A comment on ECB's ABS move

Hello again! Today a link to the brilliant economics commentator and Blogger extraordinaire Frances Coppola. A comment on today's move by the ECB to kick start in October a programme of Asset-backed securities purchase, which the Central Bank hopes will be decisive for resuming robust Growth in the Eurozone. Coppola's comment is sceptical. Is she right.....?:



'' So as far as I can see, the SME ABS programme is either going to be too
small to make much difference, or is likely to encounter serious
problems with loan quality at some point, putting the ECB's balance
sheet at risk. I'm particularly worried by the way in which SME ABS
purchases by the ECB is being promoted in some quarters as the primary
means of "fixing" the periphery (though Draghi himself does not make
this mistake). If only we can get credit flowing to periphery SMEs, the
thinking goes, all our troubles will be over. This is simply not true.
SME ABS purchases cannot substitute for flawed institutions and
inadequate fiscal and monetary support. And even more importantly, they
cannot compensate for a lack of creditworthy borrowers.''









Coppola Comment: Don't pin all your hopes on SME asset-backed secur...: Here's a neat chart from JP Morgan (h/t @debtnerd) (larger version here ) What it says, essentially, is that although the total...

Unquote: incisive Adbrain

I would like to post here today an article in the Private Equity and Business Deals Media publication Unquote, which is another Incisive Media Publication. This entry is about Venture Capital funding of Advertising Technology Company Adbrain and its recent rounds of seed funding.

'' London-based advertising technology platform Adbrain has raised a $7.5m series-A funding round led by Octopus Investments.

Existing backer Notion Capital also participated in the round. The VC led the firm's $1.5m seed funding round in June 2013, with support from angel investors.
Adbrain will use the funding to accelerate its expansion in the US and Europe and to boost its recruitment programme.
Company
Founded in 2013 and based in London, Adbrain is an advertising technology company that provides users with customer data. The firm launched its beta platform in February 2014 and counts M&C Saatchi Mobile, Annalect and The Exchange Lab among its client base.
People
Frederic Lardieg is a member of the venture team at Octopus and worked on the deal. Gareth Davies is CEO of Adbrain.''

KEY FACTS

Adbrain
DEAL - Expansion
VALUE - $7.5m
LOCATION - London
SECTOR - Software
FOUNDED - 2013''

http://www.unquote.com/uk/official-record/2333919/octopus-leads-usd75m-series-a-round-for-adbrain.

Phamaceutical Sector: Merck & Company

Summer Investment Case: a post in the promising pharmaceutical sector. About North American Company Merck & Company which is posting an upbeat earnings per share result. It may well turn out to be a good buy opportunity. The following is from the Investing website Investing.com:

'' U.S. pharmaceutical giant Merck & Company (NYSE:MRK) reported better-than-expected second quarter earnings and revenue figures ahead of Tuesday’s opening bell, sending its shares modestly higher in pre-market trade.

Merck reports better than expected Q2 earnings, revenue

Merck said adjusted earnings came in at $0.85 per share in the second quarter, beating expectations for earnings of $0.81 per share.
The company’s second quarter revenue totaled $10.93 billion, above estimates for revenue of $10.61 billion.
The pharmaceutical company reaffirmed its 2014 revenue forecast and said it expected full-year earnings per share in a range between $3.43 to $3.53.
“We delivered a strong first half of the year, making progress in transforming our operating model, fueling innovation and managing costs, while focusing on our best opportunities”, said Kenneth C. Frazier, chairman and chief executive officer, Merck.
Following the release of the report, Merck (NYSE:MRK) saw shares rise 0.1% in pre-market trade.
Meanwhile, the outlook for U.S. equity markets was higher. The Dow indicated a gain of 0.2% at the open, the S&P 500 pointed to an increase of 0.15%, while Nasdaq 100 added 0.2%.''.

Good Investments to all readers of my Case. And if you happen to be on Holiday Break, a great time of enjoyment and refilling energies is what I recommend. To be ready for another certainly busy fall of the year.

If there is a major Breakout

I am posting today in the my suitcase Saxo Bank's John Hardy view about the possible path for the EURUSD exchange rate (currency pair). Hardy's analysis is seamlessly lucid, devoid of nuisance and bias. At the same time he recognises that failure to predict the right direction of the Financial Markets isn't necessarily a disadvantage if proper behaviour is triggered.

'' EURUSD is breaking lower - here are the next targets. EURUSD is breaking what is arguably a head and shoulders area - poking at the last shreds of flat-line support at the 2014 lows just below 1.3480. A break lower begs the question - where next? If we are to take the classic head and shoulders target, the target is close to 1.3000, but if we take a more typical 100% extension from the top of the right shoulder (an extension of the wave from the top of the head to the recent lows), we get a target of around 1.3210.

