(GS) GOAL : Risk appetite reversal (too) pro-cyclical; tactically downgrade equi

Risk appetite reversal (too) pro-cyclical; tactically downgrade equity 3m

* The rally in risky assets over the past few weeks has continued n and broadened – the S&P 500 has made all-time highs, the VIX has fallen, bonds and ‘safe havens’ started to sell off, and cyclicals have outperformed defensives.

* We think a key driver of the recovery has been a combination of the light positioning into Brexit and the search for yield amid expectations of easing.

* However, given equities remain expensive and earnings growth is poor, in our view equities are now just at the upper end of their ‘fat and flat’ range.

* Our risk appetite indicator is near neutral levels and its positive momentum has faded, suggesting positioning will give less support and we will need better macro fundamentals or stimulus to keep the risk rally going, but market
expectations are already dovish and growth pick-up should take time.

* As a result, we downgrade equities tactically to Underweight over 3 months, but remain Neutral over 12 months. We remain Overweight cash and would look for resets lower in equities to add positions.

(GS) Europe : Banks : Stress Test : Worst fears avoided, capital divergence wide

Stress Test: Worst fears avoided; capital divergence widens

Test headlines have scope to reassure …
Ahead of the test, concerns centered on 3 main topics: Italian banks, German banks, risk of bail-in. Overall, the test identified BMPS as the weakest European bank, and highlighted the need for further capital build in G-SIB institutions (notably Barclays, Deutsche, SocGen); neither is surprising to us. Importantly, however, the test shows Italian banks (ex BMPS) in a reasonable position, at odds with market perception of systemic weakness.

Applying GS hurdles: G-SIBs do poorly
EBA’s test does not apply an explicit pass/fail hurdle – its key output is therefore a stressed capital ratio. To identify banks with the strongest capital positions, we apply progressively demanding hurdle rates – calibrated at standard supervisory levels, market levels and finally at levels that allow for capital return – to EBA’s test results. Banks that perform poorly are: (1) wholesale G-SIB banks (Barclays, Deutsche, SocGen), (2) Irish banks and (3) BMPS. Nordic banks and EM operators do best. In all, 35 (of the 51 banks tested) clear all six of our hurdles.

Credit quality overlay: Texas ratios elevated
The Texas ratio remains elevated for many. EBA’s data allows for an update: among the 35 banks that clear all of our hurdles, eight banks (JYSK, BAPO, OTP, UBI, ISP, POP, SABE and NORD LB) have a Texas ratio >2x the sector mean. Their capital flexibility will depend on their ability to reduce NPLs at market rates.

Italy: Ex BMPS, a solid test
EBA’s test included five Italian banks and showed BMPS in a position of weakness. Other Italian banks fared better. Consider: when GS hurdles are applied, Italian banks screen solidly, with the exception of UCI (near pass on “supervisory” hurdles; falls short on hurdles calibrated at market levels).That said, Texas ratios are elevated for all.

Reassured with our CL stocks
Three of our CL banks (KBC, Erste, Santander) clear all GS hurdles. BNP falls marginally short of the “capital flexibility” hurdle. All in, the test reassures us regarding banks rated CL-Buy.

