LCM Dawn Patrol – 28.11.13 – Strategy: Exane 2014, MS top stocks, GS top themes #3, MS on Volvo, JPM on Orange, GS on French banks.

Happy Hanukkah,

US equities finished higher in quiet pre-holiday trading on Wednesday, with the Dow closing at a record high. A heavy economic calendar was in focus, with numerous reports released ahead of Thanksgiving. A weak durable orders report and better-than-expected Chicago PMI and consumer sentiment prints highlighted the morning. The earnings calendar was quiet, with HPQ +9.1% the only high-profile reporter. Tech and industrials topped gains, while energy and utilities lagged. Treasuries, crude oil and gold all fell.
Asian equity markets traded higher Friday morning. The yen continued to provide a tailwind for Japanese markets as the $-¥ moved above 102. Sentiment was also positive surrounding October retail sales numbers showing growth slightly above expectations. Data showing Chinese industrial profits continued to grow in October supported mainland markets in early trade. As expected, Korea posted another current account surplus. Although the won appreciated on the news, the market was trading in the green. Although not a directional driver takeaways surrounding Australia’s Q3 capex data were largely positive.

Otherwise, Brazil raises rates by 50bp, EURJPY trade at 4Y highs & copper climbed for the first time in three days as stockpiles extended declines

VG1 looks like opening around the 3080 resistance. Support is at 3044 with the uptrend just below…then 3014. Resistances still at 3080 then 3107

Watch today, German Import prices and CPI, SP GDP, EU Money Supply and Consumer .confidenc

NEWS

• Portugal Getting First IPO in Five Years After Equities Lost 70%
• Negative Rate Experiment in Denmark Seen Stretching Into 2015
• Berlusconi Expelled From Italian Parliament After 19-Yr Tenure
• U.K. Govt Plans New Review of Cigarette Packaging: Times
• Bank of Italy Stock to Trade as Letta Aids Commercial Lenders
• Carney Says BOE Has No Help-To-Buy Veto Amid U.K. Housing Boom

Deutsche Telekom CEO Says It’s Time for Europe Industry Mergers
UCB Not for Sale as Drugmaker’s Billionaire Shareholder Holds On
Medtech Sells Shrs at Low End of Range in IPO
Manz Plans Cash Capital Increase of Abt. 10% of Share Capital
Pirelli, Gavio Seen Subscribing to Alitalia Rts Offer: Reuters
Repsol to Begin Talks With Argentina Over YPF Settlement
Telecom Italia Said to Work With Morgan Stanley on Brazil Towers
Deutsche Bank in Exclusive Talks With Permira on Tilney Sale: FT
Premier Foods in Talks With Investors on Hovis Bread Unit: Sky
Vienna Insurance Says Kosyna to Quit Board Dec. 31
Peugeot CEO Varin Gives Up Retirement Package
Siemens Sees Stable Rev. in FY 2014 on Organic Basis
TNT Express to Cut Up to 237 Jobs in U.K. Restructuring
Saint-Gobain Aims to Avoid Cutting Dividend, CEO Says
Versace Said to Get Formal Offers for Minority Stake: WSJ

CURRENT STUFF

Thai PM survives no confidence vote: Despite the anti-government protests that have gripped Bangkok for weeks, prime minister Yingluck Shinawatra has survived a no confidence vote. Members of the lower house voted 297 to 134 to reject a petition to censure her. (FastFT)

Brazil has raised its benchmark interest rate by 50 basis points to 10 per cent, pushing it into double digits for the first time since March last year as the Latin American country grapples with stubbornly high inflation. The central bank hiked the Selic rate late on Wednesday for the sixth time in a row, extending what has become the world’s biggest tightening cycle. (Financial Times)

Vale has agreed to pay Brazilian authorities R$22.3bn ($9.6bn) to settle a decade-long dispute over back taxes, bringing an end to an issue that has scared away investors from the world’s largest iron ore miner. The Rio de Janeiro-based company said late on Wednesday that it would accept the terms of the government’s Refis tax amnesty programme, reducing an initial $14bn claim against the miner by about 30 per cent. (Financial Times)

“Italian fashion house Gianni Versace this week received formal offers for the minority stake it is selling, with a number of international funds submitting bids, a person familiar with the matter said Wednesday. The candidates bidding separately for a stake of around 20% in Versace include Blackstone, U.K.-based Permira Advisers , Italian private-equity fund Clessidra, Italian fund FSI, Qatar Holding LL and French buyout firm Ardian…” (WSJ)

