Monday Report 03 November 2014 Economy Markets Swiss Market Recommended Stock Watch In the US, although durable goods orders were disappointing, down 1.3% in September, other official statistics confirmed the health of the economy, as illustrated by Q3 GDP, which grew by a higher than expected 3.5%. While admittedly slightly skewed by non-recurring military spending, the trend nevertheless remains no less reassuring. Consumer confidence has returned to peak levels (94.5 in October, vs. 89 the previous month), buoyed by revenue growth of 0.2% in September. In Europe, confidence in German industry fell (with the Ifo Business Climate index down from 104.7 to 103.2). Fortunately, monetary aggregates are improving (with M3 up 2.5%). In China, the official manufacturing PMI came in at 50.8 (vs. 51.1), its HSBC equivalent was stable at 50.4 and its services counterpart was 53.8, all compatible with satisfactory growth. To be monitored: KOF employment, October PMI, OFS September overnight hotel stays, OFS October CPI, SECO October consumer confidence survey, SECO October unemployment, OFS September retail sales and KOF October economic barometer. Q3/9m results: Dufry, Alpiq, Starrag, Tornos, Looser, Glencore, Pargesa, Nobel Biocare, Zurich Ins., Adecco, Barry Callebaut, Kuoni, Swisscom, Transocean and Swiss Re. RICHEMONT (PLUS) is due to release its results on Friday. Its gross margin is expected to have improved (up 60 bps to 64.5%). Predicted net profit of €1.35bn (up 13%) will be boosted by a capital gain on a real estate disposal (San Regis). HOLCIM (NR) has released marginally poorer than expected Q3 results and confirmed its 2014 operating profit growth guidance. The group is still driven by the US but has revised down its volume estimates for Europe, where activity continues to contract. Sentiment of traders Stock market The boost given by Japan wrong-footed the bears and triggered a major wave of buying, with US indices even ending October at all-time highs. There is likely to be some profit-taking, which will provide investment opportunities. This week will bring US unemployment figures on Friday and a few quarterly results. Currencies With the Fed announcing an end to its stimulus programme and the BoJ stepping up its asset purchases, the dollar picked up sharply against the leading currencies, reaching highs of EUR/USD 1.2444 and USD/JPY 112.98. Expectations of a faster than forecast rise in US dollar interest rates should support this trend; next major support: EUR/USD 1.2393. Gold fell sharply to $1,169.70/oz. Our ranges – EUR/USD: supp. 1.2344, res. 1.2639; USD/CHF: supp. 0.9540, res. 0.9839; USD/JPY: supp. 108.26, res. 114.66. Today’s graph The (expected) end of the Fed’s liquidity injections, due to the health of the US economy, did not stop equity markets continuing the rally they had already begun (with the MSCI World gaining 2.4%). As well as reassuring economic statistics, this is also partly down to the BoJ’s announcement that it is to increase the amounts injected into the economy (Japanese equities gained 7.3%). The corollary was a sharp decline in the yen (down 3.6% vs. the USD). Against this backdrop, the dollar strengthened (the USD index rose 1.4%) and 10-year yields rose 6 bps. Gold was the victim, losing 4.6%. To be monitored this week: ISM manufacturing and services PMI, jobs report and household borrowing in the US; German industrial production and trade balance, retail sales and the ECB meeting in the eurozone; and the HSBC services PMI in China. ENEL (PLUS) has announced that is to buy back bonds worth €762m as part of efforts to more actively manage maturity and yields linked to its deleveraging. ERICSSON (PLUS) has announced two new contracts to extend 4G/LTE networks: a five-year contract with Telenor (Norway) and a contract with Algeria Telecom to roll out a broadband network gateway for business services. L’ORÉAL (PLUS) is due to report Q3 sales this evening, estimated to be close to €5.4bn. The slowdown in growth in Europe and emerging markets and the lack of an upturn in the US (per comments by the CEO in early September) lead to cautious expectations of organic growth close to 3.6% in the quarter. MARKS & SPENCER (PLUS) is to release its H1 results on Wednesday. General Merchandise sales are likely to have once again been affected by the priority placed on margins and the mild weather (down 3.5% in Q2 after falling by 1.5% in Q1). Food should have held up well (up 0.5% in Q2 vs. 0.1% in Q1), contrary to Tesco and Morrison. The group’s gross margin is expected to have improved by 50 bps in H1. SANOFI (newly rated MINUS): CEO Chris Viehbacher’s forced departure comes just as Lantus is experiencing severe pricing pressure and limits visibility as to how the group will navigate some of its medium-term challenges. WPP (PLUS) is to invest, via its subsidiary Kantar, in French tech consulting firm CVDM Solutions, which specialises in image recognition (identifying products from photos). The deal will strengthen the group’s market research division (DIM). Performances Switzerland Since SMI Europe Europe Stoxx 600 2.94% 2.60% USA S&P 500 2.72% 9.18% Emerging countries MSCI Emerging 3.22% 1.33% Japan Nikkei 225 7.34% 0.75% US contributions to GDP growth 6 Percentage points 6 4 4 2 2 0 0 -2 -2 -4 -4 -6 -6 -8 -8 -10 2005 2006 Consumption Inventories 2007 2008 2009 2010 Investments Net trade 2011 2012 2013 2014 Government GDP -10 24.10.2014 3.58% 01.01.2014 7.74% As at 31.10.2014 CHF vs. USD 0.9625 -1.07% -7.60% EUR vs. USD 1.2529 -1.10% -9.08% 10-year yield CHF (level) 0.46% 0.47% 1.09% 10-year yield EUR (level) 0.80% 0.85% 1.94% 10-year yield USD (level) 2.34% 2.27% 3.01% Gold (USD/per once) 1 165.69 -5.29% -3.49% Brent (USD/bl) 84.45 -1.47% -24.19% Source: Datastream Source: Thomson Reuters Datastream, 03.11.2014 This document has been issued for information purposes. The views and opinions contained in it are those of Bordier & Cie. Its contents may not be reproduced or redistributed. 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