markets
S&P 500 down -1.13 (-0.07%) at 1,694
DJIA down -58.56 (-0.39%) at 15,133
Nasdaq down -2.96 (-0.08%) at 3,815

European markets
Eurofirst 300 down -8.83 (-0.70%) at 1,247
FTSE100 down -22.51 (-0.35%) at 6,438
CAC 40 down -38.44 (-0.92%) at 4,158
Dax down -59.72 (-0.69%) at 8,629

Currencies
€/$ 1.36 (1.36)
$/¥ 97.64 (97.33)
£/$ 1.62 (1.62)

Commodities ($)
Brent Crude (ICE) down -0.28 at 108.91
Light Crude (Nymex) down -0.40 at 103.70
100 Oz Gold (Comex) unchanged 0.00 at 1,321
Copper (Comex) unchanged 0.00 at 3.31

10-year government bond yields (%)
US 2.62%
UK 2.75%
Germany 1.82%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.63bps at 85.47bp
Markit iTraxx Europe -0.74bps at 98.67bp
Markit iTraxx Xover -0.34bps at 397.66bp

Sources: FT, Bloomberg, Markit

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