NEWS th MONTH 2014 1300th October 2014 We continue to see risk to the downside in markets this week, given the growing fears regarding economic slowdown and disinflation in the Eurozone. Markets were mostly lower last week and while dovish comments from the Fed gave a slight reprieve Wednesday evening, weaker German export data and global GDP downgrades from the IMF saw markets reverse gains in the second half of the week. Q3 earnings season gathers pace this week and we see this driving market momentum. In our view, there is significant potential for earnings to disappoint this quarter, given diminishing global growth. Economic releases should also influence momentum in the days ahead, with UK CPI Tuesday; Chinese and German CPI, Empire Manufacturing and US Beige Book on Wednesday; US Industrial Production and Philly Fed on Thursday; and University of Michigan Consumer Confidence to end the week. Given current market volatility, our preference remains for cash and selective defensive names. This week’s market events Equities Commentary M Carrefour – Removal from core portfolio on Sector Technicals We are removing Carrefour (BUY, TP: €32.50) from the core portfolio on the basis of our Technical Analysts outlook for the Euro Stoxx 600 Retail sector. We remain Technical bears on the sector since its breakout below the longer term trend line support. Momentum indicators for the sector also remain bearish in the medium term. Fundamentally we retain a BUY rating on Carrefour, however shorter term we believe the shares could come under further pressure due to the general market and sector weakness. We keep the proceeds of the sale in cash, bringing our total cash allotment in the core portfolio to 11.5% - the highest level this year. CORPORATE n/a T CORPORATE Intel – Q3 JP Morgan – Q3 Citigroup – Q3 JP Morgan – Remain positive ahead of results Ahead of results this week, we continue to like JP Morgan in the US Banking sector. Historically, JPM has beaten expectations in Q3 every year for the last 5 years. QoQ, the bank has surpassed estimates in 7 of the last 8 quarters. Though investment banking fees in the industry have soared this year, JPM can also boast a strong consumer and commercial lending business. Bloomberg consensus expectations are for EPS of $1.384 for the third quarter and a DPS of $0.40. JPMorgan shares trade on 1.4x Tangible Book value, which we believe is an unwarranted discount to peers on 1.6x. Equities Portfolio Management Research UK – CPI YoY GE – ZEW Survey Exp. Burberry- H115 W CORPORATE ECONOMICS eBay – Q3 CH – PPI YoY Danone – Q3 CH – CPI YoY GE – CPI YoY Rio Tinto – Q3 Bank of America – US – Empire Manuf. Q3 US – Fed Beige Book Netflix – Q3 T CORPORATE ECONOMICS Carrefour – Q3 EZ – CPI YoY Google – Q3 US – Indus. Prod. MoM US – Philadelphia Fed Business Outlook Nestle –Q3 Man Group – Q3 Mondi – Q3 Diageo – Q1 Earnings Outlook – Downgrades continue into Q4 As highlighted above, earnings season is kicking off in earnest this week, to a backdrop of a weaker Eurozone, reduced global growth and on-going geo-political tensions. Earnings forecasts have reduced steadily over the course of the year. Market expectations for full year growth in the S&P are now just 7.3%, broadly in line with our expectations at the start of the year. S&P earnings for Q3 are now expected to be ~4.5%, down from 8.9% in June, while European expectations are for a 5.4% annual increase, down from 13% at the start of 2014. The impact of Russian sanctions during the quarter will also become clear, with a number of companies already warning of a negative impact to bottom line. While markets remain volatile, sector selection is an important consideration. We see the greatest likelihood of earnings outperformance in Q3 in the Pharmaceutical, Telcoms and Insurance sectors, while we see the greatest downside risk in Industrials, Energy and Consumer Discretionary. ECONOMICS SAB Miller- Q2 Core Portfolio – 11.5% cash position reflective of our near term Bearish view We forecast in our Q3 Outlook that “market volatility (will) increase in the latter stages of the quarter and into the start of Q4, as increasingly divergent Central Bank policy creates an uncertain interest rate backdrop”. We believe equity markets have not accurately priced in the benign earnings environment, weaker global growth, or the level of geopolitical risk. We reiterated that view in our Q4 Quarterly Outlook released last week (which can be found here). In light of this we reduced our equity exposure over recent months by removing Siemens (N/C) and now Carrefour, while also realising some profits in Intel (N/C) and Apple (BUY, TP $123). Our cash position now stands at 11.5% of the core portfolio. We have positioned the portfolio to take advantage of attractive valuations where they exist, and in defensive names in our preferred sectors. ECONOMICS CH - Trade Balance American Express – Q3 Goldman Sachs – Q3 F CORPORATE Travis Perkins – Q3 GE – Q3 ECONOMICS US – Univ. Michigan Confidence Upcoming Events 20/10/14 20/10/14 Apple – Q3 SAP – Q3 20/10/14 IBM – Q3 21/10/14 21/10/14 21/10/14 21/10/14 21/10/14 Verizon – Q3 GKN – Q3 William Hill – Q3 Coca Cola – Q3 ARM – Q3 22/10/14 GSK – Q3 Bonds Regulatory Information This material is approved for distribution in Ireland by Cantor Fitzgerald Ireland Ltd. Cantor Fitzgerald Ireland Ltd (“CFIL”) is regulated by the Central Bank of Ireland. 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