US markets bounced on Tuesday as calm appeared to be restored to global markets. The S&P 500 closed higher for the first time in four sessions. Despite weak US durable goods data and a sharp pullback in Apple, US equities seemed to be underpinned by signs of stabilization in emerging markets. Some better takeaways from the earnings calendar, particularly out of cyclical industries such as housing and airlines, were also cited as supportive. In addition, US consumer confidence and house price data came in ahead of expectations. US Treasuries were a tad firmer with the yield on the 10-year finishing around 2.75%.
Asian markets are buoyant this morning after Turkish and Indian central banks increased rates and boosted sentiment for emerging markets.
Today: The big news is the Turkish rates increase as they raised the repo rate from 4.5% to 10% and the borrowing rate from 3.5% to 8%. The TRY gained 3% then 9%. Futures up on the news. The CBI (India) also raised rates from 7.75% to 8%.
Tonight, we get the FOMC meeting and in Europe today: Euro-zone money supply, German consumer confidence and Spanish retail sales; BOE’s Carney speaks in Scotland. Fed issues policy decision. Germany, Sweden sell bonds and Italy sells bills.
Earnings: Novartis (bof), Osram, Fiat, Boeing, Facebook, Qualcomm.
*NOVARTIS 4Q CORE EPS $1.20; ANALYST ESTIMATE $1.21
Novartis sees 2013 sales rise 4% in constant FX to $57.9b, operating income +5% in constant FX to
• FY core EPS $5.09 vs $5.115 Bloomberg adj. EPS est.
• 4Q core EPS $1.20 vs est. $1.22
• 4Q rev. $15.07b
• Turkey More Than Doubles Main Interest Rate to Halt Lira Slump
• Too-Big-to-Fail Plan for EU Banks Seen Too Late to Win Approval
• EU Commission Risks Credibility With SEPA Delay: Bundesbank
• Czech Cabinet to Take Power as President Zeman Doubts Nominees
• Siemens Promises Jobs as It Eyes $83 Billion U.K. Rail Contracts
• Mercedes Production Chief Renschler Quits for Personal Reasons
• Lloyds Moves Ahead With TSB IPO After Rejecting Bid: Telegraph
• Fifth Third in Shr Buyback Pact With Deutsche Bank
• Platinum Strike Union Says Companies Made Proposals in Pay Talks
• Mittel Says 6 Board Members Resign Following Clash With CEO
• Vodafone Germany to Cut Up to 600 Positions: Spokesman
• ISE Says SEC Approves Listing Options on Nations VolDex
Renault: Nissan’s Dec sales up 15% thanks to a 70% increase in sales in China (Japan +18.3%, US +10.5%, Europe +8.8%).
– Luxottica 4Q revs inline – The outlook was upbeat with the beginning of 2014 described as “extremely encouraging”.
- Nordea 4Q net inline with est, proposes dividend of EU0.43. Says ambition is to increase dividend payout ratio in 2014 and 2015, while maintaining strong capital base. Plans to accelerate efficiency programme; raises ambition from EU450m towards level of EU900m during 2013 to 2015
- Novartis sees 2013 sales rise 4% in constant FX to $57.9b, operating income +5% in constant FX to $10.9b. FYcore EPS $5.09 vs $5.115 Bloomberg adj. EPS est. 4Q core EPS $1.20 vs est. $1.22 4Q rev. $15.07b
– Osram 1Q Ebita beats estimates. Osram confirms outlook, now forecasts net income to rise sharply this fiscal year. Fiscal 1Q rev. EU1.33b, est. EU1.36b. Ebita EU112m, est. EU94.1m. Adj. Ebita EU123m, est. EU117m. Net income EU68m, est. EU56.6m. Confirms it sees fiscal 2014 adj. Ebita margin >8%; comparable sales to rise faster than global real GDP growth of ~3%; sees FCF of “triple-digit million-euro figure” but below yr-ago figure; ROCE above WACC of 8.5% - Renault/Nissan: Nissan’s December sales zoom up 15% to a record. The performance was propelled by a 70 per cent increase in sales in China, Nissan’s biggest market, underscoring how China’s appetite for Japanese cars has returned after sales slowed last year due to the political spat between the two Asian superpowers over some uninhabited islands. - Barclays chief executive Antony Jenkins plans to take an axe to the cost structure of the bank, closing a quarter of its 1,600 branches in the UK and cutting hundreds of investment banking jobs. He will also outline new five-year targets for the lender next month
President Barack Obama pledged to address deepening inequality in the US, with a volley of directives covering everything from higher wages for low-paid federal workers to new government-backed retirement accounts. In his annual State of the Union address, Mr Obama set out to arrest the perception that his power is slipping away by making a virtue of his decision to bypass Republicans in Congress, with whom he has warred bitterly for most of his presidency. (Financial Times) (Transcript)
Turkey’s central bank significantly tightened monetary policy late on Tuesday, increasing interest rates by much more than markets had expected in the wake of a battering inflicted on the lira. It more than doubled the weekly repo rate from 4.5 per cent to 10 per cent and increased the overnight lending rate from 7.75 per cent to 12 per cent. (Financial Times)
Shares in Yahoo weakened in after-hours trading despite the company marginally beating expectations for the full year, as growth at Chinese ecommerce site Alibaba slowed and advertising suffered. Yahoo reported a 6 per cent drop in GAAP revenue to $4.7bn in 2013 and a 2 per cent fall in the closely watched metric of revenue excluding traffic acquisition costs. But revenue still beat the average analyst forecast of $4.4bn. (Financial Times)
Liberty Global is going head to head with Vodafone to buy Spain’s largest cable operator as the pair intensify their battle to snap up big chunks of Europe’s broadband infrastructure. A bidding war for Ono, which analysts value at up to €7bn including debt, would pit the UK’s biggest telecoms company by market value against John Malone’s cable company for the second time in as many years. Vodafone is already in talks with the private equity owners of the Spanish group, which is also considering a flotation later this year. (Financial Times)
“Shareholders of both Vodafone and Verizon Communications approved Verizon’s $130 billion takeover of their Verizon Wireless venture on Tuesday, paving the way for the third biggest deal in corporate history.” (Reuters)
Building materials (JPM, Rall) Time to turn positive
J.P. Morgan European Equity Strategists view Construction Materials as one of the few emerging markets (EM) exposed sectors that offer attractive risk- reward at present, and upgraded the sector to OW from N on Monday, quoting diversified geographical revenue exposure, relatively little dependence on China, and high earnings rebound potential. We believe it is time to reverse our relative negative stance, especially for the heavy side (cement stocks). We see scope for 2014 to be a year of earnings growth, and to mark the end of nearly five years of material negative earnings revisions. Our preferred plays are Heidelberg (OW), Lafarge (upgrading to OW from N), CRH (upgrading to OW from N) and Wolseley (OW).
