US equities finished higher on Wednesday, extending the bounce from the prior session. As has been the case for much of the first two weeks of 2014 trading, it remained difficult to identify specific catalysts for today’s move. Earnings takeaways from the banking group seemed to provide some broader market support. Tech, another sector with favorable recovery leverage, extended its recent outperformance. However, it was the defensive leaning telecom sector that fared the best with some of the focus on net neutrality. Better January regional manufacturing data was highlighted as a market tailwind. A global growth upgrade from the World Bank was also cited as supportive (though seemingly more so for Europe). Treasury yields backed up for a second straight session, though the 10s remained comfortably below their pre-NFP levels. The dollar was also firmer on the day.
Australia’s dollar weakened to a three-year low after a surprise drop in employment, while the country’s bonds and equities rose. Asian stocks were little changed before U.S. jobs and inflation data.
Today, we’ll monitor the CPI in Europe and US the initial jobless claims and the Philly Fed.
Richemont and Ahold disappoint, Carrefour inline, Rio increased cost-cutting tgts (+2% in Oz), JPM upgrade Zurich Insurance to OW and downgrade Swiss Re and UBS UBS sees 80% probability Celesio is bought.
• EUROPE DECEMBER CAR SALES RISE 13% FOR BIGGEST GAIN IN FOUR YRS
• EU Lawmakers Butt Heads on Planned Euro-Area Bank-Failure Agency
• Russia Swears Off Stimulus as Central Bank Warns of Stagflation
• ECB Said to Favor 6% Capital Requirement in Stress Test of Banks
• Richemont Third-Quarter Sales Growth Falls Short of Estimates (-2%).
• Ahold Q4 sales miss in the US and Netherlands remains weak.
• UBS Sees 80% Probability Celesio is Bought, UBS Says
• Carrefour 4Q Sales In Line With Ests., China LFL Misses
• Rio Tinto Slashes Costs as Iron-Ore, Coal Output Hit Records
• EU’s Rehn Says Debt Levels Stabilizing in Euro Area
• Heathrow Boosts Top Hub Status as Rivals Feel Heat From Istanbul
• Currency Traders Told Bank of England of Fix Practices in 2012
• France Selling EU455m Stake in Airbus to Institutions
• Telecom Italia CEO Is Said to Back Curbing Telco Power on Board
• Allergan Won’t Seek Further Foothold in Ireland, CEO Pyott Says
Japan machinery orders hit 5-year high in a shift that would bolster the country’s Abenomics-driven expansion. Orders of new machinery by businesses, considered a leading indicator of overall capital investment, surged to a five-year high in November, rising 9.3 per cent to Y882.6bn. The year-on-year increase, which handily beat analysts’ expectations, was the second in two months and the fifth biggest on record. (Financial Times)
ECB said to favour 6% capital requirement in stress test: “The European Central Bank favors requiring banks to show their capital won’t fall below 6 percent of their assets when it puts them through a simulated recession later this year, said two euro-area officials with knowledge of the matter.” (Bloomberg)
Rio Tinto is starting to dig itself out of its debt-saddled hole, producing record levels of iron ore in the fourth quarter and slashing an annual $3bn of costs. The company said on Thursday it produced 70.4m tonnes of iron ore in the fourth quarter, a 6 per cent increase on the same period of 2012. Rio said it implemented $2bn operating cost cuts in 2013 and slashed exploration costs by $1bn, exceeding a $750m target set for the year. (Financial Times)
Oil industry 3-minute read (JPM, Thompson) European E&P sector funding risk – sector starts 2014 in a strong position, yet sentiment remains weak
European E&P was a ‘tough space’ in 2013. A string of high profile exploration disappointments, a range-bound oil price, project delays, operational disappointments, a dearth of take-over activity and more general funding concerns enforced a de-rating and severe market underperformance (UK E&P sector -18% versus FTSE total return +21%). With respect to funding risk (the focus of this note), companies could not win. Those perceived to be short cash suffered: Bowleven, Noreco, Ophir and Serica. Those seen to be over-capitalized traded at a re-investment discount: Cairn and Dragon Oil. Those who could (e.g. global investors) side-stepped Europe and focused on the US E&P sector. With investor expectations so beaten down and (we sense) the E&P sector now under-owned, this backdrop defines an appealing start to 2014. At the very least, in our view share prices should not respond so negatively to exploration disappointment (per Ophir’s recent Mlinzi Mbali dry hole) and should also react more positively to take-over speculation, which we believe is more likely to occur given the sector’s lower valuation (per recent Tullow/Statoil speculation [Bloomberg. FT]).
Veolia Environnement (MS, Turpin): FY13 – All eyes on new CFO and cost-cutting delivery
VIE will report its FY13 results on 27 February. This will be the next important catalyst in the company’s restructuring story, and the new CFO’s first presentation to investors. We expect a third clean sheet in a row, an update on cost cutting, but limited quantitative guidance for 2014. Remain OW.
Chemicals (MS, Walsh) 2014 – Step Back to Reality
We expect 2014 to be another tough year for European chemicals, and EPS momentum and upgrades will be key. We believe BASF, Akzo and Clariant offer the best chance of beating forecasts.
Related Stock Research
Akzo Nobel: Self-help driving earnings
Clariant: Secular growth attractions
BASF: Conviction on EPS delivery
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