LCM Dawn Patrol – 06.02.14 – Lots!!! Twitter’s down, JPM’s GMOS, Earnings: Volvo, Wacker… Bankia up at MS and Citi, Puma down at GS… MORE!

Bonjour,

US equities finished lower on Wednesday. Activity in emerging markets was relatively quiet. Two regional Fed officials voiced their support for a continuation in QE tapering, while US economic data was largely uneventful. Additional near-term direction for both tapering and recovery momentum expectations is expected to come Friday’s release of January nonfarm payrolls. Materials, consumer discretionary, consumer staples and tech all finished up on the day, while energy, healthcare and telecom were the notable laggards. Treasury yields were mostly higher, with the 10-year trading at 2.67%.

Asian markets are largely positive in morning trade as they continue to recover off strong losses earlier in the week. In a speech BOJ Deputy Governor Iwata said that the bank would ease more if necessary to reach their 2% inflation target, and that easing would not cease after the target was reached. In Australia a trade balance surplus surprised relative to expectations for a deficit. The AUDUSD rose to 0.898 after that and retail sales data. Investors are looking forward to US jobs figures Friday. China remains closed for the Lunar New Year.

Twitter dropped like a dead bird

Picture showing a dead Twitter bird

Picture showing a dead Twitter bird…

In Europe, Basic Resources continued to rally while chemicals suffered the most post Syngenta. Today we get another round of chemical publications. Dassault looks OK, but guidance seems weak. Alcatel gets an offer for its Enterprise unit.

Today, we’ll get the ECB and the BoE. Few speculate that the ECB will move today on fears of deflation, but we think it will stick at the wording level. So we should expect another boring morning… We also get German factory orders, the US trade balance and the jobless claims.

Have a jolly good day!

NEWS

*VOLVO 4Q OPERATING PROFIT SK3.08 BLN; ANALYST EST. SK2.04 BLN
*CREDIT SUISSE 4Q NET INCOME CHF267M; ESTIMATE CHF398M
Credit Suisse 4Q Net Misses; Dividend Plan Below BDVD Forecast (lots of provisions)
Wacker Chemie 4Q Ebitda, Sales Beat Ests., Good Basis for 2014

• Draghi as ECB Master of Suspense Keeps Markets Guessing on Rates

SoftBank Said to Seek Decision on T-Mobile Bid Within Weeks
• Buyout Firms CVC to Carlyle Said to Weigh Bid for Spain’s Deoleo
Telecom Italia Said to Propose Minucci as Chairman Today
Circassia Plans $285m London IPO to Test, Sell Vaccines
Deutsche Bank Said to Fire FX Trader in Argentina: Reuters
Tele2 Said in Talks with Access on Norway Spectrum, Reuters Says
Rio Seeks Middle East, China Partners to Finance Guinea Mine: FT
Ericsson Won’t Phase Out Telecom Infrastructure Products to Iran

US After Hours
Trading Higher:
+51.8% GMCR (Green Mountain Coffee) — KO agreement, earnings
+17.0% AKAM (Akamai) — earnings
+16.2% GLUU (Glu Mobile) — earnings
+8.1% OSUR (OraSure Technologies) — earnings
+3.8% DIS (Walt Disney) — earnings
Trading Lower:
-17.2% TWTR (Twitter) — earnings
-10.3% P (Pandora) — earnings
-7.7% SODA (SodaStream) — in reaction to GMCR-KO agreement
-4.8% IRBT (IRobot) — earnings
-2.5% SWIR (Sierra Wireless) — earnings

Volvo 4Q Op. Profit Beats Est.; Maintains Div.

