LCM Dawn Patrol – 08.11.13 – JPM ups Akzo and K+S. Some earnings, Week End.


US equities finished higher on Friday, extending yesterday’s rally on hopes for a short-term resolution to the debt ceiling and partial government shutdown. The earnings calendar was also in focus today, with Q3 results from a few high-profile banks taking center stage. Consumer sentiment was the only piece of data on the economic calendar amid the continued government shutdown. All major sectors traded higher, as energy and tech topped gains while consumer staples and telecom were the worst performers. Bonds were little changed, while oil and gold both fell.
Asian equity markets traded lower to end the week. Chinese trade data was unable to provide a tailwind for greater Chinese markets.
European stocks are seen falling on Friday, slipping from five-year highs hit in the previous session, as strong U.S. economic growth data revived worries the Federal Reserve may trim its stimulus measures this year. Also set to hurt sentiment, Standard & Poor’s downgraded its credit rating on France one notch to ‘AA’ from ‘AA+’.

Another round of data today following yesterday’s strong GDP. In Europe, we get the German rade balance and in the US the Michigan confidence index and of course the Payrolls which will be hard to estimate because of the shutdown.


France downgraded to ‘AA’ by S&P
Telecom Italia to sell Argentina unit, towers in new strategy
Chairman says Deutsche Bank knew of probe when extending CEO
SocGen, Agricole agree asset swap in strategy shift
RBS unit to pay $150 mln to settle U.S. SEC charges
Carrefour in talks to buy some Klepierre malls – report
John Lewis looks to animate Christmas sales with ad campaign
Nestle sells most of Jenny Craig in slimming drive
Numericable sets Paris listing price at 24.80 euros
Outdoor advertiser JCDecaux sees Q4 pickup

Allianz reports better than exp and raise outlook: 3Q op. profit EU2.52b; est. EU2.38b
Telefonica 9m Oibda inline with forecasts, reiterate targets.
Richemont sees ‘Subdued’ Environment, 1H Op. profit misses consensus: 1H rev. EU5.32b, est. EU5.35b, gross margin 63.9%, est. 64.9%
Puma sees 2013 Net Earnings positive, significantly below 2012. Sees 1-time items of ~EU130m in 4Q
Finmeccanica lower 2013 ebitda target. 3Q rev. EU3.68b vs EU3.97b y/y.
Eni SpA is seeking $10b from Statoil in arbitration linked to a gas contract dispute, Dagens Naeringslivsays, citing “well informed sources”



EXPO: JR Inside Out. Great pictures in the West of Paris (Palais de Tokyo).

CONCERT: Festival les Inrocks. Foals, London Grammar, Swim Deep, These New Puritans
MOVIE: Prisoners. Not as good as a Zodiac and a bit long, but still worth watching.
RESTO:Professore. 7 rue Choron 9e. Great Italian place.


Retail investors help drive Twitter demand: Twitter’s shares closed 73 per cent higher on their first day of trading on Thursday, but many who had applied for shares complained that they did not receive large allocations of the heavily oversubscribed IPO that priced at $26 a share and closed at $44.90. A total of 117m Twitter shares changed hands on the day after retail investors flooded the market with buy orders when the stock began to trade. According to brokers at Barclays who handled the start to trading in Twitter, retail orders represented about 25 to 30 per cent of the initial 11m trades that took place. (Financial Times)

US After-hours: 
Twiiter edged midly lower, Walt Disney beat est, Priceline drop on lower guidance, Groupon beat on Net but sales disappointed and Gap raised forecasts range.

Draghi strengthened his reputation as a far bolder ECB head than his predecessor, presiding over a cut which left the central bank’s benchmark main refinancing rate at 0.25 per cent and sent the euro tumbling against the dollar. Though most analysts thought the ECB would wait until December to cut, Mr Draghi said there was now a possibility that the bloc could “experience a prolonged period of low inflation”. (Financial Times)

“China’s exports rebounded sharply in October from a September slump, in a potentially positive sign for the global economic outlook. Exports rose 5.6% on year in October, data from the General Administration of Customs showed on Friday. This was a marked improvement over September’s 0.3% decline and above the median forecast of a 1.5% expansion from a Wall Street Journal poll of economists.” (WSJ)

