LCM Dawn Patrol € 10.12.14 € LCM 2014: Investment Strategy Outlook – MS likes WOS, GS cuts SkyD, JPM cuts TKaustria and ups Shell. MORE…

Bonjour,

US equities were slightly higher in a quiet Monday trading session. With little substantial, new information the trend from Friday remained intact resulting in modest gains. The taper remains a high profile topic, but expectations have changed little. Although several Fed officials spoke today there was little response to their remarks. Markets no longer seem to be as sensitive to every little update surrounding the possible structure and timing of the taper. Reports that a budget deal in DC could be unveiled later this week provided a source of optimism. November trade and inflation data from China were better than expected. Sectors were mostly higher led by materials +0.49%; exceptions utilities (0.55%) and consumer discretionary (0.13%).
Asian markets are largely flat this morning with a slight negative bias after markets rose yesterday on tapering hopes. There is a lack of significant news flow but data this afternoon may provide some impetus. After a strong day yesterday Japan is slightly weaker, and the market continues to keep an eye on the $-¥. Australia is rebounding off yesterday’s sentiment driven losses. The Indian market is also slightly lower after the BJP winning state elections boosted the market.

European markets to open flat today.

NEWS

• Carney Pushes Guidance Message as He Warns Against Early Exit
• S&P Says ECB’s Review of European Banks to Have Limited Effect
• Germany Bends in EU Bank-Failure Talks as Summit Deadline Looms
• Portugal to Pick Exit Plan After Further GDP Growth, Lima Says
• U.K. House-Price Index Rises to Highest in More Than a Decade
• Greece to Get Delayed Aid Payout This Month, Stournaras Says
• Ukraine Tension Mounts Over Police Crackdown as EU Envoy Arrives

ArcelorMittal-Backed Lobby Warns Against French Green-Energy Tax
Lloyds Selling $1.2b Stake in Britain’s St. James’s Place
Siemens Said to Consider Metals Technologies Sale Amid Revamp
Novartis Said to Weigh Animal-Health Asset Swap Instead of Sale
Nokia Said to Offer $487m to Move India Unit to Microsoft
Deutsche Annington Said Close to Buying German Landlord Vitus
Bilfinger Settles With U.S. Justice Dept. on Nigeria
Gulf Keystone in Talks About Appointing 2 New Directors: Sky
GM Bailout Ends as U.S. Sells Last of ‘Government Motors’
Texas Instruments Forecasts Sales, Profit In Line With Ests.

CURRENT STUFF

Ukraine: Riot police encircled central Kiev on Monday night, raising fears the authorities were preparing a crackdown on anti-government protesters just hours after Ukraine’s president said he was prepared to hold talks with opposition leaders. (Financial Times)

Jump in mortgage borrowing a good for US consumption: The US has reached an important milestone in its recovery from the financial crisis after the first rise in outstanding mortgage debt since the beginning of 2008. After reducing debt for 21 consecutive quarters, US households increased their net mortgage liabilities at an annualised rate of 0.9 per cent in the third quarter of 2013, according to new data from the US Federal Reserve. (Financial Times)

Abenomics datapoint du jour: “Money managers in Japan bought a net ¥2.6 trillion ($25 billion) of foreign bonds in November, data from the Ministry of Finance showed Monday. During five consecutive months of net buying, they scooped up ¥9.1 trillion of bonds overseas, the largest buying spree since a ¥14 trillion binge in the nine months to January of this year.” (WSJ)

Low inflation is becoming a major headache (Financial Times Davies)

STRATEGY

LCM (Abet) 2014: Investment Strategy Outlook
A 1987 or 1996 scenario

In this 20+ pages report, Tristan presents his views for 2014. This is obviously a must read. So far in 2013 he’s been right on every asset (except the EURUSD). Let’s have a quick look at his views for next year:

EQUITIES
A 1987 or 1996-like scenario
We think about two possible scenarios:
1) the re-rating continues (like in 1995/96) to celebrate a new “goldilocks” context
2) P/Es correct because of markets’ cycles (from “greed” to “fear”).
Emerging Markets underperformance should continue.
In Europe, we continue to play domestic equities with a beta-hedged approach
We like the US,  Japan is a make or break situation.

