LCM Dawn Patrol – 24.10.13 – DB on EM, SG’s Edwards on asset bubbles.. +DAI, +SAF,+ABB, +SEB, +LOGN, =LI, =SEV, -CSGN, -GTO, -DSY, -SOW, -EI, -RI, -ERICB

Bonjour,

US equities finished lower on Wednesday with the S&P 500 snapping a five-day winning streak. There were a couple of different factors cited for the pullback, including macro concerns and some disappointing takeaways from the earnings calendar.
Most of the defensive sectors fared better than the broader market, though the builders also outperformed with help from earnings and the recent move lower in rates . Energy was the worst performing sector with the weakness in oil.
Asian markets were mostly lower this morning, with fears of a liquidity crunch in China weighing on the entire region, though the markets pared some of the early morning losses after HSBC’s China flash PMI came in higher than last month’s and better than expected, showing vague signs of recovery.

Today’s earnings recap in Europe: +DAI, +SAF,+ABB, +SEB, +LOGN, =LI, =SEV, -CSGN, -GTO, -DSY, -SOW, -EI, -RI, -ERICB

Watch today: PMI in Europe, SP Unemployment, US Trade balance & Claims.

NEWS

• Greenspan Says Stocks Are ‘Relatively Low’ and Headed Upward
• China Manufacturing Gauge Tops Forecasts in Recovery Boost
• Fed Stimulus Still Makes Sense for Economy: Goldman’s Cohn
• Euro-Region Banks Seen Accelerating Cleanup Before ECB Exams

Total to Lead $1.2b Argentine Offshore Gas Development
ING Groep Raises $974m in Sale of U.S. Unit Shares
Aberdeen Proposes All-Share Offer for Scottish Widows: Sky
HES in Talks With ArcelorMittal on Buying 78% Stake in Atic
Aixtron to Sell 10.2m Shrs in Accelerated Bookbuild
Sports Direct Shrs to Be Sold by Goldman in Bookbuild
Asos management sells 2.3% stake; shrs said to be priced at 5000p

Earnings

Santander 3Q Net Income EU1.06b; Analyst Est. EU1.07b

Unilever 3Q Underlying Sales Growth 3.2%, Estimate 3.3%

Credit Suisse 3Q net income misses ests. Core pretax CHF685m, underlying core pretax CHF930m

– Software AG 3Q Rev. Misses, Ebit Beats; Confirms 2013 Targets

SEB 3Q Net Income SEK3.75b vs Est. SEK3.39b. 3Q net interest income SEK4.76b vs. est. SEK4.75b. Core Tier 1 ratio 17.4% under current regulation at end Sept. vs 16.1% end June

ABB solid results, but large project business continues to decline Net rises 10%, beats est.; Faces Near-Term Uncertainty. 3Q new orders $9.09b; order backlog as of end-Sept. $27.5b. 3Q oper. income $1.32b, 12.6% of rev. ABB says faces some near-term market uncertainty, long-term growth drivers fully intact, makes good progress on 2011-2015 goals.

Daimler net, ebit and revs a touch better than exp but guidance looks light. Daimler Forecasts 2013 Ebit From Ongoing OPS of Eu7.5 Bln. Outlook: Sees 2013 Ebit from ongoing ops of EU7.5b; consensus est. Ebit EU9.5b. 2012 EbitEU8.07b

Ericsson disappoints on 3Q Net Income, gross marging and sales (Sk2.92 Bln; Analyst Est. Sk3.07 Bln). Says 3Q sales negatively affected by currency headwinds, reduced activity in Japan and two major N.American broadband contracts peaking in 1H

Dassault Systemes cuts 2013 Non-IFRS Rev., EPS Outlook. Sees 2013 non-IFRS rev. of EU2.06b to EU2.08b; saw EU2.12b to EU2.13b. Spins off Inceptra via management buyout

Software AG 3Q Rev. Misses, Ebit Beats; Confirms 2013 Targets. 3Q rev. EU238.5m; est. EU248.9m

Logitech 2Q Net Income $14.4m vs Est. $9.8m

Gemalto 3Q Rev. missed consensus (EU596m vs Est. EU639m); 2013 Forecasts reaffirmed. Gemalto sees double-digit increase in profit from operations, rev. at constant exchange rates in 2013.

Suez Environnement 9-month Ebitda EU1.86b, up 6.2% y/y on organic basis, vs est. EU1.85b.

Pernod 1Q organic sales growth misses ests.sees FY organic adj. profit up 4% to 5%, median est. up 5% (range 4%-6%). 1Q total rev. EU2.01b, est. EU2.12b

Aixtron pre-announced yesterday an underwhelming set of results, missing consensus and announced an up to 10% capital raise. Despite the on-going progress in LED lighting, Aixtron has yet to see a pick-up in orders and it is now clear that this will not take place in 2H13. Only EUR36m in new orders were recorded in 3Q, below EUR40m forecast, but still a small improvement over EUR31m in 2Q.

