LCM Dawn Patrol – 13.013.14 – Busy week (earnings), MS & Barclays on Oil, JPM on Tech, Strat by JPM, 10 stocks by MS.

Bonjour,

Asian equity markets traded broadly flat Monday morning. Japan was off for the Coming of Age Day public holiday. Markets showed little reaction to Friday’s US jobs report, which continued to be dismissed as an outlier, and expectations for Fed tapering remained unchanged. News that China’s IPO restart would be delayed pending further regulatory oversight did not significantly affect Greater Chinese markets.
In Europe, Suedzucker and Fiatreiterates FY forecast, Metro 1Q revs inline, Banks win Basel concessions on debt rules, JPM stay long risk and favour Banks & Discretionary, in Techs they prefer like communications technology stocks over semiconductors in 2014, Bernstein upgrade RNO to OW and Barcap upgrade BBVA to OW

This Week’s Economic Calendar Is Totally Stacked — Here’s Your Complete Preview: http://www.businessinsider.com/monday-scouting-report-jan-13-2013-2014-1#ixzz2qG9rhK81

Winter is Coming

First trailer for new ‘Game of Thrones’ season promises more bloodshed

NEWS

• Basel Committee Makes Concessions to Banks on Debt-Limit Rules
• Portugal Sees Possible Bond Auctions Before It Exits Bailout
• London Finance Job Vacancies Fell 21% in 2013: Recruiter
• Third of U.K. Workers Will Look for New Job in 2014: Reed
• Iceland Loses Patience as Bank Creditor Settlements Drag On

Oi’s Portugal Merger Hits Snag as Investors Get Bargaining Chip
Resonance Boosts Funds to $100 Million, Buys U.K. Wind Farms
Alcatel Said to Hold Talks With Unify on Enterprise Unit Sale
Toshiba in Talks to Raise Stake in NuGen to 60%: Nikkei
Dart Energy Entered Into a Farm-Out Agreement With Total E&P
BlackRock’s Bolton Faces Italy Proceeding Over Saipem Trade
Prada Said to Be Under Investigation for Tax Evasion
Symrise Raises Probi Stake to 30.03%, Triggers Mandatory Bid
BMW Forecasts Double-Digit China Sales Growth in 2014: WSJ Link http://on.wsj.com/1eBhOZN

CURRENT STUFF

Banks win Basel concessions on debt rules: Global regulators have watered down controversial new rules aimed at reining in banks’ reliance on debt, following ferocious industry lobbying. Central bankers and supervisors on Sunday approved an international standard for the leverage ratio – a measure of financial strength that is considered less susceptible to being gamed by bankers – that offers some concessions to banks. (Financial Times). Who’s got the power?…

The global car industry is spending more on research and development than ever before as manufacturers try to stay ahead of a rapidly shifting market and fierce competition from the technology industry — R&D has grown at an annual rate of 8 per cent over the past four years, almost three times the rate of increase seen between 2001 and 2012, according to research by the Boston Consulting Group. (Financial Times)

Wave of China IPO suspensions in setback for reforms: “Five Chinese companies said on Monday they were postponing initial public offerings (IPOs), in a blow to Beijing’s reformist drive to give market forces a “decisive” role in the country’s stock exchanges… (Reuters) The latest postponements followed a weekend announcement by the regulator that it would further tighten supervision.” (Reuters)

STRATEGY

JPM (Loeys) The J.P. Morgan View

Who’s got their act together?

Asset allocation –– Divergences in how determined countries are in pursuing demand and supply side stimulus are becoming more important in driving country perform ance. Be OW Japan and the US equities.
Economics –– We fade the downbeat message from US Payrolls as weather driven and not consistent with other activity signals. US Q4 2013 is upgraded from 2.5% to 2.8% on stronger inventory building.
Fixed Income –– Stay long Euro area periphery vs. core, Germ an Bunds vs. USTs and UK gilts, and short UST duration via steepeners medium term, despite increased potential for near-term noise after payrolls.
Equities –– OW Spanish and Italian equities vs. French equities.
Credit –– Trimcredit OW as spreads are back almost to pre-crisis tights.
FX –– We expect further weakness in AUD and CAD vs. the USD.
Commodities –– Open a tactical short in US natural gas.

MS (Carr) Conviction into Earnings: 10 Stocks with Near-Term Catalysts
We highlight ten names for which Morgan Stanley Research analysts have high conviction going into earnings season. Analysts expect the shares to move materially over the next 15-60 days on upcoming results or imminent news flow during the period. Each view is backed by a Research Tactical Idea (RTI), which is a short-term call on price performance on an absolute or relative (to the industry or sector) basis.
Positive: Aegon, Capital & Counties, Enterprise Inns, Magnit, Resilient, Turkcell, William Hill, Yandex
Negative: Aberdeen, Bwin.Party

JPM (Matejka) European Equity Strategy
Earnings recovery still on track – in particular for Banks and Discretionary
Eurozone earnings languish at recession lows, resulting in elevated P/Es – many worry that this will cap further market upside. IBES forecasts are yetagain likely too high; however, this should not come as a disappointment asalmost nobody expects beats. The key is that earnings finally show outrightgrowth, after three down years. We think this is on track, given robust macro indicators. It is worth noting that the EPS weakness is by now concentrated in only three areas: Commodities, Telecoms and Utilities. The rest is either stable or growing. We advise against selling, even if Q4 corporate guidances underwhelm. We think Banks and Discretionary offer the best scope for earnings growth – given the strong link with PMIs. Banks in particular remain attractive due to: still big valuation discount, falling cost of equity and likely peaking provisioning. We are cautious on earnings prospects of Mining, Energy, Chemicals, Utilities, Capital Goods and Staples. Renewed drop in EM FX is a concern. Broadly, this ties in well with our continued caution on EM plays, for a third year in a row.