>>> What to look at today - 1st of August 2016

Asian equity markets are mixed, with Shanghai Composite lagging following disappointing set of China PMI (First contraction in 5months) data while other indices continue to rally on expectations of easy Fed for longer after a particularly soft US advance Q2 GDP on Friday. Fixed income markets are no longer pricing in a rate hike until Sept of 2017 as USD consolidated the Friday selloff in the Asia session. Fed is in damage control as traders flocked to Treasuries after disappointing Friday's Q2 GDP report put validity of FOMC assertions of economy prepared for removal of accommodation into question. New York Fed Pres Dudley - one of the more dovish members - said it is still premature to rule out a hike before the end of 2016, adding the market expectations of 1 hike through 2017 is too complacent. Dudley said he still sees US GDP at about 2% over 18 months even with medium-term risks skewed to the downside. He did acknowledge that aftershocks from Brexit could pose some medium-term risks and that a sizeable economic pickup remains unlikely given softer business investment going into US elections. Investors are still digesting the underwhelming BOJ announcement late last week that only expanded ETF program rather than cutting rates deeper and adding to annual asset purchases. Given the rally in financials that have been struggling under negative rate environment, there is a wide range of views whether this was appropriate policy and also what the BOJ will deliver at the Sept meeting after it reviews economic conditions. Nomura argues that Sept meeting could feature changes of how the easing program is structured and may potentially start to target specific level of JGBs rather than the pace of buying, while Barclays claims that while there is some benefits to ETF buying, it will not produce immediate benefits in terms of sparking more inflation. PM Abe's advisor Hamada recommends that Japan acknowledges it is already monetizing its debt and proceed with an aggressive joint monetary/fiscal program.

Nikkei +0.36% Hang Seng +1.46% CSI -0.92% Shanghai -1.05%

Eur$ 1.1172 CNH 6.6347 CNY 6.6342 GBP 1.3245 CHF 0.9694 RUB 66.0993 WTI $ 41.81 (+0.50%)

S&P +0.40% Eurostoxx +1.34% Dax +1.14% SMI +0.55%

Macro :
- All European Banks Except One Pass Stress Test, Citigroup Says
- Renzi Says Italy Fund Solves Bank Bad-Loan Issues: Repubblica
- Clinton Leads Trump After Dem. Convention: Reuters/Ipsos Poll
- Paschi Fix ‘Awkward’ to Roll Out to All Italian Banks: Barclays
- Dombret Says German Banks Must Change Business Models: Bild
- Deficit Fine Would Have Humiliated Spain, Moscovici Tells Pais
- Qatari Diar Delays Part of Chelsea Barracks Project: S. Times
- EU Banks Won’t Need to Set Up U.K. Subsidiaries Post-Brexit: FT