Telenet 3Q Adj. Ebitda Beats Ests.; Sales, Net Ads Miss Ests. Telenet maintains forecast for rev. growth of 10%-11%, adj. Ebitda growth 7%-8% andstable free cash flow with capex at 21%-22% of rev.

Safran 3Q reports rev. EU3.44b vs Deutsche Bank est. of EU3.38b. Co. sees 2013 rev rising by mid-to-high single digit percent

Essilor 3Q Rev Eu1.237b; Analyst Estimate Eu1.279b This is bad…

– Klepierre revenue was in line with our expectation, in particular with a pick-up in tenant sales in France over July (+2%) and August (+4%). Spain run rate appears not to be deteriorating further (lfl rents down 4.3%), though the environment remains difficult according to the company.

Ipsos Sees 4Q Comparable Sales Growth Faster Than 3Q

US After Hours- AMRS +9.3% (3k); Signs MOU to supply fuel to GOL
– HLF +1.1% (5k); Icahn says still undervalued
– BSX +1% (14k); Cutting as many as 1,500 jobs
– JCP -0.9% (469k); Icahn stayed away from JCP for years
– SYMC -13.5% disappointing numbers
– FIO -11.4% CEO leaves

CURRENT STUFF

Spike in China money rates raises cash-crunch fears: China’s money rates shot up on Thursday after the central bank withdrew cash from the financial system, fuelling worries that the world’s second-biggest economy might see a replay of a liquidity squeeze that rattled global markets earlier this year. The seven-day bond repurchase rate, a key gauge of short-term liquidity in China, opened at 5 per cent, a four-month high and up 150 basis points from the end of last week. But analysts said concerns of a cash-crunch redux were premature, with tightening moves by the central bank only mild so far and in large part directed at counteracting big inflows of cash from abroad. (Financial Times)

China: “The Markit/HSBC Purchasing Managers Index (PMI) stood at 50.9 in October, above September’s final reading of 50.2 and marking a seven-month high. Ten of 11 sub-indices rose… New orders rose to 51.6, the highest in seven months and well above the 50 line separating expansion from contraction.” (Reuters)

Draghi warned that some European banks needed to fail a series of ECB health checks to prove the credibility of its year-long review of the region’s biggest banks. The blunt comments by the ECB president raised pressure on EU leaders to earmark public money that could in extreme cases be used to recapitalise struggling lenders. (Financial Times)

STRATEGY

Deutsche Bank EM Strategy
De-rating has further to go
. Says relative decline in EM multiple well explained by falling payout ratios, slowing growth and higher EM discount rates.
>> Remains underweight EM equities, Says de-rating of EM to be multi-yr phenomenon
Across EM regions, prefers Asia over Latam
Across EM sectors, says growth extremely expensive while deep value could be trap

Societe Generale Cross Asset Strategy
Albert Edwardssees asset bubbles inflating around the world.
"I keep reading that, despite central banks spewing money into our financial system, there isn’t a bubble in asset prices," writes Edwards in his latest note to clients. "And in any case if one appeared central banks, having learnt the lessons of 2008, will head it off with macro-prudent policy measures. Are you kidding me? Exactly the same bozos who missed the last bubble deny there is one now."
Two bubbles he thinks are loud and clear are the housing markets in London and China.

On London:
London house prices just rose 10% – in one month. Everything I read tells me this is unsustainable – which is just as well as prices would more than triple in a year. But make no mistake, as a life-long Londoner I have never ever seen anything like the current frenzy. We are in the midst of the mother of all housing bubbles, and although the rest of the country has yet to follow, it inevitably will do so – it always does.
The London housing bubble is no longer driven by Asian or eurozone buyers looking for safe havens. This bubble, like the one in the mid-noughties, isabout excessively loose monetary policy and light touch regulation…

On China:
Meanwhile in China it looks as if the authorities have also lost control of house price inflation – again! Not only is the breadth of the rises quite startling, but the acceleration since March in the first-tier cities prices (Beijing, Shanghai, Guangzhou and Shenzhen) to over 15% yoy has been spectacular if not a little disturbing (see chart below).
The rapid acceleration in Chinese house prices since March has occurred incredibly quickly in the wake of the government’s July mini-stimulus. The FT describes the September data as “staggering”. Our own Wei Yao described it as “hopelessly strong”.

UPS&DOWNS

BNP, SOCGEN RAISED TO BUY VS NEUTRAL AT BOFAML
COMDIRECT RAISED TO BUY VS HOLD AT KEPLER
HOME RETAIL RAISED TO NEUTRAL VS SELL AT CITI
HEIDELBERGCEMENT CUT TO UNDERPERFORM VS NEUTRAL: CREDIT SU…
GN STORE NORD RATED NEW BUY AT UBS, PT DKR150
QSC CUT TO HOLD VS BUY AT BERENBERG
DELEK GROUP CUT TO NEUTRAL VS BUY AT UBS
CAPGEMINI CUT TO NEUTRAL VS BUY AT UBS
PREMIER OIL RAISED TO HOLD VS SELL AT LIBERUM
BRITVIC RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
HEIDELBERGCEMENT CUT TO UNDERPERFORM AT CREDIT SUISSE

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