November 13, 2009

News from Danske Research

We present the November version of the Emerging Markets Briefer with updated FX forecasts Emerging Markets Briefer - 13 November 2009

News from Danske Research

The key events in EMEA next week will be the rate decisions in Turkey and South Africa. We expect the South African Reserve Bank (SARB) to keep its key policy rate unchanged at 7.0%. This is also the consensus expectation. At the same time we expect the Turkish Central Bank (TCMB) to cut its key policy rate by another 25bp to 6.50%. We think that this cut will mark the end of the Turkish monetary easing cycle and while we do not expect the TCMB to announce the end of the easing, it will most likely twist its communication in a less dovish direction, which might add moderate upside risk to Turkish market rates and yield next week.

New Europe Weekly, Week 47

News from Danske Research

This presentation provides our script for the ECB exit strategy
The ECB exit strategy  How and when


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Natixis (Hold, TP=€4.20) - Rating downgrade - The party is over. Time to get down to business (3p)

Please find below our latest publication:

Natixis (Hold, TP=€4.20) - Rating downgrade - The party is over. Time to get down to business (3p)
Natixis reported Q3 earnings at €268m below our estimate of €386m. Nevertheless, these results included several exceptional items (GAPC +€66m, CDS -€319m, capital gain +€463m, revaluation of the spread on own debt -€143m and +€309m taken from collective provisions). Restated for exceptionals, earnings broke even, in line with our estimates. We were disappointed by the 5% increase in costs, as we had been expecting a decline like during the past 1.5 years, particularly as the deterioration was mainly attributable to Corporate & Investment Banking (+20% after -16% in Q2 and -19% in Q1). Conversely, risk weighted assets are still well under control, down -3.5% quarter on quarter, notably thanks to Corporate & Investment Banking (-8%).
The company reported Q3 results based on its new strategic orientation (CIB, Services and Asset Management) which reduced visibility. The group was slightly impacted by GAPC in Q3, only because of provision write-backs on its monolines (€500m). Q3 performances were in line with our projections in most businesses except for Asset Management, which remains disappointing compared with peers (outflows of €1bn vs inflows of €10.9bn at CASA). The cost of risk restated for part of the Q2 sector provision allocation was up sharply (196bp for the group) mainly on LBOs and real estate financing. Thus, we see no reason to raise our earnings estimates at this stage.
Target price & rating
The orientation of the strategic plan is positive but lacks visibility and the numerous exceptionals may cloud the visibility of the accounts over the medium term. Following an excellent performance (68% over three months), the low valuation (1x 2010e tangible book value) reflects this poor visibility. In our opinion, the market today discounts factors that are much too uncertain, such as the use of €3.9bn in deferred tax over an unknown period of time. We downgrade our rating to Hold vs Buy. Our SOP-based target price is unchanged at €4.2.
Next events & catalysts
The group will not provide details on the progress of its plan until the full year results publication at end-February.


