November 11, 2009

CALYON Capital Markets Research





is pleased to provide you the following document:

News: Unicredit, British Airways, RTE, E.ON, Intesa Sanpaolo ...

This is a direct link to the document.


Equity markets were volatile yesterday, although without actually moving very far. According to Bloomberg, the Eurostoxx 600 fluctuated between gains and losses at least 15 times. Market sentiment was not aided by the weaker-than-expected ZEW index of investor confidence, which declined from 56 in October to 51.1 in November – market consensus was for a slight decline to 55. Confidence fell as the prospect of an end to the government stimulus programmes increased, and unemployment rose. Both HSBC and Barclays provided trading updates yesterday and, whilst there were positives to be taken from both, HSBC's was more bullish. Underlying profits at the bank, for the first nine months of 2009, were stronger than initially forecast at the start of the year and “significantly ahead” of the same period last year. A possible sign of stabilisation in credit losses, loan impairment charges fell to their lowest level in over a year, including at its US subprime division where loan impairment charges fell in the third quarter – the first quarterly fall since the start of 2006...


Unicredit: Still-high cost of risks, Q309 results above consensus

British Airways: Moody's ready to pull the trigger

RTE: Cut to A+ with a stable outlook

E.ON: Disposal of its German electricity transmission network

Intesa Sanpaolo: Good Q309 results beat consensus

Financials: How to assess the systemic importance of a bank

Sodexo: Further difficult times ahead

Trade Idea – Autos Closing Strategy: Buy Fiat 7.625 09/14 / Sell Fiat 5.625 06/17






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* Overview

We believe economic growth will be above average, and thus being present and expanding in the developing economies is essential for any company, and particularly for those based in “old and mature” zones. This is truer than ever in the current period, as despite the severity of the economic crisis, China, India, and Indonesia are still registering impressive growth. For instance, China's GDP rose by 8.9% in Q3 of this year! We anticipate that, after the capex wave, we shall see a consumption phase over the next five years.


Commodity and Energy Outlook 2010

  • Commodity and Energy Outlook 2010 - Industry Views from Royal Dutch Shell and DJ UBS Commodity Index Experts (NEW)




Inflation Report

November 2009


The Bank of England has today published its latest Inflation Report.

To view the Report please follow the link below:

Inflation Report - November 2009


News from Danske Research

Today's economic data suggest that China's recovery is becoming more balanced with private domestic demand and exports substituting public investments as the main growth engines. However, the October data is not as strong as today's press headlines suggest. Growth in domestic demand and imports have slowed and Chinese imports of important commodities declined substantially in October. However, some of this weakness is probably explained by an extended holiday in October and should prove temporary. Underlying inflation has stabilised around 2%, suggesting no imminent need for substantial monetary tightening.

Flash Comment - China: A more balanced recovery



GS - MARKET DATA POINTS - 2009.11.11

1) S&P 500 +0.2% after the EU close - closing -0.0% at 1093. Healthcare (+0.5%) outperforming. Financials (-0.5%) underperforming.

2) China October industrial production & retail sales growth slightly above expectations - fixed asset investment growth slightly below - CPI in line. (i) Industrial production growth came in at 16.1% yoy, up from 13.9% yoy in September, consensus was for 15.5% yoy. (ii) Retail sales growth came in at 16.2% yoy, up from 15.5% yoy in September, consensus was for 15.8%. (iii) Year-to-date FAI growth came in at 33.1% yoy, down from 33.3% yoy in September, consensus was for 33.5% yoy. (iv) CPI inflation came in at -0.5%, up from -0.8% in September, consensus was for -0.4% yoy.

3) China October money & credit below expectations. Commercial banks extended Rmb253 billion in CNY loans, vs. consensus expectations of Rmb370 bn. The CNY loans outstanding growth remained unchanged at 34.2% yoy, below consensus expectations of 34.4% yoy. M2 growth came in at 29.4% yoy, consensus was for 29.5% yoy. Despite below-expectations monetary data, the real activity growth remains robust. Therefore, we believe there is no need to be overly concerned about this, especially considering the fact that the level of credit extended tends to be low in October in recent years.

