LCM Dawn Patrol – Top strategists targets for 2014, GS on tapering impact, JPM ups GDF Suez… More.


US equities finished with modest losses in quiet trading on Tuesday. The overall lack of direction was not surprising given the waiting game ahead of tonight’s FOMC decision. The market does not seem to be looking for a tapering announcement, though the Fed is expected to signal that a move is imminent. Washington remained on the backburner as news that the budget deal advanced in the Senate was a non-event. Materials and tech were the only two sectors to finish in positive territory. Telecom, financials and energy were the laggards. Treasuries outperformed, while oil and gold were both weaker.
Asian equity markets followed overnight markets, moving sideways on low volumes ahead of the US Fed’s FOMC meeting later tonight. Japan was the exception, moving higher on reports of heavy foreign buying in both the forex and equity markets. There was also press speculation that PM Shinzo Abe would hold a press conference tomorrow to announce more detailed growth and structural reform plans. India opened modestly higher ahead of a widely watched central bank meeting this afternoon, where the RBI is expected to raise rates by 25bps to 8%. Otherwise news was relatively light and economic data releases did little to move indicies.

Another quiet day ahead as we wait for the FOMC meeting and the pace of the Fed QE3 purchases. The next most important data will be the IFO at 10:00, the US MBA mortgage apps at 13:00 and the US housing starts at 14:30.

Please see below the Top strategists forecasts for 2014. Technip is in the same boat as CGG or Wood Group but reminds us, that it’s not as bad as some fear… Numericable is too expensive for most analysts. GS is reiterating its conviction sell on Orange after what Iliad announced yesterday. Have a great day.

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• China’s Nov. FDI Rises 2.35% Y/Y to $8.48b vs 1.2% Gain in Oct.
• EU Banks to Pay Into Standing Funds in Deposit Safety Plan
• Merkel Prods EU Finance Chiefs as Bank-Failure Talks Heat Up
• Ireland Didn’t ‘Get Away With Anything’ on Bank Review: Noonan
• Moody’s Cuts Bank of Ireland Deposit Ratings to Ba2 From Ba1
• Ukrainian Protesters Demand Answers on $15b Russian Aid
• BOJ Said to See Significant Room for Ramping Up Bond Purchases
• Carney Says U.K. Needs Sustained Recovery Before Rate Rise
• Schaeuble Says ESM Won’t Be General Credit Line for Everybody

Numericable initiations start today… Most say overpriced with Neutral ratings.
Technip Forecasts Lower Subsea Profit Margins Next Year
• Colombia’s Avianca Says Not Considering Alitalia, LOT Purchase
Galeries Lafayette in Advanced Talks to Buy House of Fraser: FT
Elektrobit Raises 2013 Forecast for Oper. Result, Sales
Paion to Issue Shrs in Rights Offer, Private Placement
Telefonica’s Abellan Says Mexico Ready for Consolidation
Microsoft Says Board Will Complete CEO Search in Early 2014


Eurozone finance ministers have reached a tentative agreement that would create a backstop to the EU’s new bank rescue system in case it runs out of money in an emergency. The “common position” will allow governments in need of extra funding to recapitalise or wind-down failing banks to access financing outside new bank-financed rescue funds. Senior officials said the agreement is broken into two, with one backstop agreed for the “transition period” while a common EU bank rescue fund is built up – which could take as long as 10 years – and another for the “steady state” once the fund is in place. (Financial Times)

Ukraine: Viktor Yanukovich, Ukraine’s president, took a decisive step towards Moscow’s orbit on Tuesday when he agreed to a massive bailout of his country via Russian investment of $15bn in Ukrainian bonds and a cut in gas prices worth $4bn. But the move risked inflaming pro-European protests – now in their fourth week – in Kiev and other cities and exacerbating what is already Ukraine’s worst political crisis since independence from the Soviet Union in 1991. (Financial Times)

“AT&T, the biggest U.S. phone company, said on Tuesday that it would sell its wireline operations in Connecticut to regional telephone operator Frontier Communications for $2 billion in cash, to help fund network upgrades. Frontier shares rose more than 8 percent after it said the deal would boost its dividend payout ratio, generate savings and improve its adjusted free cash flow.” (Reuters)

“Omnicom and Publicis will win unconditional European Union regulatory approval for their $35.1 billion merger to create the world’s biggest advertising agency, two people familiar with the matter said on Tuesday.” (Reuters)

Other Stuff
Why Abenomics will disappoint (Financial Times Wolf)
‘Fragile five’ countries face taper crunch (Financial Times)
Gold rushed (Bloomberg)


Here’s What 14 Top Wall Street Strategists Are Saying About The Stock Market In 2014
Stocks are going up. It’s time to stop reflecting on 2013 and start thinking about 2014. Business Insider thumbed through hundreds of pages of Wall Street’s 2014 outlook notes and compiled the thoughts of 14 top stock market forecasters. The average S&P 500 call was 1,949, with a median of 1,950. For EPS, the mean was $118 and median call was $116.

