Good morning,

Markets are called to open flat this morning. This is what's happening today:

  • Asian markets are trading lower on concern that concern Greek leaders will back out of bailout agreements;
  • In related euro zone news, Italian leader Mario Monti said the time was nearing for euro zone-wide Eurobonds;
  • A slew of European earnings today will be watched closely including Commerzbank, Henkel, energy company E.ON and DE/Lanxess and out of the UK Sainsbury’s Sage Group, Glencore and Balfour Beatty are amongst those reporting numbers. Twice-bailed out Belgian bank Dexia, ING, Carlsberg and France’s Natixis also report today;
  • 10-year Italian debt is yielding 5.454%, 10-year Spanish debt is yielding 5.843% and 10-year Portuguese debt is yielding 11.297%;
  • Brent is trading at $112.30/barrel;
  • Apple closed the session at $568.18, Priceline closed the session at $716.20. Priceline report results today after the bell.


The markets are worried with what is happening in Greece. Alexis Tsipras, leader of Greece’s Syriza party, said he plans to form a government that would nationalize banks, repeal recent labor reforms and cancel the bailout accords. Alexis Tsipras of Greece’s Syriza party squared off with political leaders before talks on forming a coalition, handing them an ultimatum to renounce support for the European Union-led rescue if they want to enter government. Tsipras said he expected Antonis Samaras of New Democracy and Evangelos Venizelos, the former finance minister who leads the Pasok party, to send a letter to the EU revoking their written pledges to implement austerity measures by the time he meets them today to discuss a government alliance. Samaras and Venizelos rejected the request. Samaras said he was being asked “to put my signature to the destruction of Greece.”


Spain’s booming exports and productivity gains amount to a stealth devaluation that is bolstering the nation’s chances of paying down debt even as it’s gone unrewarded by investors. The country’s exports rose 11% last year, more than in France and the same pace as Germany, as labor costs fell and the current account gap narrowed. That improvement may not be reflected in 10-year bond yields, which ended yesterday at 5.84%, leaving the difference with German bunds of similar maturity at more than 400 basis points for a fifth week. Spain’s economy is shifting in a way Economy Minister Luis de Guindos says mimics the currency devaluations used before joining the euro to boost competitiveness. The risk is that surging bond yields tip Spain into an international bailout before investors become convinced it can restore growth, curb the region’s highest jobless rate and stem the increase in debt.

France: What does Hollande target that will impact banks directly?

Deutche Bank's answer: Hollande has made aggressive comments against “the world of finance" which he called his enemy during the campaign. As part of his programme he intends to implement several measures that are targeted at banks, among which: an increase of the tax rate paid by banks by 15%, the separation of banks' speculative activities, the doubling of the ceiling of the popular savings accounts Livret A and the creation of a financial transaction tax, to quote only a few. We believe these measures are not just typical promises ahead of an election and that there is an 80% probability that he will indeed implement them.

How much could that cost banks?

Deutsche Bank's answer: We detail the cost for banks of each of the reforms Hollande wants to implement in a report called “Estimating the Hollande discount" published on 12 March. The most expensive measures will be the increase by 15% of the tax rate paid by banks and the doubling of the Livret A ceiling. A change in the Livret A rate and the separation of banks' speculative activities could also be costly, depending on what exactly is decided (no details have been communicated yet). Overall, we estimate that ollande's measures will cost around 8% of CredAg's 2013E net income, 6% of SocGen and 3% of BNPP. So overall it will prove particularly costly for CredAg whose net profit is particularly reliant on French retail banking, while the impact will remain marginal for BNP in our view. This is supportive of our Buy case around BNP, which remains our top pick among European Banks because of its better capital position, better deleveraging execution and better asset quality.

An interesting assessment of Roubini's portfolio despite his negativity on Europe – in line with CC's view on being overweight the US and underweight Europe

While he's worried about what's taking place in Europe, Roubini hasn't changed his investing strategy. He is 70 percent invested in global equities, with half of that sitting in U.S.-based indexes; the remaining 30 percent is kept in cash.

Roubini doesn’t expect U.S. equities to fall sharply this year. He said the economy would grow 2% for the rest of the year or "maybe less." On Friday, the U.S. jobs report showed employers added only 115,000 jobs in April, well off from the pace earlier this year.

Stock to watch: Eiffage (Price E26.64, Price Target E38.70)

With the refinancing of the E3.8bn APRR tollroad acquisition debt out of the way in February 2012 the shares have become investable again. Despite strong YTD performance the shares aren't pricing in the potential for doubling the Contracting margins to peer levels from 2.3% in 2011 to around 5% in the medium term. Having met the new management and seen the first signs of recovery we have gained confidence into a successful turn-around and rate the shares a Buy.

For further information on Eiffage or other stocks we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli