US equities finished lower on Tuesday, and we finished rather late as it was our Christmas party. Ongoing speculation surrounding monetary policy remained a key area of focus amid the upcoming FOMC meeting next week. A light economic calendar was highlighted by a larger-than-expected build in wholesale inventories. The October JOLTS report was also released, and revealed more job openings than economists had expected. Defensive sectors led the way lower today, as utilities and telecom lagged. Materials and consumer discretionary were the only major sectors to trade higher. Treasuries rallied, along with crude oil and gold.
Asian markets are weaker in morning trade, trading on momentum rather than newsflow, which is slow again today. Expectations for China’s growth in 2014 again made headlines as senior economic officials met to decide on the 2014 growth target, which may be reduced to 7.0% from 7.5% in 2013. The Chinese market was one of the weakest in the region. Australian consumer confidence fell on unemployment fears, but this did not impact the market. In line November CGPI and October core machinery orders data had little impact on the Japanese market.
We’ll monitor today: Germany, Portugal report inflation data. Bank of England publishes paper on money-market funds. ECB’s Constancio, BOE’s Weale speak. Germany, Switzerland, Sweden sell bonds; Italy, Norway sell bills. We have a draft on the SRM pillar of banking Union, but the decisions are still deferred.
• France to Be ‘Particularly Vigilant’ on EADS Cuts: Moscovici (whatever that means…)
• BoE’s Haldane Urges Revival of Debt Securitization
• Czech Parties Agree on Coalition Deal, Keep Tax-Increase Option
• Ukrainian Police Mass Near Barricades at Kiev Protest Camp
• EU States Move Toward Clash With Lawmakers on Bank-Failure Plan
• EU Finance Chiefs Lay Down Red Line on Creditor-Writedown Rules
• Credit Agricole to Transfer Risk to Regional Units, Echos Says
• EDF May Have to Raise Nuclear Decommissioning Provisions: Echos
• Inditex 9-mo. net EU1.67b, est. EU1.7b / sales EU11.9b, est. EU12b. Space growth in line with forecast
• RBS Finance Director Bostock Resigning After 2 Months (+2% pre mkt)
• Tomkins Said to Work With Goldman Sachs on Sale or IPO Next Year
• BHP Looks at Expansion in Trinidad and Tobago Amid Asset Sales
• HSBC Sells 8% Stake in Bank of Shanghai to Spain’s Santander
• Moncler Said Likely to Price IPO at Top of Range on High Demand
• Ashtead May Replace Croda in FTSE Reshuffle, SocGen Says
• Imagination Tech -10% No’s weak across the board & sees lower shipment growth
– MasterCard announced a 10-for-1 stock split and increased its quarterly dividend 83 percent to $1.10 a share. The company also announced a $3.5 billion stock-repurchase program.
– Lab Corp dropped in after-hours trading after it projected 2014 revenue in line with estimates but earnings-per-share below expectations.
– H&R Block The provider of tax-preparation services reported quarterly revenue below Wall Street’s expectations. Its shares fell in after-hours trading.
– Smith & Wesson offered third-quarter guidance above expectations. Its shares rallied in after-hours trading.
