LCM Dawn Patrol – 13.12.13 – Week End, GS FX views for 2014, GS top metals ideas, MS on insurance, JPM on bevs.

Bonjour,

US equities finished mostly lower on Thursday, with the Dow and S&P 500 closing lower for the third consecutive session. A round of economic data was highlighted by strong retail sales and a surprisingly large increase in jobless claims. The data comes ahead of next week’s FOMC meeting. The budget deal also remained in focus, with the expected passage coming later tonight. The earnings calendar was quiet, with only a few notable names reporting. Consumer staples and healthcare led the market lower, while energy and utilities topped gains. Treasuries and gold fell, while crude oil and the dollar rose.
Asian markets are largely flat this morning on weak newsflow. Further attempts by RBA Governor Stevens to jawbone the AUD overnight drove the AUDUSD cross under the 0.90 mark. Indian CPI came in higher than expected after close, making it tougher for the RBI to reduce interest rates. Without any news to provide the market with direction, the Nikkei has been volatile in trade today, but is currently rebounding. Chinese stocks were lower in early trade, led by financials, but are now flat.

Spain final inflation will confirm
prices rose in Nov., according to economists. U.K. construction
in Oct. increased from Sept., a survey shows. In the US, we’ll get PPI indicators.

WEEK END

(It feels like weeks are longer although days are shorter).

SPORT: Critérium de la première neige à Val d’Isère. I should be there….
RESTO: La régalade Conservatoire. Chef Doucet, designer Wilmotte. 11 rue du conservatoire Paris 9e.
DISCO Winter Camp Festival.http://www.wintercampfestival.fr/work_category/paris/
KINO: The Hobbit: The Desolation of Smaug… IMDB reviews are very positive, and I may take the kids, but may feel bored about seeing hairy footed people walking.

NEWS

US budget passed House by large majority on Thursday evening
• Spain’s Rajoy Says Catalonia Independence Vote Won’t Take Place
• London Leads U.K. House Prices to Record as All Regions Rise

GM Announces It’s Selling Off Entire 7% Stake in Peugeot Citroen
PSA Peugeot Citroen Shares Said to Be Offered at EU10-EU10.25
• Irish Pick Centrica-Led Group as Preferred Bidder for Power Unit
Mercedes Warns U.S. Dealers of Tight Supply for New CLA Coupe
Bankia, Gamesa to Enter IBEX 35 Index From Dec. 23
Monte Paschi Board Opposes Top Investor Bid to Delay Stock Sale
Morrison Employee Said to Be Arrested in Insider-Trading Probe
Roche Plans January Start for PD-L1 Phase III Lung Cancer Trial
SAC Reconsidering Relationship With Deutsche Bank, WSJ Reports
GLG Settles Claims It Overvalued Coal Mining Stake Coffey Bought
Gerresheimer Seeking Acquisitions, CFO Beaujean Tells Rheinische
Arkema unveiled plans to sell two units in its coating business in South Africa.
JC Decaux won a seven-year concession of the Los Angeles international airport.
ArcelorMittal Fitch affirmed the company’s credit rating at BB+ with a stable outlook.

CURRENT STUFF

US budget passed House by large majority on Thursday evening, as leaders of both parties quashed dissent within their ranks. The legislation was passed by a margin of 332 to 94 and will head to the Senate for a final vote next week. If it is approved by the upper chamber of Congress, it will be signed into law by Barack Obama, who supports the measure. (Financial Times)

Funds set up for victims of Bernard Madoff should recover almost three-quarters of the Ponzi scheme’s $17.5bn losses after a new contribution from JPMorgan Chase of about $2.5bn — paid due to its alleged role in failing to alert US authorities of its suspicions. About $1bn will go to the US attorney’s office in Manhattan, to be paid to victims of the Madoff fraud, and more than $1bn will go to the Office of the Comptroller of the Currency to settle a wider variety of anti-money laundering violations. (Financial Times)

“Saudi Arabia won’t unilaterally cut oil production as it and fellow OPEC members discuss how to cope with a possible increase in global crude output, said people familiar with the matter.” (WSJ)

The French car makers Renault and PSA Peugeot Citroën have taken initial steps toward resuming deliveries to Iran, previously one of their biggest markets…A spokesman for Peugeot declined to comment on its plans for re-entering Iran. A spokeswoman for Renault said the company had begun contacting suppliers in Iran but was waiting for sanctions to be lifted.” (WSJ)

MORGAN STANLEY: America Is On The Verge Of Having A ‘Fed Dream Team’ Read more: http://www.businessinsider.com/morgan-stanley-on-stanley-fischer-2013-12#ixzz2nKjPFVMS

STRATEGY

GS (Stolper) The Global FX Monthly Analyst
We review the likely key themes and FX trends in 2014, partly linked to the experiences of 2013.
The Dollar outlook is quite differentiated. We expect Dollar strength against many EM currencies, although not necessarily enough to beat the forwards. We also forecast Dollar strength against commodity currencies. However, we foresee some additional Dollar weakness versus European currencies. Overall, the Dollar will likely disappoint relative to consensus expectations.
The Yen should weaken only moderately from current levels and could remain stuck in current ranges until the Fed gets very close to hiking rates.
We expect continued weakness in commodity currencies, in particular the CAD and AUD.