STRATEGY

Exane Investment Strategy for 2014
US growth to outperform Eurozone, especially in H2 2014Remain cautious on EM (for now) with a new leg of FX weakness likely
Greater risk comes again from sharper than expected rise in US (and global)yields
What could surprise consensus? Consumer Eu(ro)phoria; Fed “QE4”; ECB rate hike in H2 2014; China hard landing; French far-right victory

Europe:
Europe downgraded to Neutral (after 18 months at Outperform)
Tapering still has to be priced, European growth & liquidity momentum fading
Valuation has run well ahead of earnings delivery….rational only up to a point

Sector allocation driven by three factors: bond yields, USD, valuation
Overweights: Oil & Gas, Basic Resources, Retail, Media, Healthcare, Utilities
Underweights: Industrials, Chemicals, Food & Beverages, Personal & HH Goods

Morgan Stanley Lists Top Global Stock Recommendations
Asia ex-Japan: Great Wall Motor, KT&G, MediaTek, Sun Pharmaceutical, WeiChai Power. Japan: Mazda Motor, Mitsubishi Electric, Nippon Steel & Sumitomo Metal, Orix, Takeda Pharmaceutical, Yamaha Motor
Europe: InterContinental Hotels, Int’l Consolidated Airlines Group, Lloyds Banking Group, Metro, SSAB, Veolia EnvironnementNorth
America: Calpine, Canadian Pacific Railway, CBS Corp., Cobalt InternationalEnergy, FMC Technologies, Linear Technology, Michael Kors Holdings, Terex, 21st Century Fox

GS Top Trade Recommendation #3: Long $/CAD on external deficits, tapering risks
Canada’s current account position has been in deficit for some time. Slowing reserve diversification into the CAD has recently pushed the BBoP into deficit The BoC is also concerned about weakness in the export sector and low inflation. Domestic demand may no longer receive a boost from the housing market. The BoC is one of the few central banks withscope to cut rates.
US growth and tapering may move interest rate differentials further against the CAD. In particular, a sell-off in the US front end could significantly accelerate a $/CAD rally
We forecast $/CAD at 1.14 in 12 months’ time

 

UPS&DOWNS

Volvo (MS, Lembke) Too Many Blind Spots; Moving to a Relative UW
We are sceptical about the timing for the Strategic Plan, as well as the recovery prospects for key Truck/CE markets, which puts us on avg. 17% below consensus EPS. Trading at a 25% premium to midcycle multiples on 2015e, and with potential risk to dividends, we struggle to find value and move UW.

Orange SA (JPM, Wittig) Too soon for a turnaround. Remaining underweight
Orange shares are up by one third since the July lows, despite the negative Q2 news related to an extra €2bn tax payment. We believe the recovery was based on a number of factors, but based on our analysis of operating trends and structural challenges we remain worried that perception and hope may have outpaced what can be realistically expected.

French banks (GS) 3Q13 trends: Capital & liquidity improve further; BNP still top pick (CL-Buy)
This is a dashboard of the key capital, liquidity, volume growth and return metrics for French banks post 3Q13 results. We continue to prefer BNP in France (Conviction Buy List; c.30% upside to price target).

ANGLO AMERICAN RAISED TO HOLD VS SELL AT LIBERUM

BOLIDEN RAISED TO OVERWEIGHT VS EQUALWEIGHT AT MORGAN ST…

CAIRN ENERGY RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN

COMMERZBANK RAISED TO EQUALWEIGHT AT MORGAN STANLEY

COMPASS GROUP CUT TO NEUTRAL VS BUY AT CITI

KCOM CUT TO UNDERPERFORM VS NEUTRAL AT EXANE

METKA CUT TO NEUTRAL VS BUY AT CITI

PIRAEUS BANK RATED NEW NEUTRAL AT CITI

REMY COINTREAU CUT TO SELL VS HOLD AT SOCGEN

REMY COINTREAU CUT TO SELL VS NEUTRAL AT CITI

ROYAL MAIL RATED NEW NEUTRAL AT GOLDMAN, PT 610P

SAINT-GOBAIN RAISED TO NEUTRAL VS UNDERPERFORM AT EXANE

VOLVO CUT TO UNDERWEIGHT VS EQUALWEIGHT AT MORGAN STANLEY

WPP Growth Improving, UBS Says; Raises Organic Growth Ests, PT

WPP RATED NEW BUY AT WESTHOUSE

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