Good morning,

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

  • Federal Reserve Chairman Ben S. Bernanke said he’s prepared to do more to stimulate growth if needed. The Federal Reserve didn’t rule out the possibility of additional monetary easing;
  • 10-year Italian debt is yielding 5.639%, 10-year Spanish debt is yielding 5.799% and 10-year Portuguese debt is yielding 11.352%;
  • Brent is trading at $119.05/barrel;
  • Barclays, Deutsche Bank, Santander, VW and Deutsche Borse amongst the companies reporting results today;
  • Apple closed the session at $610 (8.87% up) and Priceline closed the session at $724.55 (5.77% up). Priceline results are out on 9/5/12 after the bell.


Bernanke did not rule out QE3 in his speech yesterday after a two day meeting. However he did signal that further quantitative easing will only take place if the economy unexpectedly deteriorates. Bernanke said that the labor and housing markets have shown signs of improvement, and growth will “pick up gradually” after remaining “moderate.” The FOMC repeated its plan to keep borrowing costs low until at least late 2014. Fed officials also upgraded their projections for economic growth, inflation and the unemployment rate for this year. Bernkanke said that inflation is close to the Fed’s goal of 2%, it would be “reckless” to pursue policies that would drive up prices faster while offering “perhaps doubtful gains” to the economy. Still, central bankers “remain prepared to do more” if conditions worsen.

The jobless rate isn’t declining as quickly as desired, and the economy is still vulnerable to potential shocks from the sovereign debt crisis in Europe. While the FOMC said growth is likely to “remain moderate over coming quarters,” Fed officials increased their estimates for 2012. The economy will expand at a 2.4% to 2.9% pace this year, up from a January projection of 2.2% to 2.7%. At the same time, Fed officials lowered their growth estimates for next year and 2014. Bernanke said the lower expectations may reflect the impact from fiscal tightening, and he urged Congress to reduce budget deficits without endangering the expansion. Bush-era income tax cuts will expire at the end of the year, and automatic spending cuts will be poised to take effect in January.

Fed officials also upgraded their view of the labor market, estimating that the unemployment rate will fall to 7.8% to 8% by year-end, compared with a January forecast of 8.2% to 8.5%. That’s still well above their estimate of a longer-run jobless rate of 5.2% to 6%. The unemployment rate was 8.2% in March. The forecasts reflect the so-called central tendency, which excludes the three highest and three lowest projections of 17 policy makers.

The Netherlands

Dutch prime minister Mark Rutte has resigned after crucial negotiations over the country's budget collapsed over the weekend. Rutte submitted his cabinet's resignation to Queen Beatrix of the Netherlands, following an emergency cabinet meeting. Rutte is likely to continue as a caretaker leader while Dutch politicians decide how to proceed.

The crisis was triggered by far-right leader Geert Wilders. He has refused to support up to €16bn of austerity cutbacks, without which the Dutch government would be unable to lower its deficit to 3% of GDP next year. Wilders called the plan an attack on the Dutch elderly.


The political crisis in the Netherlands flared up as the first round of France's presidential election ended. François Hollande is now a clear favourite to beat Nicolas Sarkozy in the run-off in two weeks time, which could reshape the political balance of Europe. Far-right leader Marine Le Pen also polled surprisingly strongly.

Renault (overweight)

Renault, France’s second-biggest automaker, said first-quarter revenue fell 9% on declining European demand as the car industry struggles with a sluggish economy in the region and overcapacity. However, Renault reiterated that the carmaker expects to generate positive operational free cash flow in the automotive division in 2012. Renault, which faces a steep downturn in its home market, plans to increase its sales in emerging countries such as Brazil, Russia and China.

Citigroup have a target price of €46 on Renault. We use an 'investment trust' approach, where we look at the three main assets represented by the Renault share – core

operations including its debt, Nissan and Volvo shareholdings – as a primary valuation tool for RNO. We evaluate the core business by applying an EV/sales multiple of 13% (at low end of historical multiples to reflect the potential for volume declines in 2012) and the shareholdings at market, and adjust for debt/pensions/minorities at our end-year debt estimate, which gives us a 'net asset value'. Our valuation is based on a 35% discount to this net asset value near the mid-point of valuation over the last 3-4 years.

Peugeot (we are of the opinion that shareholders in Peugeot should shift to Renault)

PSA Peugeot Citroen, Europe’s second-biggest carmaker, said earlier today that its first-quarter revenue fell 7.3% to E14.3b. The Paris-based company reiterated forecasts that the European market will shrink 5 percent this year, including a 10% drop in France.

Expectations, as reflected in the stock’s performance recently, have been running so low that PSA’s Q1 revenue beat and nothing more significantly negative on cash flow is an incremental positive.

Citigroup have a target price of €11.5 on Peugeot. The target price for PSA is based on a SOTP approaching valuing its core Auto business at 13% EV/Sales on 12E (15% discount to historical multiples on macro uncertainties), its 57% stake in Faurecia at market value. We value PSA's Chinese JV at 5x net income and after the application of net debt/pension/minorities apply a 25% conglomerate discount. This is lower than the discount we apply to some peers as PSA controls its portfolio of assets at least jointly or on a majority basis.

Why Apple is amazing (Goldman Sachs have a price target of $850 on Apple)

Li Wenhua, a 35-year-old school teacher in Beijing, left work early last week to buy an iPhone — even though she didn’t need it for work and wasn’t planning to use many of its features.

“A lot of people in my office use it and said I should get one, so I did,” Li said as she exited Apple (AAPL) Inc.’s Joy City Mall store. “I chose it just because it’s beautiful. I like the style.”

The must-have sentiment helps explain why China made up 20% of Apple’s sales and fueled a 94% profit surge last quarter. Hundreds of miles from Foxconn Technology Group plants where iPhones are built, shoppers in Beijing, Shanghai and other cities are flocking to the devices and making their country a centerpiece of the company’s growth strategy. Like Starbucks Corp. (SBUX) and Yum! Brands Inc., Apple is benefiting from rising wages that give Chinese citizens more disposable income.

Stock to watch: Boeing (Price $77.08, Price Target $86)

We are bullish on the prospects for a commercial aerospace cyclical recovery. The effects of globalization, an increasing rationalization of the world-wide airline business model and a suite of new product offerings have all materially smoothed what has historically been a volatile cycle. We expect this to result in a return to earnings and cash flow growth for Boeing, and see particularly encouraging signs in the company's upward production rate bias over the next 18 months. Buy.

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

Good day and happy trading!

Kristian Camenzuli