Weekly Market Perspectives September 24th, 2012 .Fincor- Sociedade Corretora, S.A. provides services of reception, execution, and transmission of orders. The contents mentioned in this document do notconstitute (nor should they be interpreted as to form) any kind of counseling, or investment recommendation, or a record of our trading prices, or anoffer or solicitation to trade in any financial instrument. Fincor- Sociedade Corretora, S.A. will not accept any responsibility resulting from any use referring tosaid content or about any resulting effect that could have occurred.
Spain – Another week ended…and Spain hasn’t submitteda 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 2.50% bonds since late July suggests that the market 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.
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 Greek 5,55% society. The Troika must understand there are 3,08% limits”. Several Government members stated that 2,25% 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% -3,28% recession during 2012/13; -3,38%• OPAP, Greece’s biggest gambling company, -6,50% -6,95% declined 19 percent during last week, after the 2005 2006 2007 2008 2009 2010 2011 2012F 2013F government reached an agreement with the Source: Bloomberg European Commission to increase taxes on the company;• Without an agreement with Troika, Greece won’t receive its next tranche of aid.
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 -2.4%, -2,25% 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% 2,50% stated that “only a fool could think it’s possible 1,60% 1,70% to act on a decades long Italian structural 1,10% problem without bringing about a short-term reduction in demand.” 2005 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F Source: Bloomberg
Europe – Economic data still points to a recession. PMI Manufacturing PMI Services70 6565 606055 5550 5045 Eurozone40 45 Eurozone Germany35 Germany 40 France30 France25 35 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012Source: Bloombergc Source: Bloomberg Purchasing Managers Index indices still showing a contraction (below 50).
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.
US - The recovery in the US Housing Market continues togain 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
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 Mar-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
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.
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 minister, weapons program. warned that FED’s QE3 could reignite the • Tensions between China and Japan rising. 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 2013Source: Bloomberg
PortugalBCP 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, Portugals government has agreed to negotiate alternative solutions to a social security tax hike that created the worst backlash to austerity since last years EU/IMF bailout.
Weekly PreviewEurope • 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 increasingthe geopolitics risk in the region. Will theWorld markets take notice?
Weekly PreviewMarket IndicatorsThis week, we remain positive for the markets, due to action that have been deployed by the variousCentral Banks. A formal request for external support by Spain and a positive news flow from Greece shouldbe well received by the markets. Vicious Cycle of Europe. We are still on level 2. EURUSD 10Y Bond Yields: Spread vs Germany1.32 7.00% 1.3 6.00%1.281.26 5.00% Spain1.24 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
Weekly PreviewIdeas for the week: PortugalZon 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 thecurrent economic backdrop;•Sonaecom has the appropriate infrastructure, market positioning and experience on the Mobile Sector thatZon doesn’t have;•Zon can expand to new markets, as its leading shareholder Isabel dos Santos mentioned in the past. Zon’sAngolan 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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