LCM Dawn Patrol – 06.12.13 – SUP in Paris! GS top 6 trades. MS on storage. JPM downgrades Accor, and positive on NOKIA. Week End and More!

Bonjour,

US equities finished mostly lower on Thursday, with the S&P closing down for the fifth straight session ahead of tomorrow’s November jobs report. A round of positive economic data further raised speculation that the Fed could taper its asset purchases as soon as the December meeting. Comments from Atlanta Fed President Dennis Lockhart received some attention as well. Telecom and financials led the way lower, with banks under pressure from reports that the Volcker rule won’t allow portfolio hedging. Industrials were the only sector not to trade lower. Treasuries fell again today amid the upbeat economic data. Crude oil continued its recent move higher, while gold gave back most of its gains from yesterday.
Asian markets are mixed in morning trade but largely flat on slow volumes and a lack of material news flow. The Australian market fell in early trade after trading halts from majors Qantas and QBE alarmed the market but has since recovered somewhat. The USDJPY fell yet again, however the Nikkei was flat after a week of strong losses.

WEEK END

DISCO. Deltron 3030. Kid Koala and Dan the Automator at Le Trianon (Sunday).
SKI. Beaver creek this WE Downhill and Giant.
SPORT. Nautic CUP Paris Crossing. http://bit.ly/19kYLxt
RESTO. The best Raclettes in Paris: http://bit.ly/18H90C2
KINO. The Wolf of Wall Streest. Out on the 25th in Paris. Who wants to go?

NEWS

* Nelson Mandela, Who Led S. Africa Past Apartheid, Dies at 95
* Norway Readies Asset Sales as Statoil Ownership Under Review
* ECB Should Use QE to Combat Deflation Risk, Says Eichengreen
* Electronics Makers, Retailers Raided by EU in Online-Sales  Probe
* Draghi Keeps ECB on Alert for 2014 Amid Feeble Inflation  Outlook
* Meditor Plans to Liquidate European Hedge Fund After Review
* Austria Plans to Sell EU22b-EU26b Bonds in 2014
* Thousands Moved From English Coast as Thames Barrier Is  Closed
* Ukraine Police Seek to Arrest Protest Agitators as Talks  Stall
* Attack on Yemen Defense Ministry Leaves At Least 52 People  Dead

* Eni’s Scaroni Meets Iran Minister in Vienna for Future Work
* Deutsche Bank Joins Biggest Banks Cutting Commodity  Headcount
* Total to Pay InterOil Up to $3.6b in Pacific LNG Deal
* Statoil to Select Norwegian Oil Projects With Care as Costs  Rise
* EDF’s Proglio Interested in 1,000MW France-China Reactor:  Echos
* Nestle to Sell Givaudan Shares Worth $1.27b to Investors
* Alcatel-Lucent Capital Increase Raises Gross EU956.7m
* Tomkins May Hire BOfA, Goldman, Morgan Stanley for IPO:  Reuters
* Aviva’s McFarlane to Be Named Chairman of FirstGroup: Sky  News
* Shell Will Not Pursue U.S. Gulf Coast GTL Project
* Sky Deutschland to Buy 100% of Plazamedia, 25% Stake in  Sport1
* S&P downgrades Qantas to junk: outlook negative

CURRENT STUFF

Nelson Mandela dies: The inspirational former South African president who guided his nation through the dramatic transition that marked the end of apartheid, died on Thursday. He had spent nearly three months in hospital following his admission in June. (Financial Times)

The US “Volcker rule”, which bans banks from proprietary trading, will leave a grey area for regulators to police as they see fit, according to a senior Treasury official. He said the rule itself would be quite short, leaving room for regulators’ discretion. (Financial Times) It will also “require CEOs guarantee compliance… The inclusion of so-called CEO attestation is intended to help increase accountability at firms by ensuring that top executives know what types of trades are occurring at their firms, these people said.” (WSJ)

Bitcoin vs Western Union

STRATEGY

 

GS six Top Trade recommendations for the coming year…
Over the past week and a half we have released our first set of 2014 Top Trade recommendations – strategic ideas that we think reflect our highest conviction market views for the coming 12 months. With six trades now recommended, we are taking a pause. As in prior years, we anticipate adding to the list, perhaps soon, as more opportunities arise to crystallise our thematic views of the market, or as new themes arise.
To recap, our current six trade recommendations are as follows:
Long S&P 500 Dec 14 Future and (funded out of) short AUD/USD Dec 14 Future, with a target of 2250 and a stop on a close below 1855.
Long EUR swap (EONIA) 5y rate and short 5y Treasuries, with a target of -130 and a stop on a close above -35.
Long USDCAD (on a spot basis), with a target of 1.14 and a stop on a close below 1.01.
Long HSCEI Index and short Copper Dec 14 LME future, with a target of 25% and a stop on a close below -13%.
Long risk (selling protection) on the 7-year CDX IG Series 21 junior mezzanine tranche (the 3-7% portion of the loss distribution), with a target of 395 and a stop on a close above 585.
Long basket in large-cap bank indices in the US, Europe and Japan, implemented via equal parts of the BKX, SX7E and TPNBNK indices, with a target of 120 and a stop on a close below 90.
Consistent with our forecast for a relatively positive economic outlook – at least in the US and major developed economies – the list on average has a ‘pro-risk’ bias, expressed through long equity positions, although in two out of three cases these are partially offset with short positions in other cyclical assets (AUD and copper). The set of trades here capture the notion that we see the following year as one in which, on average, stocks and bond yields are likely to move higher – and credit spreads modestly tighter – while commodities are likely to move lower. We are also forecasting modest strengthening in the USD TWI, driven by appreciation against the AUD, CAD, JPY and many EM currencies.

