2. Weekly Market
Perspectives
September 24th, 2012
.
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3. Spain – Another week ended…and Spain hasn’t submitted
a formal request for external support.
• Bailout speculation - According to some
news, Spanish’s policy makers could, this
week, unveil an economic reform program
that would allow it to seek a bailout. “The Euro is Irreversible”
Nonetheless, last Saturday, Spain’s Economic Draghi Speech
Minister said They will not rush to seek 2Y Bond Yields Spain
external aid; 5.00%
• ECB Governing Council member Luc Coene
4.50%
said “If Spain does not submit to OMT announcemennt
conditionality we will not buy its bonds… I 4.00%
don’t think it will take for the Spanish spreads
3.50%
to rise (if Spain doesn’t submit to the
program)”; 3.00%
• The performance of short-dated Spanish
bonds since late July suggests that the market 2.50%
1-Aug 8-Aug 15-Aug 22-Aug 29-Aug 5-Sep 12-Sep 19-Sep
has probably priced in ECB buying;
•
Source: Bloomberg
Critical week? - Spain will announce the final
results of an expected audit to its banking
sector. Its draft budget plan for 2013 and new
structural reform will also be unveiled.
4. Greece – Will the EU/ECB/IMF report be delayed?
• The mission in Athens will take a brief pause. It
expects to return to Athens after about a week.
• Troika demands additional €11.5bn in austerity
measures;
• The local Government is divided in how to achieve Greece: GDP Growth
it. Fotis Kouvelis, Leader of the Democratic
Party, said that “The troika must stop attacking 5,55%
Greek society. The Troika must understand there
3,08%
are limits”. Several Government members stated 2,25%
that they intend to negotiate a 2 years delay to
achieve the established budget targets. The Greek -0,15%
economy is expected to stay trapped in a -2,30%
recession during 2012/13; -3,28% -3,38%
• OPAP, Greece’s biggest gambling -6,50%
-6,95%
company, declined 19 percent during last 2005 2006 2007 2008 2009 2010 2011 2012F 2013F
week, after the government reached an Source: Bloomberg
agreement with the European Commission to
increase taxes on the company;
• Without an agreement with Troika, Greece won’t
receive its next tranche of aid.
5. The Italian Government has revised Its fiscal targets.
Italy: Real GDP
2,20%
• 2012 public spending will exceed revenues by 0,90%
1,70% 1,8%
2.6% of GDP. The previous forecast was 1.7%. 0,40% 0,40% 0,50%
The 2013 budget target has now more than
tripled to 1.8% from 0.5%; -1,20%
• 2012 GDP is now expected to contract - -2,25%
2.4%, while the previous forecast pointed to an
economic contraction of -1.2%. The economy is -5,50%
forecast to contract by 0.2% next year; 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
• The 2012 debt-to-GDP forecast was raised to Source: Bloomberg
126.4% from 123.4% previously. The 2013 Italy: Government Deficit as GDP %
forecast was hiked to 126.1% from 121.5%; 5,40%
• The Government announced an austere belt- 4,60%
4,40%
tightening budget with tax increases and 3,90%
3,40%
spending cuts. Prime Minister Mario Monti
2,70%
stated that “only a fool could think it’s possible 2,50%
1,70%
to act on a decades long Italian structural 1,60%
1,10%
problem without bringing about a short-term
reduction in demand.”
2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F
Source: Bloomberg
6. Europe – Economic data still points to a recession.
PMI Manufacturing PMI Services
70 65
65
60
60
55 55
50
50
45
Eurozone
40 45
Eurozone Germany
35
Germany 40 France
30
France
25 35
2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012
Source: Bloombergc Source: Bloomberg
Purchasing Managers
Index indices still showing
a contraction (below 50).
7. Europe – Week highlighted The ECB still has fire-power.
by Bond Auctions • Luc Coene said that the European Central Bank
still has a large number of options to ease
monetary policy: “you could further lower
France: €16.968bn interest rates, you can also try to extend the
Germany: €4.0844bn LTRO to some extent, you can also do some
Spain: €9.465bn LTRO with private credit claims as collateral”;
Portugal: €2bn • Chinese Prime Minister said that his country is
Greece: €3.557bn investing in sovereign bonds from the region to
diversify its assets and support the European
• Spain issued last week a large amount of fight against the Sovereign Crisis.
government bonds. However, only €859m were
issued with a 10 year maturity, which is
negligible. All the other auctions were done
with maturities shorter than 3 years;
• Portugal’s cost of borrowing dropped to the
lowest since 2010. The debt management
agency sold 18-month notes at an average yield
of 2.967%. 6-month bills were also
auctioned, with its average yield falling to a
one-year low.
8. US - The recovery in the US Housing Market continues to
gain traction…
• Data released last week showed that the US housing market recovery is becoming more convincing.
Existing home sales reached the highest pace since May 2010;
• The FED will keep low interest rates until 2015 and will start buying every month $40B in Mortgage
Backed Securities.
