LCM Dawn Patrol – 18.02.14 – LCM Strategy, Air Liquide numbers, JPM ups Aixtron and likes temp work, DB sees hope in EM, TUESGEAR (boring)

Bonjour,

Asian stocks are mixed in morning trade. As expected, the BoJ left policy unchanged. The yen weakened after the release, which caused the Nikkei to jump from around +1% to +2%. The Australian market is flat as earnings season ramps up. Greater Chinese markets are lower after the PBoC unexpectedly removed CNY48B of liquidity.

Today, we data such as the Germany ZEW sentiment indicator for February and the Jan UK CPI both released during the morning. On the corporate earnings, among others, Denmark Pandora A/S, Casino and TNT Express will be reporting.
In the US, we’ll check the Fed’s Empire Survey data which should decline after a 12.51 jump in Feb and the NAHB index (56). On the corporate side, we get Coca Cola.

A summary of the important things this week (GS): 
The first of February’s cyclical surveys, UK employment data and EM central bank meetings in Turkey and Hungary will be key events in the global macro space this week. A new government will also take shape in Italy.

TUESGEAR

1Password

1Password

1Password. Not very sexy and somewhat geeky. But, if like me, you have several complex password for each website, bank account, ISP or whatever, this is very useful. The Mac version is better than the Windows one, but it’s definitely a must have.

NEWS

d6d9ac33 a7dc 4976 b90c ae7204b19fbc

Medal Count

 

• Global Stocks Erase 2014 Losses as $3t Market Value Restored
• BOJ Keeps Rise in Monetary Base, Extends Loan Programs
• EU Ministers See Progress Without Specifics on Bank-Failure Plan
• Banks Review Rules on FX Traders Making Bets With Own Cash: FT
• Buba’s Dombret Says No Sign German Housing Market Overheating
• Swiss Tax Deal Seen Buried After German Cases Revealed
• Renzi to Meet Party Leaders in Bid to Form Italy Government
• Lithuania ‘Quite Comfortably’ Meets Euro Target, Sadzius Says

• BHP 1H Profit Gains 31% on Iron Ore, Lower Costs
• U.K.’s Co-op CEO Says Co. Considers Entry Into New Markets: FT
• Sanofi Announces EU Approval for NexGard Against Fleas on Dogs
• France Appoints Consultants to Study Alstom, Les Echos Says
• Aberdeen Likes Chinese Mall Developers as Local Spending Swells

Air Liquide 2013 Net Beats Ests., Sales Miss; Confident on 2014
Air Liquide 2013 net income EU1.64b, est. EU1.6b.
• Operating income recurring EU2.58b, est. EU2.62b
• Total rev. EU15.2b, est. EU15.3b (-0.7% reported y/y, +3.7% adj. for currency, natural gas impact)
• Div. EU2.55/shr, BDVD est. EU2.6/shr
• Co. to award 1 free shr for 10 existing shrs as of June 2, subject to next AGM approval
• Says confident in ability to deliver another yr of net profit growth in 2014, barring degradation of business environment
• Says board confirmed intention to reappoint Benoit Potier as chairman, CEO at meeting to be held after AGM
• Statement
• Conf. call webcast at 10:30am CET

CURRENT STUFF

The head of the world’s biggest oil trading company, Vitol, has called for immediate and far-reaching reform of Brent, the oil marker for more than half of the world’s internationally traded crude oil supplies. His comments come as the European Commission investigates the setting of physical oil prices and as Platts, the world’s leading price reporting agency, conceded that changes may be required to the Brent benchmark, but not immediately. (Financial Times) (WSJ)

Under pressure from rising Chinese production, Alcoa, the US aluminium group, plans to cut its smelting capacity by almost 5 per cent with the closure of its Point Henry plant in southeast Australia. It is also closing two Australian rolling mills producing aluminium sheet for cans. About 980 people are employed at the three sites. (Financial Times)

STRATEGY

LCM CROSS ASSETS (Abet) Special Report
The Makers and The FollowersThe Emerging/Developed classification has had its day. We propose a new discriminating factor: Innovation.
 
- It makes no sense to talk about emerging or developing countries when we can see so many people surfing the web via their iPhone in the deepest rural recesses of Asia. The emerging/developing label should become obsolete because its no longer sufficient to describe the new economic challenges facing our world.
 
- Over the past decade, these “under-developed” countries have benefited from two strong positive processes: 1) an economic catch-up thanks to a new political will and 2) the diffusion of new technologies coming from the IT revolution in the developed world.
 
- These two processes are well advanced and the continuation of these trends will certainly become less impressive with lower economic impact in the next years. The residual divergence between EM and DM countries lies more in institutional or organizational factors rather than in pure development factors. Big EM countries are no longer “under developed”.
 