Volvo 4Q op profit SEK3.08b, est. SEK2.04b
• Rev. SEK76.6b, est. SEK76.5b
• Div. SEK3 vs yr ago SEK3; BDVD forecast SEK2
• Truck orders +12%; (3Q +7% to 44,224)
• Says year will be characterized by efficiency improvements, including a reduction in activities and costs, as well as personnel reductions
• Statement: NSN N0K9M13PWT1C <GO>
• Calls: 9am CET 44 203 364 5374; 2:30pm 44 203 364 5374/1 855 753 2230

CURRENT STUFF

The Australian dollar jumped to a two-week high after retail sales matched forecasts and the country produced an unexpected trade surplus. (FastFT)

Twitter’s honeymoon period as a public company ended with a bang as its shares fell almost one-fifth after releasing its first earnings announcement. Investors got the jitters when they saw that the home of the 140-character tweet grew its monthly active users quarter-on-quarter at the same rate as Facebook, in spite of the latter being almost five times as large.. (Financial Times) (FT Alphaville)

“U.S. regulators are again weighing whether to ease the impact of the “Volcker rule,” this time on a $300 billion market for loans to U.S. companies. Federal Reserve governor Daniel Tarullo told lawmakers Wednesday that regulators are considering whether to loosen provisions that could affect collateralized loan obligations, or CLOs, which are securities backed by bundles of loans made to companies with low credit ratings. CLOs typically offer higher returns than corporate bonds and other loans.” (WSJ)

Shadow banks step out to fund mid-market corporate America: More than a quarter of the loans extended last year to middle-market US companies – the beating heart of corporate America – were issued by shadow banks that fall outside the realm of traditional finance.

STRATEGY

JPM (Loeys) Global Markets Outlook and Strategy
The Economy
Outlook for DM growth and policies is not affected by market correction. We stay positive on growth. But market turmoil in EM combines with already weakening growth and creates greater downside risk.  Chinese credit tapering creates economic risk, with impact on other EM, and much less on DM.
Asset allocation
A market reversal amidst unchanged DM fundamentals suggests to us a correction and not a new direction. Stay long risk, but heed the message from higher vol to reduce OWs in equities. Wider credit spreads make us add in credit, through EMBIG. Stay UW EM equities and FX.
Cross asset volatility
Implied vols rose over the past month but mostly in the credit and equity spaces. Due to currently elevated levels of implied vol and vol risk premia, we reverse our long vol bias, and open an outright short in 3-month straddles on iTraxx Main.
Fixed income
Keep a short duration bias in DM, particularly in the US and UK, where risks to the macro outlook remain on the upside. We prefer to express this via steepeners in the US and short positions in USTs and UK Gilts vs. bunds. Spread compression trades in the euro area have further upside.
Credit
We think the selloff is overdone as credit fundamentals have not worsened over the month and we stay OW US and Euro HY. Strong demand from pension funds for long dated bonds should push the 10s30s curve to fully flat and we still expect financials to outperform non-financials.
Equities
We exited our Cyclical sector overweight and raise our EM equity underweight by expressing the US and Japanese equity overweights vs. MSCI EM rather than MSCI AC World ex US. Stronger EPS growth in Japan supports our Japanese equity overweight. Within EM, the trend of MSCI EM Asia outperforming MSCI Latam remains intact. Our OW in the US semiconductor sector continues to perform strongly.
Currencies
Stay defensive: take final profits on JPY shorts and add to USD longs.
Commodities
Open a short in energy as once we get through the North American winter, risks are skewed to the downside from higher supply and weaker demand due to refinery mainte ance. Also go long Cotton on supply problems and
stay short Agriculture.

UPS&DOWNS

Spanish Banks (MS, Serrano) Recovery confirmed, but stay selective.
Q4 showed improving asset quality trends, whichunderpin the recovery in earnings we expect in 2014-2016. We would stay selective, however, as loan growth and lower carry trade could disappoint consensus in some cases. Bankia (OW), BBVA (OW), and CABK (EW) are our preferred stocks.”

Bankia SA (MS, Serrano) Initiating at Overweight on write-backs potential

Adidas Group (JPM,  Battistini) Don’t let FX catch you offside
In the past month, adidas’ share price has come under meaningful pressure (-10%) on the back of concerns on emerging markets and FX woes. … As a result, we believe that the current share price, fully reflecting the increased FX headwinds following sell-side analysts’ earnings cuts but not the topline acceleration, offers an attractive entry point ahead of a year that should show solid organic growth and margins expansion.

 

Gemalto (GS, Duval) Buy: Multiple digital security drivers, double digit profit growth; CL Buy
We reiterate our Conviction List Buy on Gemalto, where we see structural multi year profit growth based on a diversified opportunity set. We retain our 12m PT of €125, suggesting >45% upside.