Diversified FX carry strategies are likely to perform much better than in 2013, as we discussed in more detail in the November FX Monthly.
We expect EM differentiation to increase in 2014 and we could see frequent rotation in the list of best and worst performers, as investors have become more sensitive to fundamentals. We expect nominal depreciation in most cases, but not necessarily more than the forwards.
Sterling and the EUR will likely strengthen further against the USD, linked to a strong external position and strong growth surprises, respectively. However, risks are increasingly becoming symmetric.
2014 may also become the year when markets start to think more about the SNB’s exit strategy from the EUR/CHF 1.20 floor. Inflation is back into positive territory, house prices are rising rapidly and activity remains far stronger than in the Euro area.
After the comprehensive forecast revision we made in a recent FX Views, further small changes to our FX projections have been incorporated in this monthly. In particular, we expect more near-term stability for the INR.

UPS&DOWNS

European Beverages (JPM, Gibbs) Year ahead outlook: Sector attractions have waned, Buy ABI and SAB

Large cap Euro Bevs failed to outperform in 2013. Earnings growth expectations have been sharply reined in but the relative multiple has not. We see downside risk to forecasts and multiples. Nonetheless we still see fundamental growth, margin and cashflow characteristics notably in EM beer in LatAm, Africa and China. Our key buys are ABI and SAB again.

Europe Metals & Mining (GS, King) Another tough year ahead as supply trumps demand
2014: Another tough year for stocks expected as commodities decline again due to: i) further supply growth, ii) impact of cost reduction, and iii) productivity gains
Capex peaked in 2012/13 and we expect peak production to be 2014/15. This will likely further loosen commodity markets and prices despite solid demand. We expect companies to focus on cost reduction and productivity –further lowering cost support and hence prices for the entire commodity complex in the medium-term.
Top Buy ideas: LUN (CL Buy), BOL (Buy) and FQM (Buy); Top Sell ideas: RIO (CL Sell), Anglo (Sell) and KIO (Sell)

Europe: Utilities: (GS, Wilkens) Sector snapshot: 19% average upside, downgrade IBE, Enel to Sell
We revise price targets across the space and make 6 rating/CL changes. We downgrade IBE and Enel to Sell due to political risk that’s not reflected in current share prices. We reiterate CL Buys REE, Drax and E.ON and CL Sell EDP. We upgrade EDPR to Buy.

Insurance (MS, Hocking) 2014 Outlook: Upside from Capital Management and Reducing Risk Premium
More aggressive capital management and a continued reduction in the cost of equity will drive the next leg of share price performance for European insurers. While we see lower upside than for some time, we remain constructive on the space

Analyst Actions

RWE CUT TO NEUTRAL VS BUY AT GOLDMAN
THOMAS COOK GROUP CUT TO REDUCE VS NEUTRAL AT NOMURA
IPSEN CUT TO NEUTRAL VS BUY AT GOLDMAN
IBERDROLA CUT TO SELL VS NEUTRAL AT GOLDMAN
ENEL SPA CUT TO SELL VS NEUTRAL AT GOLDMAN
DELTA LLOYD CUT NEUTRAL VS BUY AT GOLDMAN
EDP RENOVAVEIS RAISED TO BUY VS NEUTRAL AT GOLDMAN
ACCIONA RAISED TO NEUTRAL VS SELL AT GOLDMAN
STOREBRAND CUT TO EQUALWEIGHT VS OVERWEIGHT AT MORGAN ST…
ST. JAMES’S PLACE RAISED TO OVERWEIGHT AT MORGAN STANLEY
TNT EXPRESS RAISED TO OUTPERFORM AT RBC CAPITAL
SANDVIK RAISED TO BUY AT DEUTSCHE BANK
SIBANYE GOLD RAISED TO NEUTRAL VS SELL AT UBS

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +115.54 (+0.75%) at 15,457
Topix up +1.16 (+0.09%) at 1,243
Hang Seng up +48.16 (+0.21%) at 23,266

US markets
S&P 500 down -6.72 (-0.38%) at 1,776
DJIA down -104.10 (-0.66%) at 15,739
Nasdaq down -5.41 (-0.14%) at 3,998

European markets
Eurofirst 300 down -11.66 (-0.93%) at 1,245
FTSE100 down -62.47 (-0.96%) at 6,445
CAC 40 down -17.74 (-0.43%) at 4,069
Dax down -60.11 (-0.66%) at 9,017

Currencies
€/$ 1.37 (1.38)
$/¥ 103.82 (103.36)
£/$ 1.63 (1.63)
€/£ 0.8412 (0.8411)

Commodities ($)
Brent Crude (ICE) down -0.07 at 108.60
Light Crude (Nymex) down -0.07 at 97.43
100 Oz Gold (Comex) up +3.00 at 1,229
Copper (Comex) down -0.01 at 3.33

10-year government bond yields (%)
US 2.88%
UK 2.90%
Germany 1.84%

CDS (closing levels)
Markit iTraxx SovX Western Europe +0.15bps at 62.78bp
Markit iTraxx Europe +1.86bps at 80.04bp
Markit iTraxx Xover +3.8bps at 322.94bp
Markit CDX IG +0.02bps at 70.25bp

Sources: FT, Bloomberg, Markit

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