US equities finished mostly higher on Tuesday. The S&P extended its winning streak to four days and was up for the 13th time in the last 15 sessions. There were few specific drivers behind today’s price action as the macro backdrop remained largely unchanged. The market continues to expect the Fed to remain on the sidelines until the first half of 2014, with the latest survey now suggesting that the first move will not come until April. There was nothing in today’s data that altered monetary policy expectations, while there was more evidence of the overhang on consumer sentiment from the recent fiscal drama in Washington. With most of the high-profile themes already having been established, the earnings calendar once again took a backseat as a broader market directional driver. The latest batch of results helped pad the Q3 growth rate, though it remained largely in line with the recent average. In addition, there continued to be concerns about negative guidance trends. Telecom and consumer staples led the market higher for a second straight session. However, the move did not seem to be indicative of a major defensive shift in positioning.
Asian bourses followed US stocks higher after blue chips led the S&P 500 and the Dow Jones Industrial Average to fresh record highs.
Today, we’ll watch the US ADP, the FOMC (19:00, Paris time), German job numbers and the EZ confidence index (11:00). In terms of earnings/sales: Imerys, Ingenico, L’Oreal, Sanofi, Visa (US).
RBS Said to Review Currency-Trading Practices Amid Probe
Osborne RBS Decision Seen Weighing on Legacy as Chancellor
Vodafone Applies to Buy Out Indian Unit Stake for $1.65b
Boeing Said to Near Order Haul of Up to $87b for 777X
Deutsche Boerse 3Q Earnings Fall on Low Volatility
EADS Rating Upgraded at Fitch on Financials, A350 Progress
Qiagen 3Q Rev., EPS Beat Ests.; Confirms 2013 Forecast
Telefonica CEO Pledges to Avoid Telecom Italia Job Cuts
Banco Comercial to Sell Its Stake in Greece’s Piraeus Bank
Luxottica May Seek Acquisitions in 2014 as Cash Flow Increases
Sonaecom Offers to Buy 24% of Its Own Shares After Merger
Viscofan 9M Net Falls 0.7% to EU77.4M; Goals Harder to Meet
Banca Carige Names Piero Montani Chief Executive Officer
Bollore Says Blue Solutions Unit Raised EU41.8m in IPO
Take-Two Interactive Software Inc. shares rose 1.5% to $18.22 on heavy volume after the maker of “Grand Theft Auto V” easily topped Wall Street estimates for the quarter.
Electronic Arts Inc. shares rose 3.6% to $25 on moderate volume after topping consensus expectations for the fiscal second quarter, even though its forecast was light.
Baidu Inc. shares rose 5.7% to $168.48 on heavy volume after the Chinese Internet portal reported third-quarter earnings of $1.48 a U.S. share on revenue of $1.45 billion, when Wall Street was expecting earnings of $1.47 a U.S. share on revenue of $1.45 billion.
LinkedIn announced strong user growth and better-than-expected third-quarter revenue on Tuesday, but issued a conservative revenue forecast for the fourth quarter and the 2013 fiscal year.
– Statoil report a better 3Q net income and revs, Says 3Q production grew about 6%
– Sanofi 3Q EPS missed est and see 2013 at lower end. Sanofi sees 2013 forecast at lower end of previous range; now sees 2013 business EPS ~10% lower than 2012 at constant FX; saw business EPS 7%-10% lower previously. 3Q business EPS EU1.35 vs est. EU1.43
– Clariant 3Q sales miss estimates and sell Leather unit to Stahl. Confirms 2013, 2015 forecasts.
– Ipsen 3Q sales beats est and confirm 2013 financial targets.
– TomTom raise FY forecasts : sees 2013 sales towards upper end of EU900m-EU950m range, sees adjusted EPS of ~EU0.25.
– Erste Group below estimates: 3Q Net Income Eu129 Mln; Analyst Est. Eu133 Mln
US Earnings growth rate higher, but not a market driver: The latest deluge of earnings pushed the blended Q3 S&P 500 EPS growth rate up to 2.6% from 2.4%. This is slightly ahead of the four-quarter trailing average and closer to the 2.9% expected at the start of earnings season. However, it is still well below the 6.5% expected at the start of the quarter. In line with the trends we saw at the end of last week, 75% of companies that have reported have beat consensus EPS expectations, a figure that is ahead of the 70% four-quarter trailing average. In terms of the top line, 52% have beat consensus revenue expectations, in line with recent trends.