 

MS (Huberty) Tech Hardware Insights
Storage Market Decline Accelerates

The storage market declined for a third consecutive quarter yielding additional evidence that supports our thesis of faster than expected erosion of on-premise IT infrastructure spend due to cloud adoption.
According to IDC, the external disk storage market declined 4% Y/Y, accelerating from 1% decline in each of the prior two quarters despite easier comparisons. We believe that the on-premise storage market, while relatively less commoditized and better positioned than other segments of IT hardware, will continue to experience headwinds from growing cloud adoption as offerings like Amazon S3 provide a low cost solution that can free up existing on-premise capacity for tier 1 storage needs. Gartner forecasts public cloud storage market will grow from $1.7B today to $4.9B in annual revenue in 2017, representing a 31% CAGR.
Declines were mainly driven by high-end storage, where revenue declined 15% Y/Y, driven mostly by Hitachi. The midrange segment of the market was flat as continued traction at HP (most likely 3PAR) and EMC were offset by revenue declines at NetApp and IBM. Entry-level storage grew 6%, driven by significant growth at NetApp and Huawei.
NetApp was the largest share gainer in 3Q13, for a second consecutive quarter, advancing market share 120bps Y/Y compared to +110 bps in 2Q13 and +70bps in 1Q13. EMC gained 70bps of share, representing the lowest share gain in 15 quarters. Share losses continued at server OEMs – Dell, HP, and IBM ceded 90bps of total share in 3Q13, but moderated from 120bps and 270bps share loss in 2Q13 and 1Q13.

UPS&DOWNS

Accor (JPM,  Dhillon) Limited visibility on asset restructuring. Downgrade to Neutral
Accor has replaced the 4 year asset restructuring plan outlined at the beginning of the year. Under the new strategy asset restructuring will continue but the company is not publicly setting any hard targets in terms of pace and/or magnitude. We now expect lower capital return (€700m vs prev €1.5bn) with significantly reduced visibility. Accor now trades on CY14E EV/EBITDA of 9.5x.against Whitbread on 10.8x. We apply a 9.8x CY14E EBITDA multiple to arrive at our Dec14 PT of €34 (prev €37). Given the limited visibility on restructuring, we downgrade the stock from OW to N and remove it from the Analyst Focus List.

Nokia (JPM, Deshpande) IP monetization key to continuing re-rating. Reinstate rating at Overweight.
We resume OW rating (now €8 Dec-15 TP on SoTP, 40% upside). Our note details the substantial potential Nokia has to monetize its very high quality patent portfolio. We calculate that if Nokia is able to achieve a 1% royalty per device, we could reach a TP greater than €15. Catalysts for this may be not too far away (HTC injunction, Samsung arbitration). At NSN, although future margin gains are limited, focus will likely turn to top-line growth.

Airports(MS, Ruivo) 2014 Outlook – Sticking with the Smaller Airports
After the re-rating of the sector in 2013, we see less scope for multiple expansion in 2014. We prefer Zurich and Vienna, which still trade at a discount and where we see more potential catalysts. We think ADP and Fraport need upgrades to keep performing, and think these are less likely at ADP.

JPM Utilities Weekly (JPM,  Garrido) Winners and losers from lower inflation expectations
We look at the impact of lower inflation on utilities across Europe. EDP stands out as the company most likely to benefit from low inflation, while UK and Italian regulated utilities would be among those most negatively impacted. See inside for sensitivities. In our large cap coverage our top picks are EDF, RWE, and Snam, and bottom picks are E.ON, and SSE. In our small and mid cap coverage our top picks are Enel Green Power, Pennon, PPC, Red Electrica, and Terna, our bottom picks are PGE and Veolia.

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +62.02 (+0.41%) at 15,240
Topix up +2.15 (+0.17%) at 1,232
Hang Seng down -36.89 (-0.16%) at 23,676

US markets
S&P 500 down -7.78 (-0.43%) at 1,785
DJIA down -68.26 (-0.43%) at 15,822
Nasdaq down -4.84 (-0.12%) at 4,033

European markets
Eurofirst 300 down -12.29 (-0.96%) at 1,261
FTSE100 down -11.64 (-0.18%) at 6,498
CAC 40 down -48.61 (-1.17%) at 4,100
Dax down -55.68 (-0.61%) at 9,085

Currencies
€/$ 1.37 (1.37)
$/¥ 102.04 (101.78)
£/$ 1.63 (1.63)
€/£ 0.8365 (0.8366)

Commodities ($)
Brent Crude (ICE) up +0.30 at 111.28
Light Crude (Nymex) down -0.04 at 97.34
100 Oz Gold (Comex) down -4.50 at 1,229
Copper (Comex) at 3.26

10-year government bond yields (%)
US 2.87%
UK 2.92%
Germany 1.86%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.67bps at 64.27bp
Markit iTraxx Europe +1.07bps at 83.07bp
Markit iTraxx Xover +2.1bps at 331.02bp
Markit CDX IG +1.51bps at 72.26bp

Sources: FT, Bloomberg, Markit

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