Weaker leading indicators will successively dominate in the course of 3Q

- Stress test: "The impact of the stress test on the ability of the interbank money market to function is a key indicator with respect to the mediumterm impact on the parameters for the equity market. The more strongly the stress in the banking system is ultimately linked with the problems of individual countries (government deficit, competitiveness), the less probable rapid relief is."
- EMU: "The causes of the tensions in EMU can only be eliminated via a protracted reform process. The possible renewed escalation of the tensions remains a material risk factor."
- Economy: "The recent rise in the Ifo expectations does not mark the beginning of a new positive trend. The positive share price effects from the reporting season will successively wane, and the strains from weaker leading indicators will increase."
- Financials: "Rally yes – sustained no. We think three risk groups will cut short the rally by the banks: credit risk, sovereign risk and regulatory risk."
- Defensives: "Growing appeal in 2H10. Leading indicators such as the money supply M1 are signaling the turning point in the relative earnings dynamic of cyclicals versus defensives."
- STOXX 600 allocation: "Chemicals, Oil & Gas, Telecom and Utilities remain overweighted. Alongside Construction & Materials, we are underweighting Basic Resources and Retail."

Unicredit Market Outlook 20100730

China: July 2010 - Play the rebound, but watch out for the potential risks

- Key market drivers: "MSCI China rose 4.1% over the past month, underperforming MSCI EM by 1.8%. All sectors recorded positive returns. IT sector was the best performer (+12.2% m/m), followed by Materials (+11.6% m/m) and Industrials (+11.2% m/m). Telecom turned to be the worst performer, up only 1.3% m/m."
- Key economic events: "China’s 2Q10 and June macro indicators, as well as July’s manufacturing PMIs, have continued to show a moderation in the country’s growth momentum. Real GDP rose 7.2%q/q saar in 2Q, following an increase of 10.8% q/q saar in 1Q. IP rose slower than expected, up 13.7%Y/Y in June compared with 16.5%Y/Y in May. Moreover, the NBS manufacturing PMI fell from 52.1 in June to 51.2 in July, registering the lowest reading in 17 months. Inflation-wise, June headline CPI rose at a slower-than-expected 2.9%Y/Y. On the policy front, we expect the PBoC to raise the benchmark policy rate once, by
27bp in 4Q10. Our year-end Rmb/US$ target stands at 6.6."
- Key company news: "We now believe that the current rebound in China equities may prove to be longer and more powerful than we originally thought back in earlier July. This is because: (1) China authorities recently voiced dual emphasis on maintaining a relatively fast growth rate and adjusting economic growth mix towards consumption, which marks a slight change from its previous focus on managing inflationary expectations and adjusting economic mix; and (2) China’s macroeconomic data for July may point to sharp sequential slowdown,
thus increasing investors’ expectations that the authorities may loosen their monetary tightening and refrain from harsher measures. That said, we refrain from calling a major turnaround in China equities, as: 1) We see continued downward earnings revision risk, as China’s economic slowdown ripples through macro-sensitive sectors; and 2) A number of
sector-specific policy risks could hurt earnings and de-rate multiples of related companies."

JPMorgan China Monthly Wrap 20100802

Base metals prices recovering on China, diminishing financial stress

- Sentiment recovering, reinforced by supportive fundamentals "Improved sentiment on Chinese policy direction and reduced fears that a European financial dislocation would derail the growth economies have led to sharply higher metals prices. Zinc and copper – the metals with the strongest medium-term outlook – have led the gains, reinforcing our view that longer-term growth expectations will remain the key driver of relative price levels. Adding to the improving sentiment have been mildly tighter physical markets, as global inventories continue to draw and delivery premiums across products remain firm despite some seasonal weakness and softening economic indicators since late May."
- Risk/reward for long positions less compelling, but we expect further upside for copper and zinc "We continue to believe that fluctuations in trend growth expectations will
drive price volatility during 2H2010. Further, the strength of the recent rally reduces the risk/reward for long positions. However, we believe that the fundamental drivers for metal demand remain strong and we continue to expect further upside for copper and zinc, the more supply-constrained metals over the medium term. The systematic rolling forward of our 3-, 6-
and 12-mo forecasts suggests a 6-mo copper price forecast of $7,925/mt. Accordingly, we maintain our recommendation for a long position in Dec- 10 copper. However, given the near-term uncertainty, recent price strength and relatively low volatility, we believe that the current environment is providing a compelling opportunity for second half producer hedging."
- Near-term nickel price risk skewed to the upside, but remain neutral medium term "Although we remain neutral-to-bearish on nickel and aluminum over the medium term, we believe that nickel may have near-term upside before year-end given the risk of another temporary imbalance. We believe that aluminum price risk is skewed to the downside from current levels."