Other Fibonacci retracement levels are also bunched in this area as well, with the 61.8% retracement of the move from the critical old 1.2750 area coming in around 1.3225 and the 38.2% retracement of EU-crisis lows in July 2012 coming in closer to 1.3250. So we'll call 1.3250/1.3200 the next major target zone lower if this break through 1.3480/1.3500 holds.''

Saxo FX SQUAWK - AUDUSD

John J Hardy at Saxo Bank:

''AUDUSD rally does not sit well with recent development in interest rate spreads. The recent RBA minutes discouraged the notion that the RBA is about to hike rates any time soon, while the US FOMC meeting, while dovish, only saw US rates at the front end of the curve move a few bps lower. Currently, even as AUDUSD is banging on resistance, the 2-year swap spread is near its lowest level since last September at around 226 basis points. The 1,000 day correlation of the spread with AUDUSD is 0.67 while it is a stunning -0.61 for the last 100 days. I doubt if the latter can be sustained for much longer.''

The Breakout Trader: Mota-Engil Africa

 I am posting another entry from the Blog The Breakout Trader. This entry is about the Construction sector Portuguese Mota-Engil company and its African subsidiary Mota-Engil Africa. The company is preparing a first floatation in the Capital Markets with an IPO in the London Stock Exchange, and The Breakout Trader analyses the share price behaviour in the near term as well as looking to the weeks ahead. For the Portuguese audience please check the link at the bottom. Here it is an English translation:

''Mota-Engil is to proceed with the initial public offering (IPO) of its African subsidiary, which will be listed on the London Stock Exchange.In a statement to the CMVM the construction company announced that this operation will be carried out through two offerings, a "preferential" and other "institutional". Thus, the preferential offer "Mota-Engil Africa allocate new shares to all investors who hold shares of the parent - Mota-Engil SGPS - until tomorrow, 17 June, which is leading to a rush for the purchase of shares Mota-Engil which now rise 4.15%. A parallel run of an institutional offering will happen, which will show the number of shares increase if demand for shares in preferred not cover the entire offer.Investing in Mota-Engil Africa seems to me to be a good alternative for those who want to be exposed to the growth of the African continent. In addition to the shareholder remuneration proposal which is quite generous the company intends to achieve a payout ratio between 50% and 75% and is now guaranteed a cash dividend of 20%, approved by the shareholders of Mota-Engil. Moreover, Mota-Engil Africa will benefit from being listed in an index with greater visibility than the national and aimed more at the construction sector.For shares in Mota-Engil, as already stated in the previous analysis, this separation is rather negative, given the strong impact that billing obtained on the African continent has to the group accounts. Recall that, according to the latest annual report, the activity in Africa accounted for over 40% of the turnover of the parent company.Tomorrow being the last day for the purchase of shares entitled to participate in the IPO, I believe that the shares of Mota-Engil can continue to value in tomorrow's session. After that, we are witnessing a correction in the titles, because we are close to the resistance given by the annual maximum € 6.25 / € 6.40.

The Breakout Trader: Amanhã será o último dia com direito a participaçã...: A Mota-Engil vai avançar com a oferta pública inicial (IPO) da sua subsidiária africana, que passará estar a cotada na bolsa de Londre...

Equity Europe Case

Here today a post on the European Equity Markets Investment case. Dan McCrum at the Financial Times Alphaville with an entry where he comments on the Citi Bank latest Equity report about European Markets and the likely consequences of the recent announcement of ECB's Mario Draghi extraordinary measures. There's a growing expectation, on the positive side about the effects of these measures. Before a major correction.... which might be triggered in the other side of Atlantic Ocean... an European version of Quantitative Easing is becoming highly probable.

We can get a bit of the sentiment of the Citi researchers reading passages like these:

''So says the still optimistic Jonathan Stubbs at Citi, at least. Halfway through the year and the strategy team budge not from their forecast: 20 per cent total return from European equities this year.

''Shares are no longer cheap in absolute terms, but we stay bullish due to: 1) progressive global economic recovery in 2014-15, 2) return to double-digit earnings growth in 2014-16E, 3) super-cheap relative valuations, eg vs credit, 4) rising risk appetite, eg M&A, demand for equity. ECB QE later this year should also be supportive.''

 The sector valuation decomposition is strickingly important, as the consensus is that valuations aren't cheap, as the chart below (... as well as the above) seems to make clear:

''Indeed, the focus list of the bank’s analysts’ 15 to 20 favourite stocks is striking for its inclusion of a few insurers and banks, alongside the target rich environment of pharmaceutical takeover candidates and industrial recovery plays (click to enlarge).''