Day of reckoning as European banks’ bill for misconduct mounts: “European banks faced another day of reckoning yesterday when they were forced to pay fines and make legal provisions running into billions of dollars to cover the growing cost of financial misconduct. There were fresh revelations from UBS and Deutsche Bank, which became the first banks to admit they had become ensnared in a global probe into alleged manipulation of the $5.3tn foreign exchange market while Dutch lender Rabobank agreed to pay a $1bn settlement over its role in the Libor-rigging scandal. ” (Financial Times)
“SAC Capital Advisors LP will plead guilty to securities fraud as part of a landmark criminal insider-trading settlement with federal prosecutors set to be announced by next week, people familiar with the discussions say… SAC, run by Wall Street titan Steven A. Cohen, also will agree to stop managing outside money and to pay the government criminal penalties of about $1.2 billion, according to these people. That would be the largest-ever insider-trading penalty. ” The timing of this is still unclear. (WSJ)
“BlackBerry executives flew to California to meet with Facebook last week to gauge its interest in a potential bid for the struggling smartphone-maker, according to people familiar with the matter. It remains unclear whether Facebook is interested in placing a bid. Spokesmen for both companies declined to comment.” (WSJ)
Shake-up on charges for UK asset managers: Martin Wheatley , the head of the Financial Conduct Authority, will tell a conference that existing rules on how fund managers spend their clients’ cash are failing to bite effectively and are likely to be tightened. The words come amid controversy over the murky system of dealing commissions, with clients complaining that it is unclear what exactly they are paying for. (Financial Times)
The head of Eon UK, one of Britain’s biggest energy companies said the UK’s energy sector should be investigated by the competition authorities, acknowledging that the big six were “no longer trusted” by the British public. “It would be really helpful to depoliticise this debate,” he told MPs during Tuesday’s marathon four-hour energy select committee hearing, called to address a wave of price rises that have fuelled a political row about the cost of living. (Financial Times)
More than four-fifths of business chiefs in the financial and professional services sector want the UK to remain in the EU, according to the first detailed research on the industry’s views — 37 per cent said they would relocate staff to somewhere within the single market if Britain ended up outside it. (Financial Times)
“China’s interest-rate swaps and benchmark money-market rate rose to four-month highs as corporate tax payments tied up funds amid uncertainty over the central bank’s policy stance.” (Bloomberg)
“China Construction Bank is poised to pull the trigger on its first international banking deal with Brazil’s BicBanco, a São Paulo-based lender with a market value of R$1.7bn ($780m), according to people close to the situation. The Chinese bank, which is has long been seen as next in line to pursue an international expansion following Bank of China and ICBC, is in talks to take a majority stake of about 70 per cent from the controlling Menezes de Bezerra family shareholders. It would then tender for the rest of the shares.” (Financial Times) (Bloomberg)
South Korea’s industrial output fell the most in six months in September mainly due to strikes at the country’s top automakers, but also highlighting the country’s fragile economic recovery. (Financial Times)
The dramatic fall from grace of Brazilian tycoon Eike Batista entered its final stages on Tuesday as his oil company OGX edged closer to a bankruptcy that would trigger Latin America’s largest ever corporate default. Several months of voluntary restructuring talks with holders of $3.6bn of bonds ended in failure, prompting the company to prepare for a bankruptcy protection filing in a Brazilian court, people close to the company said…. although it does appear they have enough cash to continue operating until the end of December which could buy time to try to reopen negotiations with creditors, this time under a formal court process. (Financial Times)
GS (Stolper) Global Markets Daily: EUR/$ impact of an ECB rate cut
We use our Correlation Cruncher to assess the possible EUR impact of an ECB rate cut.
A 5bp drop in 2-year swap rates currently corresponds to a one-big-figure decline in EUR/$.
It is difficult to see EUR/$ fall by more than 5 big figures.
Moreover, the Cruncher finds evidence of an uptrend, possibly linked to capital inflow.
An ECB rate cut alone would probably weaken the EUR only temporarily.
"Possible ECB Response to EUR strength
At the end of last week, the EUR finally became the best performing currency year to date. So far the CNY had held the top spot but with the increasing underperformance of the USD in recent months, the CNY’s performance started to suffer as well. In trade-weighted terms, the EUR has rallied by 5.8% this year, versus 5.5% for the CNY and less than 2% for the trade-weighted USD.
Moreover, EUR/$ has broken to new highs for the year and is approaching what could be called the ‘ECB ceiling’ in the 1.40 area. At that level, roughly, we and many market participants would expect the ECB to respond to the threat of tightening financial conditions.
Such a response would likely include more explicit verbal intervention or even a rate cut. The latter is currently not part our central scenario because financial conditions have not tightened much in recent months despite the EUR strength. A detailed look at core inflation dynamics also suggests that the Euro area is quite far from slipping into prolonged outright deflation, as today’s European Economics Daily describes. At the same time the latest PMI and business surveys point to stabilising slow growth.