Housing Starts Existing Home Sales
900 6
850
5,5
800
750 5
in thousand
in million
700
4,5
650
600 4
550
3,5
500
450 3
Source: Bloombergc Source: Bloomberg
9. US – But other indicators showed some weakness.
Empire Manufacturing Initial Jobless Claims
700
19.53 20.21
17.09
600
13.48
in thousand
500
6.56 7.39
2.29 400
300
-5.85
200
Ja n-12 Feb-12 Ma r-12 Apr-12 Ma y-12 Jun-12 Jul-12 Aug-12 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Bloomberg Source: Bloomberg
Leading Indicators
0.7
0.5
0.3
0.2
0
-0.1 -0.1
-0.5
Ja n-12 Feb-12 Ma r-12 Apr-12 Ma y-12 Jun-12 Jul-12 Aug-12
Source: Bloomberg
10. Will QE3 be effective for an economic recovery?
• FED’s Dallas President said that he was unsure
that QE3 would bring any positive outcome to
the employment data. On the other hand, he
revealed his concern over inflation. Richard
Fisher is a non-voting member of the FED;
• PIMCO’s El-Erian told in a speech that Central
Banks will face unstable periods, due to the
increased holdings on their Balance Sheets.
Long-Term Consequences of this posture will
be hard to quantify.
11. BOJ increases its QE program. Conflicts are Erasing in the
• The Bank of Japan launched a round of
monetary stimulus; rest of the World
• The BOJ will increase its asset-purchasing • US and other 28 countries started military
program to a total of Y80tn, by buying another exercises in the Persian Gulf. Iranian officials
Y10tn of government bonds until the end of have threatened to close the waterway in
2013; response to threats to force the Islamic
• BOJ’s interest rates are already near zero; Republic to abandon its suspected nuclear
• Guido Mantega, Brazil’s finance weapons program.
minister, warned that FED’s QE3 could reignite • Tensions between China and Japan rising. The
the currency wars. dispute over the islands, known as Diaoyu in
China and Senkaku in Japanese, seems to have
Japan Real GDP growth rate produced a diplomatic crisis between China
10% (Annualized QoQ %)
and Japan.
5%
0%
-5%
-10%
-15%
-20%
1999 2001 2003 2005 2007 2009 2011 2013
Source: Bloomberg
12. Portugal
BCP Rights Issue:
• Today will be the last trading day for BCP’s rights. During last week, they were down 10%, while BCP’s
stock only lost 3%. If you wish to engage on arbitrage opportunities on the stock, please contact us.
A merger between Sonaecom and Zon – Is it going to happen this time?
• Optimus CEO, a subsidiary of Sonaecom, gave an interview to a Portuguese newspaper, Last Friday. He
underlined the benefits of a merger between the two companies. Are the two companies holding
conversations regarding a possible deal?
Portuguese Politics:
• After an eight-hour meeting of the presidential state council, Portugal's government has agreed to
negotiate alternative solutions to a social security tax hike that created the worst backlash to austerity
since last year's EU/IMF bailout.
13. Weekly Preview
Europe • Will Spain ask for external support this
week? Next Friday, it should be released
the Banking Audit for the Spanish banking
sector;
• Some experts from the EC/ECB/IMF
mission will remain in Athens to assist the
authorities with further technical work.
• Italy and Germany will auction 10Y
Government Bonds. Germany’s
unemployment data is expected.
US • In the US, durable good orders, GDP, and
the U. of Michigan Consumer Sentiment
will be published during this week.
Rest of • In Asia, we will follow the increasing
the geopolitics risk in the region. Will the
World markets take notice?
14. Weekly Preview
Market Indicators
This week, we remain positive for the markets, due to action that have been deployed by the various Central
Banks. A formal request for external support by Spain and a positive news flow from Greece should be well
received by the markets.
Vicious Cycle of Europe. We are still on level 2.
EURUSD 10Y Bond Yields: Spread vs Germany
1.32 7.00%
1.3
6.00%
1.28
1.26 5.00%
Spain
1.24
4.00%
1.22
1.2 3.00%
2-Jul 17-Jul 1-Aug 16-Aug 31-Aug 15-Sep Mar Apr May Jun Jul Aug Sep
15. Weekly Preview
Ideas for the week: Portugal
Zon and Sonaecom. Short Term Buy. Reasons to buy:
• From a intrinsic valuation perspective, both companies seems attractive;
• The probability of a merger between the two companies seems to be increasing, after the latest news
flow.
• The deal could generate attractive synergies (€250 million).
• This would create a bigger player to compete in the Residential and Mobile markets;
• Zon is the market leader in Portugal in the Residential sector, a sector that has proved to be resilient in
the current economic backdrop;
• Sonaecom has the appropriate infrastructure, market positioning and experience on the Mobile Sector
that Zon doesn’t have;
• Zon can expand to new markets, as its leading shareholder Isabel dos Santos mentioned in the past. Zon’s
Angolan JV is showing an interesting evolution. This is probably not priced currently in the stock;
• Isabel dos Santos has a 28.8% stake in Zon. She also enjoys close ties with Sonae’s retail arm;
• Some other issues should be considered:
• France Telecom has announced its intention to divest Sonaecom;
• It is important to now BES’s position on the possible M&A deal;
• French group Altice recently acquired Portuguese cable operator Cabovisão. What will Altice do, if
anything?
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