 

Rexel (GS, Wilson): Off Conviction List; remains Buy.
Off Conviction List, remains Buy. We lower our estimates for slightly slower recovery, higher capex and share count.

Tod’s (GS, Hutchings): FY14 fundamentals priced in, limited downside; Upgrade to Neutral
We upgrade Tod’s to Neutral after significant weakness in the shares post the report of FY13 revenue. Our PT is now €106. We believe Tod’s can continue to grow its top line and earnings, albeit at a slower rate than some of its soft luxury peers.

Puma (GS, Hutchings) Sell: Competitive dynamics to pressure margins; down to Sell
We downgrade Puma to Sell (from Neutral) as we believe expectations for earnings will need to be rebased as the brand transitions to a more focused growth strategy. We reduce our 2014/15 EBIT estimates by 20% and we see 9% potential downside.

 

Vienna Insurance Group (MS, Wasilewicz) Attractive entry point to growth story – move OW
VIG shares trade in line with the composite peers, no longer reflecting their historical 15-30% valuation premium. We believe the factors that have driven the stock down, such as slower premium growth and impairments, are temporary and that the premium will return. Upgrading to OW (21% upside).

Analyst Actions

AMS RESUMED AT HOLD AT KEPLER CHEUVREUX; PREVIOUSLY RATED…
BANKIA RATED NEW OVERWEIGHT AT MORGAN STANLEY, PT EU1.6
BANKIA RATED NEW OVERWEIGHT AT MORGAN STANLEY; PT EU1.6
BANKIA SA RATED NEW NEUTRAL AT CITI, PT EU1.45
CORBION RAISED TO BUY VS HOLD AT ING
GEDEON RICHTER CUT TO NEUTRAL VS BUY AT UBS
MELEXIS PT RAISED TO EU26 FROM EU24 AT ING
METRO AG RAISED TO BUY VS NEUTRAL AT NOMURA
MOLESKINE CUT TO NEUTRAL VS BUY AT GOLDMAN
PUMA CUT TO SELL VS NEUTRAL AT GOLDMAN
RECKITT RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
REPSOL REINSTATED NEUTRAL AT GOLDMAN, PT EU20
SWATCH RAISED TO BUY VS HOLD AT SOCGEN
SYNGENTA CUT FROM CONVICTION BUY AT GOLDMAN, STILL A BUY
SYNGENTA CUT TO NEUTRAL VS OUTPERFORM AT CREDIT SUISSE
SYNGENTA RAISED TO NEUTRAL VS SELL AT UBS
TOD’S RAISED TO NEUTRAL VS SELL AT GOLDMAN
VIENNA INSURANCE RAISED FROM EQUALWEIGHT AT MORGAN STANLEY
VIENNA INSURANCE RAISED TO OVERWEIGHT AT MORGAN STANLEY

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +57.38 (+0.40%) at 14,238
Topix up +6.34 (+0.55%) at 1,169
Hang Seng up +68.33 (+0.32%) at 21,338

US markets
S&P 500 down -3.56 (-0.20%) at 1,752
DJIA down -5.01 (-0.03%) at 15,440
Nasdaq down -19.97 (-0.50%) at 4,012

European markets
Eurofirst 300 up +1.10 (+0.09%) at 1,272
FTSE100 up +8.62 (+0.13%) at 6,458
CAC 40 up +0.34 (+0.01%) at 4,118
Dax down -11.59 (-0.13%) at 9,116

Currencies
€/$ 1.35 (1.35)
$/¥ 101.61 (101.43)
£/$ 1.63 (1.63)
€/£ 0.8288 (0.8297)

Commodities ($)
Brent Crude (ICE) up +0.05 at 106.30
Light Crude (Nymex) up +0.22 at 97.60
100 Oz Gold (Comex) down -0.90 at 1,256
Copper (Comex) at 3.21

10-year government bond yields (%)
US 2.67%
UK 2.70%
Germany 1.64%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.95bps at 55.12bp
Markit iTraxx Europe -0.44bps at 82.15bp
Markit iTraxx Xover +0.03bps at 318.35bp
Markit CDX IG -0.1bps at 72.82bp

Sources: FT, Bloomberg, Markit

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