BONDS / CURRENCIES
CBs in Dev. Countries will fight any interest rate shock
We remain buyers of the sovereign bonds of the periphery. In the US, the re-pricing of LT rates expectations is almost done and we would play now the steepening of the short part of the curve (2y-3m).
On currencies, we do not exclude a new “Louvre Agreement”: 1) to organize the depreciation of EM currencies if a financial crisis threats and 2) to help DM to restore growth (EUR, AUD).

COMMODITIES
No limit to the downside

DERIVATIVES
Cost of protection is so low

CALL FOR MORE… for the asset allocation table, the EU sector plays, for the list of names to but, for the derivatives strategies…

UPS&DOWNS

Global: Automobiles (GS, Archambault) Global autos conference positive for GM, mixed for suppliers
We held our fifth annual global autos conference in London. Among the broad group of OEMs, suppliers, and industry participants we hosted managements of BorgWarner and GM (Opel).

Wolseley plc (MS, Serov) Top pick for 2014
We reiterate our Overweight rating for Wolseley. Within the Building Materials sector the stock is our top pick for 2014. A confident macro backdrop, market share gains and margin improvement, and growth through bolt-on acquisitions are key factors to drive outperformance, we argue.

Sky Deutschland AG (GS, Padiachy): Sky Deutschland: Structural leader but less upside; off CL, still Buy
We view the renewal of the CL rights as a positive and remain positive on the long- term opportunity. We remove the stock from the Conviction List due to less upside implied by our new 12-month price target of €9.80. We retain our Buy rating.

Royal Dutch Shell B (JPM, Lucas)
RD Shell – upgrade to Neutral: Desensitized to negative news, 18-month period of sector underperformance may be coming to an end

Telekom Austria (JPM, Wittig)
Improving picture, but risks remain, and the valuation looks rich; downgrading to Underweight

Analyst Actions

ACRON CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN

ANTOFAGASTA RAISED TO NEUTRAL VS UNDERPERFORM AT CREDIT S…

ATOS REINSTATED NEUTRAL AT BOFAML, PT EU65

CAP GEMINI
REINSTATED NEUTRAL AT BOFAML, PT EU50

CGG RAISED TO OUTPERFORM VS MARKET PERFORM AT RAYMOND JA…

DAILY MAIL REINSTATED OUTPERFORM AT CREDIT SUISSE, PT 1,150P

DNB CUT TO NEUTRAL VS BUY AT NOMURA

INDRA REINSTATED BUY AT BOFAML, PT EU14.50

KAZAKHMYS CUT TO UNDERPERFORM VS NEUTRAL AT BOFAML

KAZAKHMYS CUT TO UNDERPERFORM VS NEUTRAL AT CREDIT SUISSE

OTE RAISED TO OVERWEIGHT VS NEUTRAL AT JPMORGAN

SHELL RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN

SKY DEUTSCHLAND CUT FROM CONVICTION BUY AT GOLDMAN, STILL…

SMITHS GROUP RAISED TO OVERWEIGHT AT MORGAN STANLEY

TELEKOM AUSTRIA CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN

OVERNIGHT MARKETS

Asian markets
Nikkei 225 down -32.38 (-0.21%) at 15,618
Topix up +0.44 (+0.04%) at 1,256
Hang Seng down -40.32 (-0.17%) at 23,771

US markets
S&P 500 up +3.28 (+0.18%) at 1,808
DJIA up +5.33 (+0.03%) at 16,026
Nasdaq up +6.23 (+0.15%) at 4,069

European markets
Eurofirst 300 up +2.05 (+0.16%) at 1,272
FTSE100 up +7.49 (+0.11%) at 6,559
CAC 40 up +4.73 (+0.11%) at 4,134
Dax up +22.76 (+0.25%) at 9,195

Currencies
€/$ 1.38 (1.37)
$/¥ 103.23 (103.27)
£/$ 1.65 (1.64)
€/£ 0.8356 (0.836)

Commodities ($)
Brent Crude (ICE) up +0.45 at 109.84
Light Crude (Nymex) up +0.32 at 97.66
100 Oz Gold (Comex) up +7.80 at 1,243
Copper (Comex) at 3.29

10-year government bond yields (%)
US 2.84%
UK 2.92%
Germany 1.84%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.14bps at 64.14bp
Markit iTraxx Europe -2.83bps at 77.84bp
Markit iTraxx Xover -8.87bps at 316.92bp
Markit CDX IG -1.97bps at 67.45bp

Sources: FT, Bloomberg, Markit

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