David Bianco, Deutsche Bank: S&P: 1,850: EPS: $119.00
Brian Belski, BMO: S&P 1,900, EPS: $116.00
Barry Knapp, Barclays: S&P: 1,900, EPS: $119.00
Tobias Levkovich, Citigroup: S&P: 1,900, EPS: $116.25
David Kostin, Goldman Sachs: S&P: 1,900, EPS: $116.00
Michael Kurtz, Nomura: S&P: 1,925, EPS: $112.50
Sean Darby, Jefferies: S&P: 1,950, EPS: $121.00
Jonathan Golub, RBC: S&P: 1,950, EPS: $119.00
Julian Emanuel, UBS: S&P: 1,950, EPS: $116.00
Andrew Garthwaite, Credit Suisse: S&P: 1,960, EPS: $115.90
Savita Subramanian, Bank of America: S&P: 2,000, EPS: $118.00
Adam Parker, Morgan Stanley: S&P: 2,014, EPS: $116.00
John Stoltzfus, Oppenheimer: S&P: 2,014, EPS: $115.00
Tom Lee, JP Morgan: S&P: 2,075, EPS: $132.00

GS (Bell) Strategy Espresso
Can US buying of European equities continue?

The October figures from the US treasury show another month of strong buying of European equities by US investors with net purchases of US$9.6 bn. Accumulatively over the 12 months to end-October, net purchases have amounted to US$98 bn, similar to levels in 2007 pre the financial crisis (see chart).

Global Markets Daily (GS, Brooks) How Taper-Sensitive are Equities? The recent slew of strong US data appears to have weighed on the SPX with the market pondering if good data really are bad news for markets given the increasing likelihood of Fed tapering and an eventual end to asset buying.
We look today at previous episodes in 2013 when SPX worried about the Fed including the May testimony, June FOMC surprise and August succession jitters. In each of these episodes the SPX bounced back as it digested the Fed shock which happened – importantly – without dovish Fed news as yields rose further.
We think this bodes well for this episode. Our 12-month SPX target is 1900.


▲GDF SUEZ (JPM, Casali) Clarity on dividend sustainability and earnings trajectory should trigger re-rating: upgrade to OW
GDF Suez shares have underperformed the utilities sector by 11.8% and E.ON by 8.9% in the past two months, mostly due to fears of a dividend cut. Consensus expectations have finally stabilized at a reasonable level and relative valuation is undemanding for a stock which in our view has the best asset mix of its peers and relatively low regulatory and political risk. We argue that rebasing the dividend to a sustainable level should lead to a re-rating, if accompanied by a demonstration of why the company’s diversified portfolio will lead to stable earnings in 2014-16 and high single-digit growth thereafter.

init Numericable (JPM,  Wittig) Merger-related upside seems largely priced in; initiating with a Neutral recommendation
Numericable, France’s cable operator, has a strong infrastructure platform in what is however, a very competitive market. We believe the company should enjoy healthy growth (JPMe 3.3% EBITDA CAGR 2013-2016) and is a potential beneficiary of future market consolidation, but we think a realistic upside scenario is already priced in, hence we initiate with a Neutral recommendation and Dec-14, DCF-based price target of €29.

Technip (MS, Pulleyn) Negative Surprises Continue With 2014 Subsea Margins
Guidance for 2014 EBIT margins was a large negative surprise, although early 2015 guidance was more encouraging. We lower our 2014e EPS by 18%, 2015e by 10%, & lower our price target to €85.


Asian markets
Nikkei 225 up +280.52 (+1.84%) at 15,559
Topix up +15.64 (+1.27%) at 1,248
Hang Seng up +115.58 (+0.50%) at 23,185

US markets
S&P 500 down -5.54 (-0.31%) at 1,781
DJIA down -9.31 (-0.06%) at 15,875
Nasdaq down -5.84 (-0.14%) at 4,024

European markets
Eurofirst 300 down -10.01 (-0.80%) at 1,248
FTSE100 down -36.01 (-0.55%) at 6,486
CAC 40 down -51.24 (-1.24%) at 4,069
Dax down -78.44 (-0.86%) at 9,085

€/$ 1.38 (1.38)
$/¥ 102.87 (102.66)
£/$ 1.63 (1.63)
€/£ 0.8457 (0.8463)

Commodities ($)
Brent Crude (ICE) up +0.04 at 108.48
Light Crude (Nymex) up +0.16 at 97.38
100 Oz Gold (Comex) unchanged 0.00 at 1,231
Copper (Comex) down -0.01 at 3.36

10-year government bond yields (%)
US 2.84%
UK 2.88%
Germany 1.82%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.16bps at 62.49bp
Markit iTraxx Europe -0.34bps at 78.07bp
Markit iTraxx Xover +0.12bps at 313.89bp
Markit CDX IG +0.6bps at 69.97bp

Sources: FT, Bloomberg, Markit


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