GoldmanSachs Metals 20100803

US inventories build as crude oil imports surge

- A shift from storing crude oil at sea to on land… "Last Thursday’s weekly petroleum status report from the US Department of Energy (DOE) reported a 7.3 million barrel build in US crude oil inventories. The driver of this build was a surge in US crude oil imports, which reached 11.15 million b/d. However, we do not expect this level of imports to be sustained as we believe it was driven by both a push to unload tankers ahead of the arrival of Tropical Storm Bonnie and the release of crude oil from floating storage following the decline in the carry in the forward curve. We would suspect that while there likely has been significant
unloading of floating storage in the US Gulf Coast recently, the reported decline of 13.9 million barrels likely captures some changes in oil in transit. Nevertheless, the rapid unloading of floating storage is consistent with the significant weakening of the contango in WTI prices."
- … And bringing oil ashore ahead of Tropical Storm Bonnie… "The high import number also likely reflects some oil shipments ahead of schedule before the arrival of Topical Storm Bonnie, which threatened to disrupt oil shipments in the gulf region from Friday July 23 onwards. Bonnie also subsequently led to a cumulative oil production loss of 2.7 million barrels, which we expect to be felt in the coming week’s DOE reports."
- …But underlying US demand remains firm "The underlying US demand for oil remains quite strong, and has climbed to 19.8 million b/d. We estimate this is the highest post recession demand number so far, as the strong demand data in May has been revised down by the US department of Energy."

GoldmanSachs Energy Weekly 20100802

China – Our big real-estate survey, Phase 1

- "The Tier 2 and Tier 3 cities have not seen much of a correction in land or apartment prices. Moreover, developers’ sentiment about sales volumes seems pretty good, and they do not appear to be postponing construction. A wave of new supply is planned for September. Developers on the whole seem to think sales volumes will be down 20-30% y/y this year, which is eminently survivable."
- "This is important, since if sales and construction activity holds up in most Tier 2 and Tier 3 cities, then the economy will not tank, and the State Council will not be forced to loosen real-estate or monetary policy."
- "Developers expect apartment prices to fall more in the Tier 2 and Tier 3 cities, but this is acceptable, and developers are taking advantage of lower land prices to build up their land banks. Credit conditions have tightened, but not to the extent seen in 2008. Moreover, many developers still appear to be pretty cash-rich."
- "Problems such as land hoarding and accessing bank lending to fund land purchases still appear common, however. We are also seeing significant forinvestment buying in Tier 2 and Tier 3 cities."

Stand Chart Special Report 20100803

GS Sustain Monthly Focus

- GS SUSTAIN identifies long-term leaders "The GS SUSTAIN framework identifies long-term investment opportunities across global industries. The GS SUSTAIN Focus List brings together the leaders we identify in each of the sectors examined to date. We make no changes to the GS SUSTAIN Focus List in this update. Since the launch of the GS SUSTAIN Focus List on June 22, 2007, mature industry leaders have outperformed the MSCI World All Country Index by 38.7% and emerging industry leaders have outperformed this benchmark by 2.5%."
- Further evidence of economic realignment "Second quarter earnings reported by companies in each region have so far exceeded consensus expectations by more than the long-run average but uncertainty over the economic outlook is growing, particularly in the US where economic data has begun to point to slowing growth. In our view GS SUSTAIN’s long-term perspective, and the economic realignment central to the analysis of many industries, provides a valuable roadmap."
- We highlight GS SUSTAIN mature industry leaders with attractive valuation entry points "The mature industry stocks on the GS SUSTAIN Focus List are identified without reference to earnings or asset multiples. We screen these companies to highlight those for which (1) our analysts have strong positive views, (2) valuations are attractive versus peers and (3) valuations are attractive versus history. Among the mature industry leaders, we highlight Vallourec, Monsanto, 3M, Qualcomm, ABB, Vestas and Lenovo."
- Our recent research highlights opportunities in emerging industries "On July 27, we published Emerging Industries: Identifying pure-play growth opportunities in a changing world. Our top-down analysis of global economic trends, consumption patterns and resource constraints highlights 15 growth themes, and 464 companies exposed to those themes from
Goldman Sachs global coverage. We highlight 56 leaders offering rapid forecast growth, reasonable valuations and attractive positions in their industries."

GoldmanSachs GS Sustain Monthly Focus 20100802