US budget negotiators on Tuesday night struck a bipartisan deal to set spending levels until 2015, breaking the latest fiscal logjam in Congress and stopping a cycle of crisis-driven economic policy making in Washington. The agreement is small in size – worth $85bn – but may herald the return of an era in which Congress can perform basic functions without the political brinkmanship that has repeatedly threatened the US economic recovery in recent years. (Financial Times) (WSJ)
Ukrainian riot police launched a surprise raid on Kiev’s protest camp early on Wednesday morning, beginning an hours-long stand-off with protesters that showed little sign of abating by morning. Police began descending on Kiev’s central Independent Square around midnight local time, just hours after President Viktor Yanukovich met EU foreign policy chief Lady Ashton and vowed to continue talks over Ukraine’s further integration with the EU. The standoff between police and protestors has been relatively peaceful so far. (Financial Times)
EU finance ministers on Wednesday framed the political bargain for the eurozone’s next big step towards banking union, but put off the fight over the crucial details of sharing bank failure costs until next week. A marathon negotiating session in Brussels produced a draft compromise, broadly based on Germany’s revised position, which sets out how eurozone countries cede power to a central bank resolution authority and establish a common funding network. (Financial Times)
JPMorgan files patent for Bitcoin-style payment system: JPMorgan Chase has filed a US patent application for a computerised payment system that resembles some aspects of Bitcoin, the controversial virtual currency. Like Bitcoin, JPMorgan’s proposed system would allow people to make anonymous, electronic payments over the internet, without having to reveal their name or account numbers or pay a fee, according to the patent application. (Financial Times)
BHP Billiton is to invest $4bn a year to step up output from its US shale reserves and expects the business to generate $3bn of cash annually by the end of the decade, helping the world’s largest mining group by market capitalisation to justify expensive bets placed on the assets two years ago. BHP said US shale production would break even from 2016 and by the following year would reach 500,000 barrels per day, 70 per cent higher than today. (Financial Times)
Utilities (MS, Turpin) A Floor in 2014
ENEL: OW, PT €3.50
Iberdrola: UW, PT €3.80
Yes, power prices are depressed, and regulatory risks persist, but energy policy is inching towards capacity markets. Growth remains weak, though relative EPS revisions have stabilised. FCF is improving on self help, leverage is under control, and relative valuation is not stretched. Remain EW.
French Utilities (MS, Turpin) SEV/VIE: Must-own into 2014 – Maintain OW
Veolia: OW, PT €15.50
Suez Env: OW, PT €14
We recommend an OW position in the Water/Waste sub-sector into 2014. We like the industry’s fundamental attractions and growth potential. Valuation for SEV and VIE relative to the market is attractive as we roll into a new year. We think choosing between the two is just a matter of risk appetite.
PANDORA (JPM, Battistini) In Essence…we reiterate our OW
PANDORA hosted its first ever investor event in London, with management presentations focused on the company’s strategy, the design process, marketing and North America. We found the presentations very robust, showing a consistent vision across product and distribution. With topline growth to remain sustained, the commentary on Q4 trading still positive, valuation undemanding, especially in the context of the expected growth for the next few years, and healthy cash returns, we remain OW on PANDORA.
ALCATEL-LUCENT RAISED TO BUY VS NEUTRAL AT CITI
ALROSA RATED NEW BUY AT UBS, PT 42 RUBLES
AVEVA CUT FROM CONVICTION BUY AT GOLDMAN, STILL A BUY
BILFINGER CUT TO NEUTRAL VS BUY AT UBS
BLUE SOLUTIONS RATED NEW HOLD AT KEPLER CHEUVREUX; PT EU16
ELIA SYSTEM OPERATOR RAISED TO OVERWEIGHT AT MORGAN STANLEY
ENZYMOTEC CUT TO UNDERPERFORM VS BUY AT BOFAML
ERICSSON CUT TO NEUTRAL VS BUY AT CITI
GAMESA RAISED TO OVERWEIGHT VS NEUTRAL AT HSBC
GENERALI RAISED TO ADD VS HOLD AT BANCA IMI
KENTZ CORP CUT TO HOLD VS BUY AT LIBERUM
MAERSK CUT FROM CONVICTION BUY AT GOLDMAN, STILL BUY
MAUREL & PROM RAISED TO BUY VS NEUTRAL AT GOLDMAN
NATIXIS RAISED TO OUTPERFORM VS NEUTRAL AT EXANE
NOKIA RAISED TO BUY VS NEUTRAL AT CITI
RADWARE LTD. RAISED TO OUTPERFORM AT WELLS FARGO
ROMGAZ RATED NEW NEUTRAL AT GOLDMAN, PT $12.7
ROYAL MAIL CUT TO REDUCE VS NEUTRAL AT NOMURA
SOCO INTERNATIONAL CUT TO SELL VS NEUTRAL AT GOLDMAN
TRAVIS PERKINS RATED NEW BUY AT CANTOR; PT 1,950P
TRUSTBUDDY RATED NEW BUY AT LIBERUM, PT SEK8
VIVENDI RAISED TO OUTPERFORM AT SANFORD BERNSTEIN
VIVENDI RAISED TO OUTPERFORM VS MARKET PERFORM AT BERNSTEIN
WORLD DUTY FREE RATED NEW BUY AT NOMURA; PT EU9.4