LCM (after) Dawn Patrol – LCM preferred sectors (quant view), Exane great note on beverages, MS pushes EADS. Week End

Morning,

Sorry I’m late…

US equities rallied sharply on Thursday. The S&P 500 posted its biggest one-day percentage gain since 2-Jan. The rally was driven by heightened expectations that Congress would be able to reach a short-term deal to raise the debt ceiling and remove the tail risks surrounding a potential default. Stocks managed to look past several potential stumbling blocks facing a deal, though such concerns may have been partly reflected by the pockets of resilience in Treasuries. Washington dominated the price action in equities today, helping to overshadow an unexpected, albeit distorted, jump in jobless claims, additional signs of softness in retail and a continued reduction in Q3 earnings growth expectations. The financials led the market higher, though all of the major sectors finished up more than 1%.
Asian markets were tracking Wall Street’s gains overnight. Japan released its corporate goods price index for September before the open, matching expectations for a +2.3% year-on-year growth. China opened higher as PBOC vice governor expressed confidence in achieving GDP of 7.5% or above this year.
Asian markets are up this morning too

Today, we’ll monitor JPM and Wells Fargo Q3 numbers, the EZ PPI and the U. of Michigan consumer sentiment index. The usual economic data (Retail sales and PPI) won’t be released. On the political front, there is an article in the NYT saying that Democrats wouldn’t accept the Republican terms for a temporary deal on the debt ceiling pushing futures down.

WEEK END

RESTO. ITO. Japanese and tiny. 2 rue Pierre Fontaine 75009. http://itoeats.fr/
MUSIC. Jazz sur Seine festival. 115 concert in 18 venues across 13 days! http://www.jazzsurseine.fr/
OTHER. Fêtes des vendanges de Montmartre. http://fetedesvendangesdemontmartre.com/
FILMO. La vie d’Adèle. http://imdb.to/19nVQoN. As a cultural opinion leader, cinephile and intellectual, I should go and see it.

NEWS

Draghi Says Guidance Allows Rate Cuts If Volatility Returns
Merkel, Greens Agree Second Round of Talks on Possible Coalition
Moscovici Says France’s Economy Is ‘Clearly’ Out of Recession
Regling Says Greece Widely Expected to Need New Bailout in 2014
U.K. House Prices Rise to Record as First Timers Drive Demand
Spain’s Debt Easier to Manage as Exports Increase, Treasury Says

Royal Mail Stock Cut for Institutions as U.K. Boosts Retail Pot
Westpac Buys Lloyds’s Australian Loan Book for $1.47b
Alitalia Gets Lifeline From Postal Service as Letta Seeks Rescue
Platform Purchase to Buy MacDermid for About $1.8b
Genmab Reports Positive Top-Line Results of Ofatumumab in MS
Vivendi Sees Sale of Activision Majority Stake Complete Oct. 15
Prisa Reaches Agreement With Most Debt Holders on Refinancing

Micron
3Qs mixed. Stock up 1% after hours
Infosys Surges on Higher Sales Forecast as Europe Demand Grows
Twitter Said to Pay 3.25% Bankers’ Fee in IPO Topping $1 Billion
Sony Profits Challenged by Weaker Emerging-Market Currencies

CURRENT STUFF

Hopes rise of averting US debt default: The White House and Republicans held their first serious talks to resolve the fiscal impasse gripping Washington, as they discussed ways to approve a short-term extension of the US debt limit and avert a potential default by the world’s largest economy. (Financial Times) “Mr. Obama “didn’t say yes, he didn’t say no” to the GOP plan, said House Budget Committee Chairman Paul Ryan after the meeting with Mr. Obama. “We put an offer on the table. We had a long, frank conversation about it, and we agreed to continue talking and to continue negotiating.”" (WSJ)

Big banks make contingency plans for US default: “Big banks and investors are preparing contingency plans to deal with the potential impact on the $5tn “repo market” of the US government missing a payment on its bonds, even as Republicans propose a six-week reprieve for the debt ceiling limit.” (Financial Times)

Fed officials are having prelimenary talks on potential changes to how the government releases sensitive economic data, “including eliminating the current system, which releases data via embargoed news releases to the media; building a single, technologically secure facility for all government agencies to use to distribute data; and publishing economic data directly on the Internet.” (WSJ)

Infosys missed estimates, reporting second quarter net income of INR 24.1bn, representing a humdrum 1.7 per cent increase on this time last year. Analysts surveyed by Bloomberg had expected INR26.6bn.(FastFT)

Del Monte Foods is selling its consumer products unit, which produces its iconic tinned fruit and vegetable brands, to Singapore-listed Del Monte Pacific for $1.675bn. (FastFT)

“Alibaba has led a $206 million investment in [ShopRunner] a rival to Amazon.com one of its biggest U.S. moves as the Chinese e-commerce giant considers an initial public offering here.” (WSJ)

Brevan Howard’s “dedicated emerging markets hedge fund with $2.8 billion under management is down 12 percent for the year as of October 4, according to marketing material reviewed by Reuters.”

UPS&DOWNS

Ericsson (JPM, Deshpande) Stock has substantial upside potential into 2014 though there is no evidence of imminent momentum
Ericsson’s 3Q results on 24 Oct should show YoY improvement in the margin due to a better business mix (more software) & some cost cuts. While we are broadly in line with cons on 3Q sales (SEK 54.4bn vs. cons: SEK 54.9bn) we are materially lower on EBIT (SEK 4.18bn vs. cons: SEK 5.19bn) mainly due to higher opex. Due to lack of detail guidance, Ericsson’s quarterly results tend to surprise materially both ways. However, with scope for substantial improvement in Ericsson’s margin & earnings from improving business mix and also from improving capex environment in Europe in ‘14, we remain OW.

