LCM Dawn Patrol – 05.12.12 – GS likes DM Banks, MS downgrades Metro, GS upgrades Anglo, GS likes VOW and Peugeot… More

Bonjour,

US equities finished slightly lower in another round of somewhat choppy trading on Wednesday. There was no specific catalyst behind the move, though there were a number of issues in focus. The path of least resistance still seemed skewed a bit to the downside with the consolidation dynamic getting most of the blame following eight straight weeks of gains and more signs that sentiment has become extended. Labor and housing market data surprised to the upside, seemingly keeping the door open for a December tapering move. However, there continued to be some skepticism about the extent to which tapering angst is impacting stocks given the market’s perceived comfort with an extended policy normalization process (short-term Treasuries were little changed, while gold rallied). Retail concerns remained in focus with more talk about a highly promotional holiday season. The materials sector put in the best performance of the day. While another round of chatter about Congress closing in on a fiscal deal provided some early support, the overall impact was fairly muted as an agreement has been expected.
Asian equity markets traded lower Thursday morning. Although media reports noted that the data was an indication that tapering could begin shortly and result in a capital leaving Asia, there were no dramatic moves in the forex markets. The yen, Aussie dollar, and rupee were all trading relatively flat, albeit with modest volatility, in the past 24 hours. Australia’s October trade balance was the only real piece of macro news out this morning. Although the deficit widened more than expected, it was offset by a pickup in exports to China.

We’ll monitor today Norges Bank, BOE and ECB meetings. Also, watch Spain Oct. Industrial Output.

Spain, France sell bonds. Sweden sells linkers.

NEWS

Spain’s Credit Rating Outlook Increased by Moody’s to Stable
BOE Seeking Exemption From European Bank Stress Tests in 2014
Job Cuts Loom at European Banks as Stagnant Economy Pinches Fees
European Bankers Face Calls to Forsake Bonuses After Rates Fines
Norway Government Says Central Bank Is Winning Battle With Krone
No Limit to Negative Rates as Denmark’s Rohde Defends Euro Peg
U.K. Considers Increasing State Pension Age to 68 by Mid-2030s
Ukraine Clash on Cabinet Fuels Protests Demanding Premier’s Exit

Airbus’s Longest Aircraft Gets More Seats to Help Rebuild Value
CTT to Start Trading After Portugal’s First IPO in Five Years
Deutsche Boerse Says SHW AG to Be Included in SDAX; MVV Energie to be deleted
Gazprom Seeks Deal With EU’s Antitrust Arm in Bid to Avoid Fine
HapagLloyd Confirms Talks With CSAV on Combination
J. Martins to Keep Prices Low in Poland as Competition Grows
Pescanova Sells 50% Stake in Australian Unit for EU29.5m
Spain’s FROB Extends NCG Banco Binding Offer Deadline to Dec. 16

CURRENT STUFF

Beige Book: The Fed’s November Beige Book suggested a ‘modest to moderate’ expansion in activity during the period from early October through mid-November. This expansion occurred in all districts, although to varying degrees; in the New York, Cleveland, Richmond, Atlanta, St. Louis, Minneapolis, and Dallas districts, growth was reported as ‘moderate,’ while it was cited as being ‘modest’ in the Philadelphia, Chicago, Kansas City, and San Francisco districts.

Ukraine’s deputy prime minister late on Wednesday said his government was prepared to discuss snap elections, in the first sign of potential compromise in the country’s worst political crisis in nearly a decade.(Financial Times) While “China’s Foreign Ministry made a noncommittal response on Wednesday to a query whether Beijing would provide any more aid to Ukraine, as President Viktor Yanukovich arrived in the country.” (Reuters)

US company chiefs push for budget deal: Chief execs of big US companies are warning that the country faces another year of sluggish growth, while expressing hope that a deal over the budget being discussed in Congress will kick-start the economic recovery. (Financial Times)

Volcker Rule won’t allow banks to use ‘portfolio hedging’: “In a defeat for Wall Street, the “Volcker rule” won’t allow banks to enter trades designed to protect against losses held in a broad portfolio of assets, according to people familiar with the rule.” (WSJ)

