LCM Dawn Patrol – 04.11-13 – Strat: GS bullish, JPM too. MS on EU oil (downgrades ENI, upgrades BP).

Bonjour,

Asian equity markets traded slightly lower to start the week on a lack of directional drivers.

This week, we’ll have another round of earnings with French banks (ACA, GLE and Natixis). In terms of economic data, we’ll monitor the ECB (will they talk into lowering the Euro which came down 3% this month? What will be their stance regarding inflation? Could they lower the refi rate by 25bp?), we’ll get PMIs in China and in the US and we’ll get the US Q3 GDP on Thursday and on Friday unemployment data.

NEWS

U.K. Growth Forecasts Raised by CBI as Recovery Builds Momentum
Scandinavia Splits Over Bank Rules as Denmark Adopts EU Timeline
Co-Op Bank Will Give Some Protection to Retail Bondholders: FT

 

Alcatel-Lucent launches €955m capital increase
Pemex
Disappointed by Repsol Returns and YPF Distractions
Chinalco Group Shortlisted to Bid for Glencore Peru Copper Mine
Lindt & Spruengli Starts Share Buyback
Accor Sells Stake in Australia Hotel Unit to Abu Dhabi
Ryanair Lowers FY Profit Target, Says Pricing Remains Weak
Siemens May Pull Out of French Offshore Wind Tenders: Echos
Dufry 9-Month Sales, Ebitda Rise
Richemont – Barron’s is positive on the Swiss luxury-goods maker’s long-term outlook and sees a 20% upside to shares over the next year
UBS, CS. The WSJ writes that Swiss politicians are mounting an effort to curb the country’s banking giants with new restrictions that could be more severe than those in place elsewhere

CURRENT STUFF

China. The NBS Non-Manufacturing PMI comes in at 56.3 from 55.4 in September. Expectations reading was high although the new orders reading declined. The series is now at its highest level since 3Q 2012.

SAC Capital, the $15bn hedge fund run by Steve Cohen, will plead guilty to securities fraud and pay over $1bn in fines in one of the biggest criminal cases against a hedge fund, a person familiar with the matter said. The plea and fine are expected to be announced as soon as Monday, this person said. (Financial Times) (WSJ)

Big US banks have seen billions of dollars of losses on their vast portfolios of securities reversed following the recent rally in the price of Treasuries and other assets. Data released by the Federal Reserve on Friday showed unrealised gains in these portfolios had recovered to $8bn after plummeting into negative territory from June to September. (Financial Times)

“Investors are stampeding into initial public offerings at the fastest clip since the financial crisis, fueling a frenzy in the shares of newly listed companies that echoes the technology-stock craze of the late 1990s. October was the busiest month for U.S.-listed IPOs since 2007, with 33 companies raising more than $12 billion. The coming week is slated to bring a dozen more initial offerings, including Thursday’s expected $1.6 billion stock sale by Twitter” (WSJ)

Public investment in the US has hit its lowest level since demobilisation after the second world war because of Republican success in stymieing President Barack Obama’s push for more spending on infrastructure, science and education. Gross capital investment by the public sector has dropped to just 3.6 per cent of US output compared with a postwar average of 5 per cent. (Financial Times)

STRATEGY

JPM (Loeys) The J.P. Morgan View

Asset reflation does not make a bubble
Asset allocation –– High asset prices mean low IRRs, by definition. IRRs on all assets, cash, bonds, and equities , are low because growth and inflation are low, and are only overvalued if growth and inflation were to surge, forcing a sudden withdrawal of easy money. That is not our view.
Economics –– Low inflation to induce ECB rate cut . We see only a 75K US Payrolls gains next week.
Fixed Income –– We stay with range trading view and thus rem ain in carry.
Equities –– Nikkei is suffering from a gradual erosion of overseas support .
Credit –– A review of bank capital and liquidity rules shows large banks already at or near required levels .
FX –– EUR is just mean reverting in a range around mid -1.3s.
Commodities –– Stay long energy.