Daimler (MS, Lembke) 7 Steps to €7 EPS and Why Momentum Trumps Value
With momentum on its side, investment benefits coming through and positive news flow ahead, we see value up to our new €65 PT (13% upside). But to outperform from there and justify its large premium to BMW, we believe DAI needs to exceed €7 EPS by 2015. We explore the key hurdles ahead.

EADS (MS, Vig) Toulouse field trip – More conviction in growth potential
Our Toulouse field trip & mgmt meetings support our conviction in the MT growth potential of EADS. Further execution continues to improve, the cycle is strong and the s/h and business changes help EADS become more efficient & profitable. Stay OW.

Europe: Capital Goods (GS, Ibbotson) Navigating a boom-less recovery
We expect the upcoming economic recovery to be characterized by a lack of booming end markets, with increased emphasis on competitive advantage and ability to manage cash for returns. With this report we introduce 2016 & 2017 earnings estimates.

ABERTIS RAISED TO OUTPERFORM VS MARKET PERFORM AT RAYMOND…
ACCOR RAISED TO BUY VS NEUTRAL AT CITI
ALSTOM CUT TO NEUTRAL VS BUY AT NATIXIS
ANDRITZ CUT TO SELL VS HOLD AT BAADER
CAMPARI CUT TO UNDERPERFORM VS NEUTRAL AT EXANE
CNH INDUSTRIAL RATED NEW UNDERPERFORM AT MACQUARIE, PT EU8
DCC RATED NEW EQUALWEIGHT AT BARCLAYS; PT 2,493P
DEUTSCHE BANK CUT TO UNDERPERFORM VS NEUTRAL AT MACQUARIE
DIAGEO RAISED TO OUTPERFORM VS NEUTRAL AT EXANE
DIPLOMA RATED NEW OVERWEIGHT AT BARCLAYS; PT 715P
ENTERTAINMENT ONE RATED NEW OVERWEIGHT AT JPMORGAN; PT 274P
FERRAGAMO RATED NEW NEUTRAL AT UBS; PT EU27
FLSMIDTH CUT TO NEUTRAL VS BUY AT GOLDMAN
GEBERIT CUT TO SELL VS NEUTRAL AT GOLDMAN
METSO OYJ CUT TO SELL VS NEUTRAL AT GOLDMAN
MONDADORI RAISED TO HOLD VS REDUCE AT KEPLER CHEUVREUX
MOTOR OIL HELLAS RAISED TO BUY VS NEUTRAL AT UBS
NESTE OIL RAISED TO NEUTRAL VS SELL AT UBS
OSRAM LICHT RATED NEW UNDERWEIGHT AT BARCLAYS; PT EU31
OUTOTEC CUT TO SELL VS NEUTRAL AT GOLDMAN
PERNOD RICARD CUT TO NEUTRAL VS OUTPERFORM AT EXANE
PHILIPS ELECTRONICS RAISED TO BUY VS NEUTRAL AT GOLDMAN
POLAR CAPITAL RAISED TO ADD VS HOLD AT NUMIS
RALLYE RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
SAIPEM CUT TO REDUCE VS HOLD AT KEPLER CHEUVREUX
SOCGEN RAISED TO NEUTRAL VS UNDERPERFORM AT MACQUARIE
TALVIVAARA CUT TO NEUTRAL VS BUY AT BOFAML
TURKISH AIRLINES RATED NEW OVERWEIGHT AT BARCLAYS; PT TL10.1
UBI RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT SUISSE
WARTSILA ADDED TO CONVICTION SELL AT GOLDMAN
WHITBREAD RAISED TO BUY VS NEUTRAL AT CITI

STRATEGY

LCM Sector Strategy: The Quant View.
> Positive on Media, Utilities, Telecoms, Technology
> Negative on Food&Bev Personal, Healthcare and Chemicals

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +217.21 (+1.53%) at 14,412
Topix up +20.24 (+1.72%) at 1,198
Hang Seng up +287.76 (+1.25%) at 23,239

US markets
S&P 500 up +36.16 (+2.18%) at 1,693
DJIA up +323.09 (+2.18%) at 15,126
Nasdaq up +82.97 (+2.26%) at 3,761

European markets
Eurofirst 300 up +20.38 (+1.66%) at 1,245
FTSE100 up +92.58 (+1.46%) at 6,430
CAC 40 up +91.06 (+2.21%) at 4,218
Dax up +169.08 (+1.99%) at 8,686

Currencies
€/$ 1.35 (1.35)
$/¥ 98.46 (98.15)
£/$ 1.60 (1.60)

Commodities ($)
Brent Crude (ICE) down -0.26 at 111.54
Light Crude (Nymex) down -0.19 at 102.82
100 Oz Gold (Comex) down -5.00 at 1,292
Copper (Comex) unchanged 0.00 at 3.24

10-year government bond yields (%)
US 2.67%
UK 2.77%
Germany 1.87%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.89bps at 80.68bp
Markit iTraxx Europe -5.44bps at 96.25bp
Markit iTraxx Xover -16.12bps at 384.93bp

Sources: FT, Bloomberg, Markit

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