LCM Dawn Patrol – 17.02.14 – JPM Views on EM, Barcap on Asia, JPM likes BNP, GS on Peugeot, and much more.

Bonjour,

Asian equity markets traded higher to begin the week, following a strong US overnight lead from Friday. Data was in focus today as China reported January lending data over the weekend and Japan came out with preliminary GDP numbers this morning. Credit growth in China came in higher than expectations for January. The data supported Chinese state-owned financials, however also sparked questions as to whether the PBoC would continue its tightening program. Elsewhere, Japan’s Q4 prelim GDP numbers came in weaker-than-expected.

It still feels as if the market is driven by technicals, not fundamentals. The news got slightly better this week and sentiment has improved (US debt, Yellen continuing, new Italian PM). The US market now trades in high multiples at c.15.5x ’14. This seems expensive, but as we experienced several times over the last year, the market may still rally.

In Europe today, Belgium sells bonds, Netherlands and
France sell bills. European finance ministers gather in Brussels. ECB’s Nowotny speaks in London. U.S. markets closed for holiday.

 

In Europe, Numericable is ready to make new offer for SFR, Bouygues take 1.4bn writedown on Alstom investment, Moody’s upgraded Italy’s outlook to Neutral vs Neg, JPM believe its too early to sell UK domestic plays and GS reiterate its positive stance on Peugeot.

  SOCHI
Bode gets emotioinal

Bode gets emotioinal

Bode won Bronze… And watch this amazing video/webmediacontent2.0whaterver  with Ted Ligety.
http://www.nytimes.com/newsgraphics/2014/sochi-olympics/giant-slalom.html

NEWS

*BOUYGUES TO TAKE EU1.4B WRITEDOWN ON ALSTOM INVESTMENT

*JAPAN 4Q GDP ROSE ANNUALIZED 1.0%; EST. +2.8%

• Italy’s Credit-Rating Outlook Raised to Stable by Moody’s
• Schaeuble Sees Tough Talks on ESM Aid to Banks: Sueddeutsche
• Carney Says Forces Holding Down BOE Interest Rate Will Persist
• Draghi Vow on ECB Action Divides Economists as Growth Picks Up
• German Court Doubts Over ECB Bond-Buying Negative: Moody’s
• London House-Price Surge Drives U.K. Values in Spring Bounce
• Iceland May Have Three Central-Bank Governors: PM Gunnlaugsson
Bouygues to Take Eu1.4b Writedown on Alstom Investment
Novartis to Acquire Costim, Expand Cancer Immunotherapy Research
Ferrovial Bids EU1B For Three UK Regional Airports, Expansion
Gaztransport & Technigaz Starts IPO at EU41-EU50 a Share
L’Oreal Current Share Price Interesting Entry Point: UBS
Peugeot to Make Tavares Auto Head Feb 19, Les Echos Says
Numericable Is Ready to Make New Offer for SFR, Les Echos Says
William Hill Seen Looking to Pick New CEO in 3-4 Months: Times
HSBC Unit Buys Dublin Shopping Center Stake for EU250m: IT
BAT Starts E-Cigarette TV Advertising Campaign Aimed at Vapers
Fiat Seeks Banking License for Financing Unit: Sole
Volkswagen Union Still Plans to Set Up Chattanooga Works Council
• Terra Firma, F2i Plan Offers for Edison Wind Project: Repubblica
Poste Italiane Hires Rothschild to Advise on IPO: Corriere
Bankia Sale Will Start With 5%-10% Stake, Chairman Tells ABC
RSA Considers Raising as Much as GBP350m in Placing: FT
Nokia Sees No Impact on Microsoft Deal From Tax Dispute in India
Merck KGaA Extends Offer for AZ Electronic Materials to Feb. 28

CURRENT STUFF

Japanese quarterly GDP growth disappoints: Japan’s economic recovery failed to regain momentum as expected in the last three months of 2013, government data showed on Monday, with spending by households and businesses offset by deteriorating terms of trade. Gross domestic product increased by 0.3 per cent in the October-December quarter, or 1.0 per cent in annualised terms, according to a preliminary estimate by the Cabinet Office. That matched the pace of growth in the period between July and September but fell well short of forecasts by analysts, who had been looking for growth of around 0.7 per cent. (Financial Times)

Matteo Renzi will on Monday be formally handed the job of forming Italy’s fourth government in less than two years with the aim of presenting his reform programme to parliament by the end of the week. Although markets were relatively sanguine after Mr Letta’s ousting, there is some concern that Italy’s lending could increase should Mr Renzi consider breaching the 3 per cent budget deficit limit. (Financial Times)

“Renault would face problems of its own if French rival car maker PSA Peugeot Citroën got into serious difficulty, chief executive Carlos Ghosn said Sunday, as the supply chains of both companies often overlap.” (WSJ)

AAPL Apple was in talks to acquire Tesla Motors; a source, the San Francisco Chronicle reports that Apple’s M&A head Adrian Perica met with Tesla’s CEO Elon Musk last spring, sparking rumors about Apple’s interest in Tesla. (SFGate)

STRATEGY

JPM (Loeys) The J.P. Morgan View
When to get back into EM?
Asset allocation
–– Re-entry into the full EM asset class would require positive surprises on policies and data that induce EM growth upgrades, without large upgrades in the US that would bring Fed tightening a lot closer. We stay UW in EM equities, trade FX and local markets from the short side, but are OW EM external sovereign debt vs. USTs on value.
Economics –– Data flow creates modest Q1 growth upside in the Euro area but downside in the US.
Fixed Income –– Focus on attractive country divergences in EM.
Equities –– Bottom up analysts have raised their 2014 earnings projections for S&P500 and Topix, but lowered those for Eurostoxx50 and MSCI EM.
Credit –– Stay long HY and in US HG curve flatteners.
FX –– Stay long USD/EM Asia vs. PHP and MYR and short AUD/USD.
Commodities –– Stay short energy and agriculture.

