LCM Dawn Patrol – 04.10.13 – Week End in Paris, MS short term ideas, GS on US Q3 earnings, lots more.

Bonjour

US equities finished lower on Thursday. The S&P 500 suffered its biggest one-day percentage decline since 27-Aug. There was nothing specific behind the pullback, though there did seem to be some heightened frustration with the lack of progress surrounding the resolution of the fiscal drama in Congress. In addition, the Treasury warned that the debt ceiling impasse could trigger a financial crisis and recession echoing the events of 2008, or even worse. Despite the magnitude of today’s pullback, not all of the headlines were negative. There was more discussion about the potential to revisit grand bargain talks. In addition, stocks came off their worst levels for the session in early afternoon trading on the back of a NY Times article highlighting House Speaker Boehner’s commitment to avoiding a default. The economic calendar was once again relegated to the backburner. The downward trend in jobless claims remained intact, though services sector data came in softer.

Asian markets followed US lower this morning over budget and debt ceiling concerns. US President Barack Obama also announced the cancellation of his trip to Asia. Asian investors acted calmly towards the BoJ policy decision. which kept stimulus base and outlook unchanged. Elsewhere, tech stocks had a bit of play in the region this morning as Samsung Electronics (005930.KS) posted better-than-expected Q3 guidance while HTC (2498.TT) reported disappointing results.
European markets to open lower (0.2 to 0.5%) this morning as investors get worried about the budget deadlock in Washington.

Today, we won’t be watching the NFP data and there isn’t much in Europe (PPI only). So either you become an expert in US politics (just watch House of Cards) or you focus on earnings previews or the next trend will be (could it be Oil after the Telco rallye? Healthcare?)…

Have a great Week End!

WEEK-END

NUIT BLANCHE: from 7pm ’til 7am on the first Saturday in October, the city blossoms into a fantastic harvest of art, music and theatrical events. http://quefaire.paris.fr/nuitblanche
COEN BROTHERS at la Cinémathèque. 2nd to 27th of Oct. All Coen movies with the Big L on the 25th in Les Tuileries! (http://bit.ly/GBWEhi)
RESTO: PROFESSORE. A trendy Italian place from the guys who made l’Altro, les Cailloux, Grazie… 7 rue Choron, 75009. (http://bit.ly/158IFbF)

 

NEWS

Portugal Raises 2014 Growth Forecast, Keeps Budget Deficit Goals.
Merkel Set for Talks to Bridge Party Differences.
Asian Stocks Drop on Concerns Over U.S. Debt Limit.
Troika Sees Early Recovery Signs in Portugal Economic Activity.
Dijsselbloem Says Treaty Change Would Delay Europe Banking Union.
Coeure Says Rates to Remain Low for Extended Period of Time.

Barclays May Sell at Least GBP300m Shrs on Mkt Friday: Reuters.
Tarkett Set to Announce IPO Plan Friday, FT Says.
Telecom Italia’s Patuano Assumes CEO Role After Bernabe Resigns.
Teva: Favorable Ruling on Copaxone Patent Case in Netherlands.
Lufthansa Sees ‘Score’ Project Costs 2013-2015 About EU500m.

Twitter Makes IPO Filing Public With Implied $12.8 Billion Value.
Microsoft Said to Discuss Windows for HTC Android Phones.
Facebook’s Instagram to Start Advertising Amid Push for Revenue.
Cerberus Capital Is Said to Express Interest in BlackBerry Deal.
Samsung Electronics Gains After 3Q OP Profit Beats Est. (better sales of cheaper phones).
HTC Posts Wider-Than-Estimated Quarterly Loss as Sales Slump (net loss of NT$2.97bn vs -1.71e).
TEPCO -5% — halts water system after alarm goes off

 

CURRENT STUFF

No payrolls and ” An alternative date for the employment report, usually released on the first Friday of each month at 8:30 a.m., hasn’t been scheduled, the department said in a statement today in Washington. ” (Bloomberg)

Grand bargain gets some renewed attention. Politico noted that with the continuing resolution and debt ceiling issues becoming increasingly intertwined, talk of taking another shot at a grand bargain has been gaining momentum on both sides of aisle, and particularly among Republicans. It added that House Republicans may even be willing to consider new revenue in a large-scale deal that could also potentially include a repeal of the medical device tax, means-testing for Medicare, the introduction of a chained CPI, an increase in the retirement age and comprehensive tax reform. However, it was also reported that while House Speaker Boehner raised the idea at Wednesday’s meeting with Obama and Congressional leaders, everybody laughed at him given the extent to which previous efforts have disappointed.

Bank of Japan kept monetary policy unchanged: The Bank of Japan released its policy decision this morning, keeping its policy unchanged and maintaining monetary base expansion by ¥60-70T per year. Economy outlook was unchanged but capital expenditure target was upgraded. Following the sales tax raise, investors looked forward to fresh stimulus measures, yet the BoJ refrained from adding any stimulus to the present package.