Still, if verbal intervention by the ECB proves insufficient and EUR/$ continues to drift higher, a rate cut remains a policy option to help counter FX-related disinflationary forces. "
UBS (JPM, Abouhossein) One step back – but transformation on track with 12% p.a. S/H return: Remain OW
We remain OW UBS. Stepping back and reflecting on UBS post a poor 3Q13 result and capital setback in light of +25% YTD performance, it would be easy to take profits. So why not take profits? We see 3Q 13 and litigation related capital charges as a setback but we believe UBS’ transformation to an asset gatherer remains intact. The NPV of UBS cashflow has not changed. In our view, UBS remains the best capitalised wholesale bank reaching B3CET1 of 13.0% by 2014YE with a L-T payout target of 50%+, the largest private bank worldwide, and IB accounting for just 31% of group RWAs by 2015E.
Adecco and Randstad (JPM, Plant) Macro data and industry read across bodes well for Q3. Prefer Adecco
We believe that macro data and comparable company analysis bodes well for trading at Adecco and Randstad ahead of their Q3 results, which are respectively on 6 November and 31 October. That said, the strong share price increases this year for both are probably pricing in some upside to earnings. Our preference remains for Adecco over Randstad, mainly due to valuation and its better earnings outlook.
Meliá Hotels International SA (MS, Ferraz) Spanish Property Play
Investor appetite for peripheral Euro property has been increasing and we see Meliá as a strong way to gain exposure. For property investors, the stock offers 60% upside to NAV. For hotel investors, it is trading at an inflection point and asset value is being realized through property sales. OW.
Capital Goods(MS, Uglow) Mid-Quarter Update – Core Industrial Trends, 5 Surprises
The majority of industrial companies have missed (elevated) market expectations, despite an underlying demand environment that is ~2-4ppts better QoQ ex-Mining. In Mining, conviction on a bottoming in equipment remains low.
Europe: Energy: Oil Services (GS, Tarr) Managing the slowdown? Coverage view down to Cautious
We see E&P capex slowing as the integrateds re-focus on capital discipline. We still see opportunities, but would remain highly selective and reduce our coverage view to Cautious. Buy: SUBC, WG, PFC, and Amec; Sell: TECF. Fugro, PGS, CGG, and TS.
AQUARIUS PLATINUM RAISED TO NEUTRAL VS SELL AT GOLDMAN
AZIMUT CUT TO HOLD VS BUY AT DEUTSCHE BANK
DSV A/S CUT TO SECTOR PERFORM VS OUTPERFORM AT RBC
FUGRO CUT TO SELL VS NEUTRAL AT GOLDMAN
HANNOVER RE RATED NEW SECTOR PERFORM AT RBC; PT EU60
PETKIM RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
PETROFAC RAISED TO BUY VS NEUTRAL AT GOLDMAN
PROSAFE RAISED TO NEUTRAL VS SELL AT GOLDMAN
SBM OFFSHORE CUT TO NEUTRAL VS BUY AT GOLDMAN
SCOR SE RATED NEW OUTPERFORM AT RBC; PT EU30
TECHNIP CUT TO SELL VS NEUTRAL AT GOLDMAN
TEKNOSA RATED NEW BUY AT GOLDMAN
VOESTALPINE CUT TO HOLD VS BUY AT DEUTSCHE BANK
VOLVO CUT TO SELL VS HOLD AT DEUTSCHE BANK
Nikkei 225 up +115.01 (+0.80%) at 14,441
Topix up +9.64 (+0.81%) at 1,203
Hang Seng up +193.97 (+0.85%) at 23,041
S&P 500 up +9.84 (+0.56%) at 1,772
DJIA up +111.42 (+0.72%) at 15,680
Nasdaq up +12.21 (+0.31%) at 3,952
Eurofirst 300 up +5.13 (+0.40%) at 1,288
FTSE100 up +48.91 (+0.73%) at 6,775
CAC 40 up +26.48 (+0.62%) at 4,278
Dax up +43.39 (+0.48%) at 9,022
€/$ 1.37 (1.37)
$/¥ 98.14 (98.17)
£/$ 1.60 (1.60)
Brent Crude (ICE) down -0.16 at 108.85
Light Crude (Nymex) down -0.43 at 97.77
100 Oz Gold (Comex) down -1.60 at 1,344
Copper (Comex) up +0.02 at 3.29
10-year government bond yields (%)
CDS (closing levels)
Markit iTraxx SovX Western Europe -1.11bps at 70.52bp
Markit iTraxx Europe -1.65bps at 83.48bp
Markit iTraxx Xover -6.8bps at 340.2bp
Sources: FT, Bloomberg, Markit