UPS&DOWNS

MS on Oil & Gas: 4Q Preview: ‘Tough’ Quarters Becoming ‘Business as Usual’
The European majors will likely see earnings fall 24% in 4Q13 compared to 4Q12, and 20% when comparing full year 2013 vs 2012. This decline happened against a backdrop of broadly stable commodity prices. Instead, a by-now familiar set of factors appear to have driven earnings lower: disruptions in Nigeria and Libya, weak refining conditions and a high level of maintenance. With 4Q expectations downgraded and dividends uncovered by FCF throughout 2014-16 on our estimates, we do not expect the sector to outperform. Preference remains for Total and BG, whilst we have UW ratings for OMV and Repsol.

Barcap European Integrated Oil: Preparing the way for 2014
Cash flow growth, production growth, earnings growth. These are what the integrated oil companies should begin to generate from the recent heavy investment period. We expect evidence of this improvement to emerge as we enter 2014 – hence our positive sector stance. Nearer term, however, a combination of production outages across Africa, higher maintenance and weak refining margins continue to weigh on earnings. We estimate aggregate production in 4Q fell 3% y/y with sector earnings set to post a 17% decline y/y in US$ terms. Despite this lack of financial and operational momentum we see the majority of companies as better positioned moving into 2014 than they were at the same stage a year ago. The coming year will not see all of the sector’s problemsresolved – the downstream, for example, is still a drag – but we do see it as the start of a multi-year up-turn, and we also expect a greater focus on shareholder returns than in the recent past. Our top picks are Royal Dutch Shell (PT 2650p), Eni (PT EUR23.5), Statoil (PT NOK175) and Galp (PT EUR17).

JPM on European Hardware Technology (Sandeep Deshpande) Despite strong ’13 performance, telco capex exposed companies better than semis
2013 was a very strong year in European hardware for stocks under our coverage with market cap rising 45% YoY. 2014 will almost certainly not be such a banner year mainly because 2013 was substantially driven by major companies restructuring. However despite strong 2013 performance we prefer communications technology stocks over semiconductors in 2014 with Ericsson and Nokia our key picks. In semis we like Infineon as an industrials recovery play, ASML as the long term secular play and, as an outlier, if STMicro management does continue to structurally change the company, it could have most upside though it would need structural change to deliver this. Insmall mid caps, CSR is our top pick. In our view the least attractive are companies exposed to high end smartphone market such as ARM.

ABERDEEN ASSET RAISED TO BUY VS NEUTRAL AT GOLDMAN
ASHMORE GROUP RAISED TO BUY VS NEUTRAL AT GOLDMAN
BBVA RAISED TO OVERWEIGHT VS EQUALWEIGHT AT BARCLAYS
ENERGA ADDED TO CEEMEA ANALYST FOCUS LIST AT JPMORGAN
ENERGA RATED NEW BUY AT BOFAML; PT PLN18
ENERGA RATED NEW BUY AT UBS, PT 17.5 ZLOTY
ENERGA RATED NEW OVERWEIGHT AT JPMORGAN; PT PLN19
ICAP CUT TO SELL VS NEUTRAL AT GOLDMAN
ITV RAISED TO BUY VS NEUTRAL AT BOFAML
LEONI CUT TO NEUTRAL VS BUY AT GOLDMAN
PEUGEOT RAISED TO OUTPERFORM VS MARKET PERFORM AT BERNSTEIN
RED ELECTRICA RAISED TO HOLD VS SELL AT SOCGEN
RENAULT RAISED TO OUTPERFORM VS UNDERPERFORM AT BERNSTEIN
RIETER RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
STANDARD CHARTERED CUT TO UNDERWEIGHT VS EQUAL-WEIGHT: MS
TARKETT RATED NEW OVERWEIGHT AT JPMORGAN; PT EU34
TELEKOM AUSTRIA RAISED TO BUY VS NEUTRAL AT UBS
TENCENT HOLDINGS INITIATED AT BUY, PT HK$604 AT UBS
TULLETT PREBON CUT TO NEUTRAL VS BUY AT GOLDMAN
UBS RAISED TO BUY AT BOFAML
YARA CUT TO SELL VS HOLD AT SEB

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +31.73 (+0.20%) at 15,912
Topix up +1.73 (+0.13%) at 1,298
Hang Seng down -32.18 (-0.14%) at 22,814

US markets
S&P 500 up +4.24 (+0.23%) at 1,842
DJIA down -7.71 (-0.05%) at 16,437
Nasdaq up +18.47 (+0.44%) at 4,175

European markets
Eurofirst 300 up +5.77 (+0.44%) at 1,321
FTSE100 up +48.60 (+0.73%) at 6,740
CAC 40 up +25.46 (+0.60%) at 4,251
Dax up +51.63 (+0.55%) at 9,473

Currencies
€/$ 1.37 (1.37)
$/¥ 103.39 (104.07)
£/$ 1.65 (1.65)
€/£ 0.8289 (0.8294)

Commodities ($)
Brent Crude (ICE) down -0.17 at 107.08
Light Crude (Nymex) down -0.35 at 92.37
100 Oz Gold (Comex) up +2.00 at 1,249
Copper (Comex) up +0.02 at 3.41

10-year government bond yields (%)
US 2.86%
UK 2.87%
Germany 1.85%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.36bps at 52.17bp
Markit iTraxx Europe -0.54bps at 70.6bp
Markit iTraxx Xover -1.31bps at 282.87bp
Markit CDX IG -1.01bps at 63.99bp

Sources: FT, Bloomberg, Markit

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