GS (Timcenko) Global Markets Daily
Reacceleration likely to reinvigorate equities
The October Global Leading Indicator may bring more clarity to the state of the global cycle.
Currently, the cycle is in ‘Slowdown’ territory, with positive, but declining growth.
But equities had a strong month, helped in part by falling yields.
The equity rally and rate relief, while likely sparked by events in the US, were largely a global phenomenon.
We expect growth to accelerate in 2014, and if this forecast materializes, equities are likely to improve further, rates are likely to increase, and forward volatility fall.
Among US sectors, historically the best performers at these levels of growth are Materials and Technology.

JPM (Matejka) Equity Strategy
November Chartbook – Recent rollover of Cyclicals to continue in the short term, but Strategic outlook remains constructive

The leadership of Cyclicals has stalled most recently, losing 250bp vs Defensives in Europe, and 110bp in the US. We think that this rotation will continue in the short term because macro momentum has stalled (CESIs are at zero), Q4 forecasts are again sharply coming down and P/Es have rerated to premium to normal, among other things. The overall market could also see some directional consolidation over the next 1-2 months. However, regionally we would not abandon OW positions in periphery and in Europe vs the US. Peripheral spreads keep contracting and the freefall in Euro inflation could prompt ECB to act earlier rather than later. Beyond a tactical profit taking call, we think that the strategic outlook remains bullish for equities. Stay OW domestic European vs EM exposure. Prefer Financials to Cyclicals.

UPS&DOWNS

Oil & Gas (MS, Rats) 3Q Results Review: Moving BP and Eni back to EW
BP plc: UW to EW, PT 452p to 484p
Eni SpA: OW to EW, PT € 19

Increased shareholder returns from BP and Eni and weaker-than-expected results from Shell dominated the 3Q earnings season. Following sharp moves in share prices, we take BP and Eni both back to EW. Total and BG Group remain our preferred plays.

Global Tobacco (JPM, Maile) Perspectives II: The Electronic Version

There has been much debate about the nascent e-cigarette market, its potential growth, and its potential impact on the combustible tobacco market. In our view much of the debate takes future growth of the e-cigarette market as a given, and the only debates therefore revolve around the rate of growth and the date at which e-cigarette usage overtakes combustible usage. In our view this is a flawed approach which gives little consideration to the regulatory and societal issues related to e-cigarette usage; the confused attitude of the public health lobby; the putative taxation environment; or indeed the wide variety of product subsets within the e-cigarette category. We should state at the outset that we are not denying the growth of the e-cigarette category, nor its vibrancy, but we do think that there is scope for a consideration of some of the hurdles which this still young category may face. We have not changed any estimates or recommendations among our coverage and our view that the tobacco sector continues to offer material value for shareholders is unchanged.

Danone (GS, Collett): China infant formula outlook turns sour; down to Neutral
We believe increased regulatory scrutiny of the infant formula market in China may negatively affect both sentiment and financial performance for Danone over the coming year. As such we reduce our forecasts and price target and downgrade to Neutral.

Jeronimo Martins (GS, Walding) Buy: The value proposition in Jeronimo Martins; Conviction List Buy
We reiterate our Conviction List-Buy on Jeronimo Martins and believe that the share price discounts a scenario in Poland that is too cautious and fails to reflect the value of future free cash flow generation.

ALCATEL RAISED TO BUY VS NEUTRAL AT UBS
ASM Pacific Drops Most in 7 Months, Cut to Underperform at CS
ASTRAZENECA CUT TO NEUTRAL VS BUY AT UBS
BP RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT MORGAN STANLEY
CA IMMO RATED NEW BUY AT DEUTSCHE BANK; PT EU14
CTS EVENTIM CUT TO HOLD VS BUY AT DEUTSCHE BANK
DANONE CUT TO NEUTRAL VS BUY AT GOLDMAN
DCC RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN
DRAEGERWERK CUT TO HOLD VS BUY AT BERENBERG
ENI CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN STANLEY
JAZZTEL CUT TO HOLD VS BUY AT BERENBERG
NOBEL BIOCARE CUT TO HOLD VS BUY AT BERENBERG
RENAULT CUT TO NEUTRAL VS BUY AT UBS
Ryanair Lowers FY Profit Target, Says Pricing Remains Weak
SMITH & NEPHEW REMOVED FROM UBS’S MOST PREFERRED LIST
STADA ARZNEIMITTEL CUT TO HOLD VS BUY AT DEUTSCHE BANK
STRAUMANN HOLDING CUT TO HOLD VS BUY AT BERENBERG

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