STRATEGY

GS (Timcenko) arkets Daily: Top Trade Recommendation #6: Long DM (Japan, US and European) Banks

Our sixth Top Trade recommendation for 2014 is a long position in large-cap bank indices in the US, Europe and Japan, implemented via equal parts of the BKX, SX7E and TPNBNK indices.
We expect a significant pick-up in DM economic growth, stemming from domestic demand strength …
… fading fiscal headwinds in the US and Europe…
… and a continuation of accommodative policies by major central banks that will keep short-term rates anchored
Banks valuations remain well below pre-crisis levels…
… and steeper yield curves may help improve net interest margins
Risks include growth disappointments, violent rate shifts as monetary accommodation is withdrawn, and a change of sentiment towards the banking sector

UPS&DOWNS

Metro (MS, Aubin) Pause for Breath
OW to EW, PT €36

We lower Metro to Equal-weight given the share price breached our PT this week and we struggle to identify any near-term catalysts.

AngloGold Ashanti (GS, King): Upgrade to Neutral following underperformance
We upgrade AngloGold Ashanti to Neutral following recent underperformance. We believe that FY13 guidance looks overly optimistic and that the company could fall short by 100-150Koz. But the stock looks fairly valued on our gold price estimates.

Volkswagen (GS, Burgstaller) Buy: Value supported by growth despite flat returns
We reiterate our Buy rating on VW driven by volume improvement and a potential re-rating on stable returns. We see improving margins driven by growth, pricing, mix and structural cost savings; partly offset by strengthening FX headwinds

Peugeot (GS, Burgstaller) Buy: Added to Conviction List – Buy on attractive risk/reward balance
We added PSA to the Conviction List-Buy. We see news on alliances and appointment of Renault’s ex-COO Tavares to the board to be evidence of a comprehensive strategy for PSA’s structural issue. Disposals of stakes could lead the auto business to re-rate.

JPM upgrade Drax to OW (Barcap reiterate OW too), reiterate OW on Publicis and stay Neutral on Standard Chart. citing “Lack of visibility on near term growth drivers offsets valuation”
GS add Peugeot onto CL Buy, reiterate CL Buy on Elekta, Daimler and adidas,AngloGold Ashanti up to Neutral, reiterate Sell on Anglo American, reiterate Buy on Big Yellow and Volkswagen
MS is upgrading SWED to OW ahead of mortgage price increase, stay OW on TF1 and downgrade Metro to EW as they struggle to identify near-term catalyst.
EDF Removed From UBS’s Most Preferred List, replaced by Drax.
Nomura see downside limited on Standard Chart : “looks attractive” as long-term investment, is capable of high single digit growth
Elisa cut to Underperform Vs Neutral and SaintGobain to Neutral at BofAML.
Aker Solutions cut to Neutral Vs Buy at Citi

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -146.62 (-0.95%) at 15,261
Topix down -6.95 (-0.56%) at 1,234
Hang Seng down -76.66 (-0.32%) at 23,652

US markets
S&P 500 down -2.34 (-0.13%) at 1,793
DJIA down -24.85 (-0.16%) at 15,890
Nasdaq up +0.80 (+0.02%) at 4,038

European markets
Eurofirst 300 down -7.26 (-0.57%) at 1,274
FTSE100 down -22.46 (-0.34%) at 6,510
CAC 40 down -23.92 (-0.57%) at 4,149
Dax down -82.77 (-0.90%) at 9,141

Currencies
€/$ 1.36 (1.36)
$/¥ 102.25 (102.35)
£/$ 1.64 (1.64)
€/£ 0.8304 (0.8295)

Commodities ($)
Brent Crude (ICE) down -0.24 at 111.64
Light Crude (Nymex) up +0.17 at 97.37
100 Oz Gold (Comex) down -8.00 at 1,240
Copper (Comex) down -0.03 at 3.25

10-year government bond yields (%)
US 2.84%
UK 2.92%
Germany 1.82%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.38bps at 63.6bp
Markit iTraxx Europe +1.08bps at 82bp
Markit iTraxx Xover +4.87bps at 328.92bp
Markit CDX IG +0.23bps at 70.75bp

Sources: FT, Bloomberg, Markit

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