LCM Dawn Patrol – 23.01.014 – GS downgrades Inditex, Asos. Moscovici in the FT, China PMI, more…

Hola,

The S&P, Nasdaq and Russell were all up for a second straight session on Wednesday, while the Dow ended lower, extending this week’s underperformance. The market continued to struggle for direction, a dynamic that has received an increasing amount of attention with a number of different (and sometimes conflicting) influences in focus. The earnings calendar continued to drive the more notable price action, though aggregate takeaways remained limited. Sector price action failed to provide any meaningful insight into broader market direction or sentiment. Energy and industrials were among the standouts, while materials and telecom underperformed.
Asian equity markets traded broadly lower this morning. HSBC/Markit released flash PMI numbers for January, which indicated that manufacturing activity in China moved into contractionary territory this month. The data missed expectations for a slightly slower expansion. The release was a regional headwind, sending markets lower across Asia. The data overshadowed news that the PBoC injected another CNY120B into markets, as well as Korea’s GDP, which matched expectations.

Today: Euro-zone PMIs show pace of expansion accelerated in both manufacturing and services, according to economists; BOE’s Fisher speaks

WAVE OF THE DAY

(click)

Jaws!

Jaws!

NEWS

*CHINA JAN. HSBC FLASH MANUFACTURING PMI AT 49.6; EST. 50.3
*SOUTH KOREA 4Q GDP EXPANDS 0.9% Q/Q; ECONOMIST EST. 0.9% GAIN

• Draghi Sees Encouraging Signs in Euro-Zone Economy: NZZ
• ECB Proposes Lautenschlaeger as Vice Chair for Bank Supervision
• Germany Plans to Tighten Sale of Risky Financial Products: SZ

Santander Consumer Raises $1.8 Billion in U.S. Initial Offering
Logitech Raises FY Sales, Operating Income Outlook
Fiat-Chrysler Said to Plan Primary NYSE Listing With U.K. Base
Credit Suisse Sued by China Green Chief Over Alleged Negligence
BNP Paribas Lease Group Invests in Jiangsu Financial Leasing
Santander Pushing Mortgages Signals End of Drought
Gazprom Says China Natural Gas Deal Delayed to Putin’s May Visit
Total’s De Margerie Sees Potential for Resuming Iran Operations

After Hours
Advancers:
ARIA +6.3% (1.3m); Approached by LLY, others: Daily Mail
EBAY +4.8% (12.4m); Icahn takes stake, calls for PayPal spinoff
MSFT +0.9% (403k); Raised to buy at Deutsche Bank
Advancers after earnings:
NFLX +17.5% (2.7m)
FFIV +11.9% (653k)
PLCM +5% (37k)
Decliners after earnings:
WDC -2% (83k)
TER -1.3% (13k); Initiates div.

CURRENT STUFF

You can be both French and fiscally responsible. There is no conflict between social democracy and competitiveness, writes Pierre Moscovici. (Financial Times)

US Q4 Earnings. According to FactSet, following the latest batch of results, the blended growth rate for Q4 S&P 500 EPS now stands at 6.3%, up from 5.9% on Tuesday. Of the 81 companies that have reported results, 61% have beat consensus EPS expectations, while 63% have beat consensus revenue expectations. This compares to the respective four-quarter trailing averages of 71% and 55%. Companies are beating consensus EPS estimates by 2.5% in the aggregate, unchanged from yesterday and below the four-quarter trailing average of 3.8%.

The chart every bigwig at Davos should see: Global income growth from 1988 to 2008 ranked from richest to poorest pic.twitter.com/Yv9CWzklSA

Global Income Growth

Global Income Growth

STRATEGY

GS Top of Mind.
Deflation Dangers
Despite continued fixation on the prospect of rising inflation, stagnant or falling inflation across most of the developed world has pushed deflation to Top of Mind. We feature an interview with economist John Makin, who is concerned about deflation and advises central banks to be proactive or beware. We then explore the cons (and pros) of deflation in the Euro area, why inflation has been sticky upwards in the US- but the Fed would defend it on the downside if need be-and how Japan can finally overcome its deflation: structural changes. We look at asset impacts of deflation (depends on the deflation drivers) and its odds, which are higher than you might think.”

UPS&DOWNS

ASML Holding NV (GS, Schafer): Robust EUV update and rising DUV margins keep us bullish
4Q13 was slightly above expectations, and the 1H14 revenue outlook was in line. Given recent investor concerns regarding the potential timing of customer adoption of ASML’s EUV technology, we found the update on EUV progress encouraging.

Europe: Retail: Supermarkets (GS, Walding) No margin of safety from UK grocery asset values; balance sheets need to delever
In our view, asset valuation provides no margin of safety for value-oriented investor in UK food retail. We believe balance sheet deleveraging is increasingly important as competition intensifies. We cut our target prices for Morrisons and Tesco.

ASOS plc (GS, Walding): A significant opportunity reflected in valuation; down to Neutral
We downgrade ASOS to Neutral given limited upside potential and think that our very positive view on the long-term growth potential of the business is now more closely reflected in valuation.

 

Inditex (GS, Walding): Of the highest quality, but appears fully valued; down to Neutral

With limited (8%) upside potential to our 12-month target price we downgrade Inditex to Neutral. Our downgrade is purely a reflection of valuation rather than a change of view on the near-term or long-term outlook for the company.
Sandvik (JPM,  Whight) Unfavourable risk reward; reiterate Underweight with Q4’13 results a catalyst for consensus downgrades
We continue to see >15% downside to our Dec-14 price target of SKr78 and reiterate our Underweight recommendation. We believe Q4’13 results will be the catalyst for another set of ~5% cuts to consensus estimates and recommend reducing holdings in Sandvik, with the stock price already reflecting a well anticipated recovery in machining solutions and the benefit of potential cost savings. We believe consensus mining estimates are not low enough despite difficult end market conditions being known.

Snam and Terna (JPM,  Laitung, CFA) Higher premiums are justified – stay Overweight
We continue to see 15-16% total return potential for both Snam and Terna by end 2014 and stay Overweight on both. Further upside to our valuations would come from continued erosion of Italian sovereign bond yields, since Snam and Terna’s allowed returns are now locked-in for the next 2 years. In our opinion, Snam can afford to keep DPS flat going forwards without breaching 57% ND/RAB –the new dividend policy is due on 19 March. Our pecking order in Southern European grids is: 1) Red Electrica; 2) Snam; 3) Terna; and 4) Enagas.
Analyst Actions

ASOS CUT TO NEUTRAL VS BUY AT GOLDMAN CASINO CUT TO NEUTRAL VS BUY AT GOLDMAN
DNO INTERNATIONAL CUT TO SELL VS NEUTRAL AT GOLDMAN
GENEL ENERGY CUT TO NEUTRAL VS BUY AT GOLDMAN
GULF KEYSTONE CUT TO NEUTRAL VS BUY AT GOLDMAN INDITEX CUT TO NEUTRAL VS BUY AT GOLDMAN
MONCLER RATED NEW NEUTRAL AT NOMURA; PT EU14
SAMPO OYJ RAISED TO OVERWEIGHT AT JPMORGAN
SOCIETE GENERALE RAISED TO OUTPERFORM AT RBC CAPITAL
SSAB RAISED TO NEUTRAL VS REDUCE AT NOMURA
TENARIS RAISED TO OUTPERFORM VS UNDERPERFORM AT MEDIOBANCA

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