4) China exports & imports growth somewhat below expectations - likely partly due to Mid-Autumn festival being in October this year vs. September last year. Exports growth came in at -13.8% yoy, largely in line with the consensus forecast of -13.2% yoy. Imports growth came in at -6.4% yoy, below consensus of -1.0% yoy. The trade surplus widened to US$24.0 billion, above consensus of US$19.1 billion. The data is very strong in light of the fewer number of working days in October resulting from the shift of the Mid-Autumn Festival which was in October in 2009 and in September in 2008. We believe they suggest that domestic demand growth remains robust and external demand growth has been improving as well.

5) US bank credit demand and availability continue to decline. TrimTabs: Consumer credit plummeted $14.8 billion, or 7.2% annualized, in September. Other types of credit are also declining rapidly. Revolving home equity loans fell $2.4 billion, or 4.8% annualized, in October as fewer consumers tapped home equity lines. Also, commercial and industrial loans plummeted $20.0 billion, or 16.5% annualized, in October as banks maintained tight credit standards for smaller businesses.

6) The composition of the absolute decline in US retail sales since January 2007 - i.e. the composition of the US leg of Jim O'Neill's favourite chart. , On a seasonally-adjusted monthly basis, US retail sales declined by -$16 bn (-5%) from January 2007 to August 2009. The composition of this decline was autos -$13 bn (-18%), building materials -$6 bn (-23%), gasoline stations -$2 bn (-7%), furniture stores -$2 bn (-22%), clothing stores -$1 bn (-6%), electronics and appliance stores -$1 bn (-11%), drug stores +$1 bn (+7%), electronic shopping and mail order +$2 bn (+11%), grocery stores +$3 bn (+7%) and superstores +$4 bn (+$14%). Source:, my own calculations).

7) Default rates for US speculative grade debt now set to peak near 14% in November, vs. expectations of 20% at the height of the panic. FT: Moody’s notes that the pace of defaults has slowed, with only eight corporate debt issuers that it rates failing in October, the lowest monthly total this year. The ratings agency now forecasts that default rates for US junk or speculative grade debt will peak near 14 per cent in November, before falling back swiftly to 4 per cent in a year’s time a far milder turnout than the one-in-five scenario priced in at the height of the panic.

MS OVERVIEW 2009.11.11

CHINA DATA: October economic data just released... Generally positive, indicating continued economic recovery. Policy-driven components (monetary + investment) are not growing as aggressively as forecast, but overall economic activity (IP and retail sales) are showing further healthy acceleration. All in all, the economic recovery can still be described as ON TRACK, but not yet overheating, calming fears for imminent shift in policy stance towards tightening, especially in light of the latest CPI / PPI / RMPPI data. Trade data reaffirms that the Chinese economy remains dependent on DOMESTIC demand as external environment takes time to recover and this mediocre data should limit the risk of premature tightening. KEY DATAPOINTS: * IP (+16.1% YoY in Oct, +0.4% MoM SA) and retail sales (+16.2% YoY in Oct, +1.4% MoM SA) came in right in line with expectations. * Urban FAI (+33.1% YTD, +31.2% in Oct, -4.3% MoM SA) was weaker than expected. * CPI (-0.5% YoY, -0.2% MoM SA) and PPI (-5.8%, -0.7% MoM SA) still recording more deflation than expected, suggesting that reflation is coming through slower than expectation. * RMB new loans Rmb253 bn, though lower than our (300 bn) and market (370 bn) expectation, still represents 39% YoY increase, as October is traditionally a slow month for loan creation. Loan (+34%) and M2 (+29.4%) growth were also just a tad below forecast, in line with the new loan number. * Trade Data: Exports -13.8% in Oct vs Sep -12.5%, broadly in line with forecasts, vs rumors over the past few days that ranged from -18% to positive (!!). On MoM SA basis, exports fell 9.1%, which is the first MoM decline since the data series was made available. Imports were weaker than expected nevertheless, -6.4% YoY, though +7.3% MoM. Trade surplus US$24 bn, larger than forecast.

EUROPEAN DESK TRADING COLOUR (Cash Only): Overall: +41% vs. 20D vol., 1.3:1 better to BUY.