Barcap Global Portfolio Manager’s Digest: Against the grainReassessing Asian convictions. Looking across asset classes in Asia, the majority of consensus views have not performed as expected given a combination of crowded positioning and disappointing data. We favor staying long USD/JPY and Japanese equities, while recommend selling JGBs given our expectation of further monetary support from the Bank of Japan. However, we have changed our short-term forecasts, expecting slower depreciation and a more gradual rise in JGB yields.

JPM Equity Strategy (Mislav Matejka, CFA) UK – Still too early to sell domestic plays
UK is likely to be the first large DM economy to see interest rate hikes. Market is pricing in the start in Q2 ’15. Our economists believe this could happen sooner as the economy appears to be hitting supply constraints. Historically, UK equities tended to experience some volatility around the first hike, but would always resume their uptrend. Atsector level, there is evidence of rotation. Domestic plays such as Homebuilders and Retailing did tend to underperform after interest rate upcycle starts. However, the crucial point is that one should not sell too early, as this risks missing out on a very significant outperformance in the run-up to hikes. Homebuilders tended to rally by 30% relative to market in the 12 months ahead of a hike, and would only start to underperform a month before. We remain OW the basket of UK domestic plays despite its strong outperformance last year and already an 8% appreciation this year. We continue to face a lack of alternatives as Staples remain too expensive, Energy a value trap, Utils face political headwinds and recent Mining bounce might not sustain given record gap with falling iron ore price.

UPS&DOWNS

BNP Paribas (JPM,  Lee) 5.4% dividend yield, share buyback potential and discount valuation – remain OW
We reiterate our OW on BNP Paribas given the attractive capital return story and discount valuation. BNP’s target of 10% Basel 3 Core Tier I implies more than €9bn of excess capital that can be used to boost returns above its minimum 10% ROE. In our view, the market underestimates: 1) the likelihood of higher shareholder return materializing via a €3.5bn share buyback and 5.4% dividend yield on 45% payout, and 2) the upside from small bolt-on acquisitions. BNP’s valuation looks attractive at 9.4x PE, 1.0x NAV for RoNAV 11.3% in 2015e vs. the sector on 10.8x PE, 1.2x NAV for RoNAV 11.4%.

Oil & Gas (MS, Rats) ‘Big Oil’ in 4Q: Turning Point for Some
FCF turns negative, reaches four-year low…:Organic FCF for the five European majors fell to $(7)bn in 2013, down from $17bn in 2012, and the lowest level over four quarters since 4Q08-3Q09. An increase in capital expenditure accounted for $7bn of this change, but this was further exacerbated by a $17bn fall in operating cash flow. Main headwinds included disruptions in Nigeria and Libya, weak downstream conditions, and higher levels of field maintenance, particularly in the North Sea.

Peugeot (GS, Burgstaller) Buy: Big week ahead for PSA; re-iterate CL Buy
Reiterating CL Buy ahead of a big week for PSA: FY 2013 results; supervisory board meeting; potential announcement on Dongfeng Motor alliance, capital increase etc likely to act as catalysts for a re-rating.

OVERNIGHT MARKETS

Asian markets
Nikkei 225 up +54.55 (+0.38%) at 14,368
Topix up +6.29 (+0.53%) at 1,190
Hang Seng up +211.90 (+0.95%) at 22,510
ASX 200 up +26.64 (+0.50%) at 5,383

US markets
S&P 500 up +8.80 (+0.48%) at 1,839
DJIA up +126.80 (+0.79%) at 16,154
Nasdaq up +3.35 (+0.08%) at 4,244

European markets
Eurofirst 300 up +6.91 (+0.52%) at 1,332
FTSE100 up +4.20 (+0.06%) at 6,664
CAC 40 up +27.34 (+0.63%) at 4,340
Dax up +65.63 (+0.68%) at 9,662

Currencies
€/$ 1.37 (1.37)
$/¥ 101.60 (101.78)
£/$ 1.68 (1.67)
€/£ 0.8163 (0.817)

Commodities ($)
Brent Crude (ICE) down -0.04 at 109.04
Light Crude (Nymex) up +0.34 at 100.64
100 Oz Gold (Comex) up +7.00 at 1,326
Copper (Comex) up +0.04 at 3.36

10-year government bond yields (%)
US 2.74%
UK 2.80%
Germany 1.68%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.91bps at 54.36bp
Markit iTraxx Europe -0.94bps at 73.75bp
Markit iTraxx Xover -4.18bps at 277.69bp
Markit CDX IG -0.77bps at 63.93bp

Sources: FT, Bloomberg, Markit

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