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01.01.2014 21.03.2014

Switzerland SMI 2.08% 1.01%

Europe Europe Stoxx 50 -0.12% 1.97%

Europe Europe Stoxx 600 1.68% 1.78%

USA S&P 500 0.50% -0.48%

Emerging countries MSCI Emerging -1.77% 4.23%

Japan Nikkei 225 -9.79% 3.32%

Source: Datastream

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DEUTSCHE TELEKOM (downgraded to MINUS): the German group needs to step up its investment (due to capex requirements at US subsidiary T-Mobile US and increased restructuring costs at its T-Systems IT services subsidiary) and has therefore had to signifi-cantly cut its 2014 and 2015 FCF guidance. Its current valuation is generous.

INDITEX (PLUS): according to official Spanish statistics (INE), clothing sales were up 1.7% in February, while retail sales as a whole were down 0.5%. Although Spain now represents only 19% of the group’s sales, an upturn in the domestic market would benefit Inditex.

SAP (PLUS) is to acquire Fieldglass, which specialises in cloud solutions for managing temporary workers. There are substantial HR management synergies with SAP’s other platforms. The estimated purchase price of $1bn appears high (10x sales).

VODAFONE (downgraded to MINUS): now that it has sold its stake in Verizon Wireless and the speculative aspects (interest from AT&T) have faded, the Vodafone group has resumed a more tradi-tional policy of external expansion (through acquisitions) to develop a convergent offering. Given the uncertainties, the current valuation is no longer justified.

WOLSELEY (MINUS): the group should deliver mid single digit organic growth for the foreseeable future, together with moderate margin growth given the low operating leverage associated with distribution businesses. We feel this outlook is more than reflected in the current share price, and have therefore adopted a MINUS rating.

To be monitored this week: March PMI and OFS February hotel accommodation statistics. In company news, we are expecting 2013 results from Vaudoise, Metall Zug, Calida and Valora and interim results from Barry Callebaut. Zurich Insurance and Geberit are due to hold their AGMs.RICHEMONT (PLUS)/SWATCH (NR): the news flow from Baselworld is positive for the industry, with the key players expecting an improvement in China this year and a strong 2014. In addition, tourist sales are up in Europe (up 4% in January and 5% in February, in spite of the Ukraine/Russia crisis). NOVARTIS (NR) this morning announced that it is closing its study evaluating LCZ696 for chronic heart failure based on strong results. The group expects to submit an application to health authorities in the next few months. The treatment has blockbuster potential that has not yet been priced in by the market.

Stock marketIndices were still on a positive trend this morning, determined to end the first quarter with a flourish. Highlights this week will include PMI figures and the ECB meeting in Europe; meanwhile, in the US, all eyes will be on the employment report. We remain positive.

CurrenciesThe euro has had a bearish start to the week, at $1.374. The fact that it has broken through support at $1.385 confirms our short-term target of $1.3645. Bad news surrounding China and Japan (with industrial production down 2.3% in February) and tensions in Ukraine have made the dollar a safe haven. It will need to return to around USD/CHF 0.893 if it is to reach 0.90. Our range for gold: $1,262-$1,328/oz.

Equity indices mostly continued the previous week’s momentum, gaining 0.6% (MSCI World). The US market bucked the trend, losing 0.5%. While Europe and Japan fared better (up 1.8% and 3.3% res-pectively), the star performers, for once, were emerging markets (up 4.3%). The latter benefited from news on global growth, stabilising commodity prices, an easing of geopolitical tensions and renewed interest in low EM valuations, fuelled by risk appetite. Note that long-term yields remain very low on the whole, helping make equi-ties attractive. To be monitored this week: in the US, March manu-facturing and services ISM and March employment report; in the eurozone, February CPI and the ECB meeting; and in China, official and HSBC March manufacturing and services PMI.

Economic data released last week was satisfactory overall, compa-tible with the scenario of a slight acceleration in growth. The US housing market continues to stabilise after recent disappointments: while new and existing home sales fell by 3.5% and 0.8% respec-tively in February, prices rose 0.85% in January (Case-Shiller; up 13.24% YoY). Durable goods orders bounced back 2.2%, supported by the volatile transport and defence components. Finally, personal income and expenditure posted their biggest rise in three months in February (up 0.3%), and household confidence reached a new post-2009 high of 82.3. Preliminary eurozone PMI figures have stabilised at high levels, and France is making progress (manufacturing: up from 49.7 to 51.9).

Source: Thomson Reuters Datastream, 31.03.2014

EurolandSentix Economic Situation

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Euro Economic Sentiment Euro Consumer Sentiment, rhsEuro Industrial Confidence