Europe: Chemicals (GS, Patel) 2020 Vision: Constant reinvention, occasional re-rating; AKE CL Buy
Our 2020 Vision analysis points to two clear trends that will influence chemicals: (1) the disruptive effect of shale being felt further afield and (2) mixed EM trends. The sector’s ability to succeed will depend on cash deployment. We add AKE to CL Buy.
Voestalpine (GS, Benson) Buy: Capex continues to support medium-term growth outlook. CL-Buy
We detail 13 capex projects that we think will help underpin Voestalpine’s growth and returns. We value VOES on a slightly higher target EV/EBITDA to reflect this, as such our 12-month price target increases to €43. We reiterate our CL-Buy view.
Europe: Steel (GS, Benson) Twin engines: DM recovery and commodity tailwinds; Aperam to CL-Buy
We add Aperam to CL Buy as we expect it to be more levered to an EU recovery and it stands to benefit from the AD duty and import tariff in Brazil. Valuation is attractive and Ni acts as a potential tailwind. We upgrade SSAB and Ruukki to Neutral.
Enagas (MS, Dores) Gas review could be a positive catalyst – move OW
Enagas has underperformed its Spanish utility peers by 8-14% in the past four months. The stock offers strong free cash flow generation, inexpensive valuation and an attractive dividend policy. And with the gas reform, the period of uncertainty surrounding Enagas could be nearing an end. OW
ALLREAL RAISED TO BUY VS NEUTRAL AT UBS
ARKEMA RAISED TO CONVICTION BUY VS NEUTRAL AT GOLDMAN
ARSEUS RAISED TO BUY FROM HOLD AT ING
BAYER RAISED TO BUY VS HOLD AT BERENBERG
GALAPAGOS RATED NEW BUY AT UBS, PT EU21
HAMMERSON RATED NEW BUY AT LIBERUM, PT 617P
HOWDEN JOINERY RATED NEW BUY AT BERENBERG; PT 390P
CADE RAISED TO BUY VS NEUTRAL AT UBS
INTERSHOP CUT TO SELL VS NEUTRAL AT UBS
INTU PROPERTIES RAISED TO BUY VS NEUTRAL AT UBS
JOHNSON MATTHEY CUT TO NEUTRAL VS BUY AT GOLDMAN
KLEPIERRE, CORIO, EUROCOMMERCIAL RATED NEW HOLD AT LIBERUM
LUXOTTICA RAISED TO OUTPERFORM VS NEUTRAL AT MEDIOBANCA
PHILIPS CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
PSP SWISS PROPERTY RAISED TO BUY VS HOLD AT BERENBERG
SOLVAY REINSTATED NEUTRAL AT GOLDMAN, PT EU122
UMICORE CUT TO SELL VS NEUTRAL AT GOLDMAN
USG PEOPLE RAISED TO BUY VS HOLD AT ING
Nikkei 225 up +364.65 (+2.43%) at 15,345
Topix up +28.74 (+2.35%) at 1,253
Hang Seng up +230.56 (+1.05%) at 22,191
S&P 500 up +10.94 (+0.61%) at 1,793
DJIA up +90.68 (+0.57%) at 15,929
Nasdaq up +14.35 (+0.35%) at 4,098
Eurofirst 300 up +7.50 (+0.58%) at 1,298
FTSE100 up +21.67 (+0.33%) at 6,572
CAC 40 up +40.73 (+0.98%) at 4,185
Dax up +57.69 (+0.62%) at 9,407
€/$ 1.37 (1.37)
$/¥ 103.23 (102.81)
£/$ 1.66 (1.66)
€/£ 0.8236 (0.8243)
Brent Crude (ICE) up +0.11 at 107.52
Light Crude (Nymex) down -0.11 at 97.30
100 Oz Gold (Comex) at 1,251
Copper (Comex) at 3.29
10-year government bond yields (%)
CDS (closing levels)
Markit iTraxx SovX Western Europe -0.91bps at 53.7bp
Markit iTraxx Europe -3.74bps at 80.02bp
Markit iTraxx Xover -11.55bps at 302.53bp
Markit CDX IG -2.84bps at 69.71bp
Sources: FT, Bloomberg, Markit