Twitter launches countdown to $1bn IPO revealing that revenues tripled in 2012 but that it has never turned a profit during its seven-year history — analysts put is value at $11bn and $15bn when it floats It can launch its roadshow as soon as three weeks after Thursday’s filing of its S-1 prospectus with the SEC. The filing, the first time Twitter has published any financial information, showed revenues grew 107 per cent in the first half of 2013 to $253.6m. Net losses widened 41 per cent to $69.3m in the first half of this year, a period in which it made acquisitions, after shrinking during 2012 to $79.4m. (Financial Times)

Ackman’s Pershing Square has seen “assets under management decline by $2 billion from a high point earlier this year, largely due to investment declines, according to people familiar with its operations.” JC Penny and Herbalife bets stand out. (WSJ)

Other stuff:

More than 5,000 stockbrokers from expelled firms still selling securities (WSJ)
3 Portfolio Additions Every Investor Should Question (http://read.bi/16JrX5V)
Why this government shutdown is different – Washington Post http://goo.gl/oT3juD

 

STRATEGY

GS (Snider) US Equity Views
Portfolio Strategy Research

3Q earnings season preview: Cyclicals will drive sales acceleration We believe accelerating sales growth, margin stability, and sector earnings composition are three key items to watch during this earnings season. 3Q results should show evidence of improving sales growth as US GDP builds toward our forecast of 3% growth in 2014. We highlight 20 companies that consensus expects will generate 50% of S&P 500 year/year sales growth. Margins at 8.4% have declined slightly from peak levels and stability this quarter is important for continued EPS growth. Financials led earnings growth in 1H but this contribution should diminish in 3Q.

 

UPS&DOWNS

MS highlights 10 names for their analysts have high conviction going into earnings season.
Analysts expect the shares to move materially over the next 15-60 days on upcoming results or imminent news flow during the period.
Positive: APR Energy, IHG, Lloyds, Magnit, Safran, Thomas Cook, Turkcell
Negative: CGG Veritas, PKN, Standard Chartered

Lloyds Banking Group (MS, Manners) Positive RTI
We believe the share price will rise in absolute terms over the next 30 days. We are positive into 3Q earnings as we expect the stock to rally on i) better net interest income driven by better loan volumes, ii) bullish comments from management on the call on capital build and UK growth outlook, iii) better asset quality as UK macro improves driving up collateral values. We estimate that there is about a 70% to 80% or “very likely” probability for the scenario.

CGG Veritas (MS, Pulleyn) Negative RTI
We believe the share price will fall relative to the industry over the next 45 days. We see additional negative revisions to consensus estimates for CGG and expect this to lead to underperformance relative to the sector over the next 45 days. As highlighted in our 20th Sept Oil Services weekly, we believe 3Q13 results on 6th Nov will prove disappointing and the stock at 12x 2013 PE does not already discount the earnings downgrades we expect. We estimate that there is about a 70% to 80% or “very likely” probability for the scenario.

Rolls-Royce (MS, Vig) Addressing the Key Investor Debates – Opportunity to Buy
Rolls-Royce’s share price weakness since 1H13 results provides an attractive entry point. Not only should Rolls meet FY13 guidance, but we expect 2014 to see some improvement in both cash & costs. The stock’s resilience amid macro uncertainty is another key attribute. Stay OW.

European Trucks (GS, Kurian) Gauging the pre buy; Volvo down to Neutral
We analyse the correlation between truck sales and industrial production, to estimate the potential level of pre-buy in 2013 and evaluate its impact on demand in 2014.

BBVA CUT TO REDUCE VS NEUTRAL VS NOMURA
CNH INDUSTRIAL RESUMED AT NEUTRAL AT GOLDMAN; PT EU11
DEUTSCHE TELEKOM RAISED TO BUY VS NEUTRAL AT UBS
DIXONS RETAIL RAISED TO BUY VS NEUTRAL AT UBS
EUROPEAN ENERGY SECTOR CUT TO NEUTRAL AT UBS
EUROPEAN STEEL CUT TO UNDERWEIGHT VS NEUTRAL AT CITI
FIDESSA RAISED TO NEUTRAL VS SELL AT UBS
FORBO RAISED TO BUY VS NEUTRAL AT UBS
HOME RETAIL RAISED TO BUY VS NEUTRAL AT UBS
OOREDOO CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
PERNOD RICARD CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUI…
PORTUGAL TELECOM CUT TO NEUTRAL VS BUY AT CITI
PORTUGAL TELECOM RAISED TO BUY VS HOLD AT BERENBERG
RIGHTMOVE RATED NEW OVERWEIGHT AT MORGAN STANLEY; PT 3,0…
SALZGITTER CUT TO SELL VS NEUTRAL AT CITI
SANTANDER RAISED TO NEUTRAL VS REDUCE AT NOMURA
VOESTALPINE CUT TO NEUTRAL VS BUY AT CITI
WDF RATED NEW NEUTRAL AT BOFAML; PT EU8.3

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -63.96 (-0.45%) at 14,093
Topix down -7.33 (-0.62%) at 1,167
Hang Seng down -132.81 (-0.57%) at 23,082

US markets
S&P 500 down -15.21 (-0.90%) at 1,679
DJIA down -136.66 (-0.90%) at 14,996
Nasdaq down -40.68 (-1.07%) at 3,774

European markets
Eurofirst 300 down -4.96 (-0.40%) at 1,242
FTSE100 up +11.54 (+0.18%) at 6,449
CAC 40 down -30.18 (-0.73%) at 4,128
Dax down -31.51 (-0.37%) at 8,598

Currencies
€/$ 1.36 (1.36)
$/¥ 97.25 (97.24)
£/$ 1.62 (1.62)

Commodities ($)
Brent Crude (ICE) down -0.11 at 108.89
Light Crude (Nymex) down -0.17 at 103.14
100 Oz Gold (Comex) up +0.70 at 1,318
Copper (Comex) unchanged 0.00 at 3.26

10-year government bond yields (%)
US 2.62%
UK 2.69%
Germany 1.81%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.4bps at 85.07bp
Markit iTraxx Europe +0.53bps at 99.2bp
Markit iTraxx Xover +2.31bps at 399.97bp

Sources: FT, Bloomberg, Markit

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