Asset Manager Flow: 60%, 1.68:1 better to SELL. Hedge Fund Flow: 38.6%, 1.08:1 better to BUY.

Key Sector Flows: Financials: 19% (-0.7% vs. 20D average), 1.23:1 better to SELL. Consumer Discretionary: 10.7% (unch vs. 20D average), 1.22:1 better to BUY. Consumer Staples: 9.7% (+1% vs. 20D average), 1.2:1 better to BUY. Industrials: 9.4% (-0.6% vs. 20D average), paired off. Utilities: 9.34% (+4.2% vs. 20D average), paired off.

Key Stock Flows: GDF Suez: 4.4%, paired off. HSBC: 3.7%, 2:1 better to SELL. Vinci: 2.25%, paired off. LVMH: 1.7%, 2.8:1 better to BUY. IMT: 1.7%, 1.4:1 better to BUY.

How MS ranked: GDF Suez: 1st, traded 3m. HSBC: 3rd, traded 21.1m. Vinci: 1st, traded 1.1m. LVMH: 1st, traded 474k. IMT: 3rd, traded 1.86m

ASIA SO FAR: (J Grafton) HSI +70bps, Taiwan +67bps, ASX +50bps, MXASJ +16bps, NKY unch, Nifty -10bps, H-Shares -20bps, Kospi -30bps, A-Shares -65bps. A slew of China October data to chew on. Bottom line is it all looks supportive to the recovery story. Bit of noise about the drop in loan growth but October is seasonally weak and with FY targets already met it is largely irrelevant. The trade surplus gapped to $24bn ($18.9 expected). In Taiwan, The Financial Supervisory Commission yesterday took another step to fight against “hot money” for currency speculation, saying it would prohibit overseas funds from being parked in local banks’ time deposit accounts, effective immediately. Taiex spiked late in morning on talk of significant inflows in the next MSCI rebalance and the old story of imminent signing of the MOU. HSBC has traded at a discount to London all morning opening on the highs drifting as the covering subsided. Kospi is still jittery amid more reports of tensions building in the Yellow Sea. We have been slightly better to buy with volume in line with the 20-DMA. Financials (36%) 1.3x BTB, Tech (17%) 3x BTB and Industrial (14%) 2x BTS.

US RECAP: S&P 500: 1093.01, -.01% DJIA: 10246.97, +.20% NASDAQ: 2151.08, -.14% MARKET RECAP: Most U.S. stocks fell following six straight gains for the Standard & Poor’s 500 Index as earnings disappointed investors at companies from MBIA Inc. and Fluor Corp. to Electronic Arts Inc. NY DESK TRADING COLOR: US Cash Flow: 1.6:1 to BUY, -30% vs. 20 day average Institutional Flow: (62% of business), 2:1 to BUY Hedge Fund Flow: (38% of business), Paired Off Leading Sectors Tech: 28%, 3:1 to BUY Financials: 16%, Paired Off Utilities: 14%, 1.3:1 to BUY OUTPERFORMING SECTORS: Health Care +0.64%, Retailing +0.52%, Pharma +0.41% UNDERPERFORMING SECTORS: Banks (1.23%), Durables (0.70%), Food/Staples (0.61%)

EURO RECAP: (J da Silva) Eurostoxx: -0.13% FTSE: -0.09% CAC: unch DAX: -0.12% Tuesday was choppy and we crossed the unchanged mark 8 times throughout the day, ending up just off the lows. We had plenty of numbers out first thing: Financials were mostly positive with HBSC +4%, Intesa +1.5%, Schroders +1.65%. The exceptions were Barclays, which traded down 5% on its low quality beat, and Julius Baer which traded down 6.8% after disappointing on inflows. Vodafone closed down just 1.45% despite a perceived "hidden profit warning" on emerging markets, as it recovered from its intraday lows and we saw big buying into the close. Imperial Tobacco reporting generally inline was taken well (+2.3%) and we saw very good 2-way flow in the name.