Former Greek finance minister ‘evaded taxes’: The anti-corruption prosecutor’s office said Yannos Papantoniou and his wife Roula Kourakou failed to pay about €3m of taxes due between 2000 and 2010. (Financial Times)

3rd Plenum of 18th Communist Party of China: 
A number of reports continued to speculate over what reforms could be announced coming out of China’s plenary session. The meetings are scheduled to run from 9-12 Nov.
- The FT beyondbrics blog cited numerous research notes speculating over which sectors would be winners and losers coming out of the meetings. Winners were healthcare, renewable energy, consumer stocks, brokerages, energy producers, and railway. Losers were banks, materials, and coal. The piece noted that it was unclear whether property would benefit from the meetings.
- Xinhua noted that recent developments, such as the Shanghai FTZ, indicates that the Chinese government is accepting of change. The article noted that potential fiscal and tax system reforms will be closely watched. In a separate article, Xinhua looked at overcapacity in heavy industries, as well as wind farms and photovoltaic plants. The article noted that local governments rely on large industrial projects for revenue, which has worsened the overcapacity problem.
- The WSJ profiled Xi Jinping, and noted that he’s cast himself as a reformer. The paper reported that Xi has built up a great deal of political capital during the past year, putting him in a better position to push through reforms than his predecessor Hu Jintao. Xi has hinted that he will endorse a broad base of financial and potentially social reforms. The piece noted that politicalliberalization is unlikely to be on the table.
- Bloomberg speculated that the meetings could re-invigorate the stalling municipal bond market. The article noted that developing a muni-bond marketcould help to ease concerns over local government debt.


Akzo Nobel (JPM, Diebel) Volume rebound with improved gearing + additional value opportunity from disposals = Upgrade to Overweight
We see Akzo Nobel as an ideal play for a European macro recovery as 50% of Group revenues are generated in the region. In addition operational gearing is high post the completion of a €500m cost savings program by YE 2013. Despite the recent share price move we believe the shares are still attractively valued at 8.3x 2014E EV/EBITDA given a 2013E-2015E EBITDA CAGR of +20% (+16% ex impact of lower restructuring charges). Our Dec 2014 DCF/SOTP derived target price of €66 (from €48) offers +21% upside potential. We upgrade the shares to Overweight (from Neutral).

K+S (JPM, Scarlett) Trading remains tough but momentum could be set to turn. Upgrade to Neutral
Whilst Q3 earnings will likely be weak, and the downside risks have not disappeared, we believe there are sufficient positive catalysts to take a Neutral position. We believe a cost restructuring announcement, confirmation that a rights issue will not be required, greater signs of a BPC reconciliation, and any move towards positive potash price momentum could all squeeze the shares up. We raise our EPS forecasts for 2014/15 by +5%/+36%, increase our PT to €21 (€12) reflecting better medium term growth and upgrade to Neutral (UW).


Asian markets
Nikkei 225 down -166.53 (-1.17%) at 14,062
Topix down -9.68 (-0.82%) at 1,175
Hang Seng down -139.47 (-0.61%) at 22,742

US markets
S&P 500 down -23.34 (-1.32%) at 1,747
DJIA down -152.90 (-0.97%) at 15,594
Nasdaq down -74.61 (-1.90%) at 3,857

European markets
Eurofirst 300 up +0.37 (+0.03%) at 1,297
FTSE100 down -44.47 (-0.66%) at 6,697
CAC 40 down -5.94 (-0.14%) at 4,281
Dax up +40.16 (+0.44%) at 9,081

€/$ 1.34 (1.34)
$/¥ 98.16 (98.08)
£/$ 1.61 (1.61)
€/£ 0.8331 (0.8335)

Commodities ($)
Brent Crude (ICE) down -0.23 at 103.23
Light Crude (Nymex) up +0.19 at 94.39
100 Oz Gold (Comex) unchanged 0.00 at 1,308
Copper (Comex) 10-year government bond yields (%)
US 2.60%
UK 2.68%
Germany 1.68%

CDS (closing levels)
Markit iTraxx SovX Western Europe -3.86bps at 64.53bp
Markit iTraxx Europe -2.16bps at 82.54bp
Markit iTraxx Xover -5.7bps at 340.99bp

Sources: FT, Bloomberg, Markit


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