- The crisis of 2008/09 draws parallels with the current weakness in EM countries: the only relevant economic growth model is the one based on productivity and innovation. Models based on capital accumulation fuelled by cheap credit are less robust and necessarily less sustainable. The US economic leadership is becoming even more forceful than 10 years ago after having been criticised during the sub-prime crisis. We understand now that 2008/2009 was a monetary crisis but not a growth model crisis.
 
- Innovation and productivity remain the only source of unlimited economic growth. We examine the biggest countries from this angle and conclude that we require a new kind of classification: The Makers and The Followers.
 
- The Makers are those countries with strong innovative power, strong commercial brands and high efficiency in their business management.
 
- The Followers are the others which remain stuck in catch-up mode, copying what is invented by the Makers.
 
- The financial value of the Makers should be significantly higher than that of the Followers. The investment opportunity for the next decade lies in this trade.
 
- We identify a third compartment called “The Makers Learners” who have a high degree of innovation but with constraints in terms of developments, China is among them.

And Deutsche Bank on EM

MS (Secker) Strategy and Economics: What if the UK raises rates earlier than expected?
Assessing the implications of an ‘early’ UK rate hike Despite a big turnaround in the UK’s growth outlook over the last year, the debate around monetary policy has evolved more slowly. With unemployment and inflation rates close to levels consistent with the start of prior tightening cycles we consider the implications of an earlier-than-expected rate hike in the UK.

UPS&DOWNS

Europe: Banks (GS, Ormahen) Final FED proposal announced tomorrow; focus on funding, not capital
The FED is scheduled to vote on the FBO proposal on Tuesday, February 18. We expect the news to be on funding, and not capital. We see DBK and BARC as most affected.

Delhaize (MS, Aubin)  Still too cheap to ignore
We expect Delhaize to outperform the European food retail sector given its high and sustainable FCF generation. Our DCF analysis yields a valuation of €55 per share, which we set as our price target.

UBS (Van Steenis) Mgmt meetings underscore the investment opportunity
We’ve argued the market underestimates potential for capital return and upgrades as UBS frees up much of non-core and the ‘new model’ delivers. Our meetings with two ExCo members highlight WM improvements, intense cost restraint and non-core run down. We keep in ‘most preferred’.

Aixtron (JPM, Deshpande) Order drought close to an end. Upgrade stock to Overweight.
With lighting demand strong, low season utilization above 90%, Chinese over-capacity reducing & share stabilizing over last 3 quarters, the worst is likely over for Aixtron. We see upside to €16 as orders revive over the next few quarters. If we have another super-cycle, it could be greater but it is too early to make that call. We upgrade to OW with a Jun-15 PT of €16 (€10).

Adecco and Randstad (JPM,  Sarma) Improving macro and temp remains a better place to be. Prefer Adecco.
We believe that comparable company analysis and recent macro data bodes well for Randstad and Adecco ahead of their Q4/FY results on 20 February and 12 March respectively. We are positive on recruitment as a subsector, supported by improving macro and trading momentum. In particular, we favour the lower salary/temp end of the market to the higher salary/perm end at this point in the cycle. Our preference remains for Adecco (Overweight) over Randstad (Neutral), mainly due to valuation, its better earnings outlook, the upside in management’s margin target and the potential for capital returns.

Morrison (JPM, Vazquez) Cutting EPS by 20% and TP to 190p               

 

OVERNIGHT MARKETS

 

Asian markets
Nikkei 225 up +466.53 (+3.24%) at 14,860
Topix up +32.34 (+2.71%) at 1,224
Hang Seng down -8.25 (-0.04%) at 22,528
ASX 200 up +9.91 (+0.18%) at 5,393

European markets
Eurofirst 300 up +4.76 (+0.36%) at 1,337
FTSE100 up +72.38 (+1.09%) at 6,736
CAC 40 down -4.97 (-0.11%) at 4,335
Dax down -5.64 (-0.06%) at 9,657

Currencies
€/$ 1.37 (1.37)
$/¥ 102.52 (101.92)
£/$ 1.67 (1.67)
€/£ 0.8194 (0.8199)

Commodities ($)
Brent Crude (ICE) down -0.08 at 109.10
Light Crude (Nymex) up +0.46 at 100.76
100 Oz Gold (Comex) up +2.50 at 1,322
Copper (Comex) up +0.01 at 3.33

10-year government bond yields (%)
US 2.74%
UK 2.79%
Germany 1.69%

CDS (closing levels)
Markit iTraxx SovX Western Europe -0.74bps at 53.62bp
Markit iTraxx Europe -0.65bps at 73.1bp
Markit iTraxx Xover -1.5bps at 276.19bp

Sources: FT, Bloomberg, Markit

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