CREDIT RECAP: (E Pénot) Main 84-84.5 (-), Xover 512-513 (-), HIVOL 138-139 (+1). Very quiet session with light flows and a lack of direction. It feels like accounts are stepping on the sidelines and unwilling to add any significant risk into year end. Much focus was in the primary market today, as accounts feel comfortable buying bonds in the primary given that the vast majority of new deals this year have performed extremely well. The yieldy names that came to the market today felt a little weak in the secondary (Fiat and FCE) while a high quality name like ANZ tightened 10bps in the secondary. In single name protection, most of the flow was with correlation desks that are in general buyer of the curve in the short end to sell the curve in the long end.

FX: (E Lawson) We remain positive on EUR. The data continue to show steady, if not spectacular, growth prospects in the euro area, and today's ZEW should continue in this vein. Last week showed the ECB's credibility, especially in comparison to the BoE and Fed. So while the USD comes under pressure due to policy concerns, EUR is the natural, liquid G3 currency to take up the slack. We are less concerned about EUR in the context of fiscal expansion as well. Furthermore, we expect there is ongoing reserve manager demand. In the present USD negative environment we believe there is upside in EUR while we believe there are fundamental mispricings in EUR/GBP. KEY RECOMMENDATION: Long EUR/USD, long EUR/GBP.

DOWNUNDER DAILY (G Minack) US companies continue to do better on cost cutting, leading to better-than- expected earnings and productivity in the current reporting season. However, this is unlikely to lead to a sustained profit recovery and is actually adding to deflation and double-dip risks. The September quarter reporting season repeated the pattern of the past two: profit surprises have again been due to cost-out, rather than revenue. With 389 S&P500 companies reporting, non-financial earnings have beaten forecasts by 5%. But dollar-weighted revenues have fallen 0.7% short of forecasts. The simple point is this: if fixed costs are being cut, then operational leverage will be lower, not higher, in the recovery. If variable costs are being cut, then presumably they will be added back in the recovery. Macro data have likewise surprised. Non-farm business productivity jumped 9.5% at an annual rate in the September quarter, and is now 4.3% above year-ago levels. This is strong in absolute terms, and surprising given that productivity is usually weak when output is falling. Historically productivity growth has driven real wage growth but now productivity can be a mixed blessing. First, because it's now being achieved by more labor cuts which remain severe cycle headwinds for an already-stretched household sector. These job cuts explain one-half of what is now a remarkable conjunction: the decline in the wage share of GDP to an all-time low occurring as consumer spending share of GDP hits an all-time high. The gap between wage income and consumer spending is, in our view, unsustainable. Either workers will need to be paid more, or will spend less. This is why we don't think that a sustainable profit cycle can be built on cost-out. The second reason productivity growth may not be helpful is because it is deflationary. Nominal unit labor costs (important inflation factor) are now falling rapidly due to productivity growth and low nominal wage payments. If income growth is stagnant or falling in nominal terms, it threatens to exacerbate the risk of serious deflation and double-dip. For now, this is not our US team's base case. But, as Dick Berner notes, weaker-than-expected hours and core income growth is a key risk to his slow recovery view. It now seems that too much cost-out may be too much of a good thing.

MACRO CALENDAR: UK Labour market report, 09:30 Claimant Count (Oct) ~ MSe 21.0k / Cons20.0k / Last 20.8k: We do not expect a pickup in the pace of increase in claimant unemployment and forecast a 21K rise in the claimant count on the October data (after 20.8K in September). We expect the unemployment rate (3Q) to have ticked up to 8.1%. On average earnings growth for September, we expect the headline measure (including bonus, 3M/Y) to fall to +1.4% (from 1.6% in August). This series has been volatile lately. UK Bank of England Inflation Report (Nov) 10:30 This is, as ever, a key risk event for sterling markets. The statement accompanying the MPC's decision to extend QE gave nothing much away, either in terms of forward looking signals or in terms of the trigger for their decision to extend QE. We assume that they have revised down their underlying medium-term inflation forecasts. Things to watch include the inflation fan charts, additional insights into their most recent policy decision and any further information relating to lowering reserves remuneration. Also, we will be looking out for explanations of why the Bank of England extended QE at their recent meeting (although we may have to wait until the MPC minutes the following week for colour on this).


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