1) S&P 500 -0.5% after the EU close - closing -1.0% at 1087. In spite of breaking through 1100 twice yesterday morning on the back of better than expected jobless data, a weak holiday outlook from Macy’s and bearish DOE stats weighed on shares, causing US equities to close at their lows of the day. Volumes remained particularly light with NYSE volumes trending 20% below 20-day average. Commodities seemed to be leading the equities market yesterday, with oil down -3.1% on the day at $76.82 after DOE stats showed a bigger than expected buildup in oil stockpiles. Treasuries were stronger, in line with the pullback in equities, despite a weaker than expected $16 billion 30-year auction. Tech (-0.4%), Consumer Staples (-0.5%) and Healthcare (-0.5%) underperforming. Energy (-2.0%) and Financials (-1.8%) underperforming.
2) Obama announcing jobs summit in December, and Senate likely to consider jobs bill in early 2010, suggest more explicit focus on jobs creation, and significant upside risk to our forecast of $75 bn additional fiscal stimulus in 2010. Alec Phillips: Momentum behind additional fiscal support for the economy appears to be building, with two recent developments implying a greater likelihood of further stimulus than even a few weeks ago: (1) comments from Senate Majority Leader Reid that the Senate was likely to consider a “jobs” bill in early 2010; and (2) the announcement today by President Obama that the White House would convene a “jobs summit” in December. A more explicit focus on job creation would: (1) increase the likelihood of new polices, rather than simple extension of existing ones; (2) raise the odds of additional fiscal assistance for states and infrastructure spending; (3) incrementally increase the probability of additional tax relief in 2010; (4) push health reform and energy legislation down the agenda for 2010 and probably increase the likelihood that Congress scales back the legislation it is contemplating in these areas; and (5) places even more pressure on the administration to demonstrate a path to medium-term fiscal consolidation. We continue to assume that Congress enacts $250 billion in additional fiscal measures to support growth over the next three years, including $75 billion more in 2010. However, recent developments – including the $45bn bill enacted last Friday – make this assumption look more conservative than ever.
3) DOE stats - inventories higher than expected across the board - distillate demand has yet to rebound. See first attachment.
4) Initial jobless claims continue to decline at a modest pace. Initial claims -12,000 to 502,000 in week ended November 7, vs. consensus 510,000, as the layoff pace has apparently eased up.
5) Industrial production, car sales, credit growth & construction output are pointing to sharper than expected acceleration in Euroland GDP in 3Q. Our Euroland GDP tracker, based on IP, car sales, credit growth and construction output, suggests GDP rebounded sharply to c. +0.8% qoq in Q3, imparting upside risks to our forecast of +0.5%qoq (see second attachment).
6) Euro-zone lending to households, and housing investment, leading GDP by 1-2 quarters - pointing to recovery in Euro-zone GDP in 2H09 & 2010 - Germany best placed - Spain worst. While lending to non-financial corporations tends to lag the Euro-zone business cycle by some 2–3 quarters, lending to households leads it by one quarter (see third attachment, p. 4, Chart 1). Moreover, housing investment turns 1–2 quarters before the rest of the economy (see third attachment, p. 4, Chart 2). In this sense, the pick-up in mortgage lending since May (see third attachment, p. 5, Chart 4), and the timid turnaround in housing investment growth in Q2 can be seen as a forerunner of further momentum in investment and of a broader recovery in the second half of this year and, if maintained, in 2010. A better performance of housing investment, however, is unlikely to be uniform across countries. Germany appears to be best-placed to benefit from the contribution of housing investment to overall growth: the supply of new homes in recent years has not been excessive while house prices look rather cheap; household net worth has improved relative to its recent history; labour market prospects are less gloomy than in other countries, and banks have tightened credit standards only moderately over the past year. Spain appears to be worst-placed.
7) Strong India industrial production in September points towards continued recovery. India industrial production Index rose 9.1% yoy in September compared to an upwardly revised 11% yoy growth in August. The IP reading was significantly higher than consensus forecast of 7% yoy. The quarterly momentum softened to 4.6% qoq in September, from 6.1% qoq in August. Leading indicators such as our Goldman Sachs India Financial Conditions Index and several business and consumer confidence indices suggest that data over the next few months will continue to tread gradually higher.
8) Corporate equity flows have been extremely bullish so far in November. TrimTabs: So far in November, announced corporate buying (new cash takeovers + new stock buybacks) of $47.0 billion has been almost five times higher than corporate selling (new offerings + net insider selling) of $10.0 billion. Having said that, the breadth of activity has been nowhere near as impressive as the volume. All but $12.6 billion of the announced corporate buying has come from the Burlington Northern Santa Fe buyout, the Cisco buyback, and the IMS Health buyout.
9) Warren Buffett - BBC's Evan Davis meets the world's greatest money maker in his office in Omaha. Part 1: Part 2: Part 3: Part 4: Part 5: Part 6:
10) Research focus today...
Lloyds...................................................Buy: Life without GAPS: Focus on pre-provision profits and credit quality
Bouygues..............................................Buy: Conviction Buy: Margin visibility increases post in-line 3Q revenues
Acciona.................................................Buy: Reiterating Conviction Buy after 9M results: at inflection point
Dividend Swap Monitor............................Assessing up- and downside risks to short-dated Nikkei 225 dividends (November 2009)
Capital Goods........................................UK: 3Q IMS wrap-up; Cookson remains Conviction Buy, IMI Buy Utilities..................................................Water: Reiterate CL Sell on UU ahead of final determination (November 26)
Aveva.....................................................Buy: Focus shifts from resiliency to structural growth potential; CL Buy
Gamesa.................................................Upgrading estimates and target price on solid margins, remains Buy
CEZ.......................................................Weaker EBITDA, better net income at 9M09; guidance confirmed RWE......................................................Sell: Reiterate Sell: Premium rating undermined by low earnings growth
Danieli....................................................First Take: Continued margin improvement, positioning for upturn
Have a good weekend!

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