Keep an eye on :
- A2A IM : A2A, Montenegro Sign New Shareholder Agreement for Utility EPCG
- AC FP : AccorHotels Seeks to Boost Brazilian Hotels by 2/3 in 4 Yrs: FT
- AIR FP : Airbus to Keep Working With India After Tanker Tender Is Dropped
- AF FP : Air France to Fly More Than 80% of Monday Services Amid Strike
- AI FP : Air Liquide 1H Operating Income Recurring Misses Estimates
- AAL LN : Anglo American Set to ‘Unbundle’ Kumba, CEO Tells Telegraph
- BKIR LN : Bank of Ireland Says Capital Level Is ‘Strong’ After Stress Test
- BCP PL : Banco Comercial Says Had ‘Strong’ Results in ECB Stress Tests
- BCP PL : Fosun Says BCP Investment to Extend Business in Europe, Africa
- POP IM : Banco Popolare Solid Under Stress Test: CEO to Messaggero:
- BBVA SM : BBVA to Work With ECB on Capital Planning
- BMPS IM : Paschi’s Tononi Says ECB Gave Key Support for New Plan: Corriere
- BMPS IM : Paschi Approves Sale of EU27.7b Gross NPLs at 33% Value: Stampa
- BMPS IM : Paschi Plan Execution Risk Not Very Low But Manageable: CEO
- BMPS IM : EU: Monte Paschi Capital-Raising Plan Fully in Line With Rules
- CABK SM : CaixaBank FL CET1 8.5% in Stress Test, Bank Says
- DBK GY : Deutsche Bank Can Build Up Capital Organically, Lewis Tells FAS
- EDF FP : Hinkley Point presents cost and security issues
- FGR FP : France’s Hollande Seeks Further Investment in Autoroutes: Figaro
- ENI IM : Talks on Mozambique at Very Advanced Stage: Eni CEO to MF
- EZJ LN : EasyJet’s Amsterdam-Based Pilots to Strike on Monday Morning
- FRA GY : Fraport Sells Thalita Stake to Qatar Investment Authority
- GKP LN : Gulf Keystone Won’t Engage With DNO After Takeout Offer
- GS US : U.S. Issued Subpoenas to Goldman Sachs for 1MDB Documents: WSJ
- ISAT LN : Inmarsat in Takeover Approach for Avanti: Sky
- ISP IM : Intesa Strongest Among Europe Big Banks in Stress Test: CEO
- ISP IM : Intesa Not Interested in Paschi Even After Clean-Up: Messaggero
- IPN FP : Ipsen Says FDA Approves Dysport for Treatment of PLL
- LR FP : Legrand Keeps 2016 Outlook; 1H Adjusted Operating Profit Grows
- LSE LN : Deutsche Boerse's proposed merger receives 63.65% acceptances from Deutsche Boerse shareholders
- MFON LI : MegaFon Mulls Buying ER-Telecom Fixed-Line Carrier: Vedomosti
- MRW LN : Morrisons Announces Price Cuts; Cites Brexit Concern
- MOR GY : Morphosys Posts 1H Loss, Sees 2016 Ebit Loss; Sticks to Outlook
- NATZ IM : Natuzzi Says It Cut 355 Jobs
- PARG SW : Pargesa 1H Net Loss CHF361.2m Vs Net Income CHF398.6m Y/y
- PARRO FP : Parrot 2Q Loss Widens, Sees ‘Significant Upturn’ for 3Q Sales
- UG FP : French July Car, Light-Vehicle Registrations -7.7%, CCFA Says
- PUB FP : Publicis Says Saatchi & Saatchi Chairman Roberts Put on Leave
- RNO FP : Nissan takes on European premium rivals with Infiniti brand
- RNO FP : French July Car, Light-Vehicle Registrations -7.7%, CCFA Says
- SK FP : SEB CEO Says Double-Digit Growth Continues in China: Investir
- SREN VX : Natural disasters weigh on Swiss Re
- STAN LN : Hedge funds sue StanChart over Indian bonds
- TEL NO : Vimpelcom shareholder Telenor plans to sell 33% stake on LSE eyeing no less than USD 2.3bn; hires advisors
- TSLA US : Tesla, SolarCity Said to Announce Merger Monday: Reuters
- TUI LN : TUI CEO Says Won’t Cut U.K. Prices After Brexit: Euro Am Sonntag
- UBI IM : Italy Banks to Benefit From Paschi Plan Success: UBI CEO to Sole
- UBER IPO : Uber Is Said to Merge China Business With Didi in $35b Deal
- UCG IM : UniCredit to Work With SSM to See If More Cap Measures Needed
- UCG IM : Caltagirone Doesn’t Exclude Increasing UniCredit Stake: Stampa
- VIE FP : Veolia 1H Sales In Line, Net Falls 29%; Confirms 2016 Targets
- VIE FP : Caisse des Depots to Buy 20% of Transdev from Veolia for EU220m
- DG FP : France’s Hollande Seeks Further Investment in Autoroutes: Figaro
- VIV FP : Vivendi Never Considered Mediaset Takeover: CEO to Corriere
- VIV FP : Vivendi warns Mediaset of “other plans”
- VIV FP : Vivendi CEO Says Mediaset Not the Only Possible Partner: Echos
- VOD LN : EU Said Set to Approve Liberty/Vodafone Dutch Ops Deal: Reuters
- VOW3 GY : Volkswagen to Respond to $176M Washington Fine in Due Time: FAZ
- VOW3 GY : VW Unit Skoda to Consider U.S. Entry in 2017: Handelsblatt

>>> Europe : Brokers Upgrades & Downgrades - 1st of August 2016

>>> Up
*AB FOODS RAISED TO BUY VS HOLD AT DEUTSCHE BANK
*ANGLO AMERICAN RAISED TO OUTPERFORM AT RBC CAPITAL
*ARCELORMITTAL RAISED TO ADD VS SELL AT ALPHAVALUE
*COSTAMARE RAISED TO NEUTRAL FROM UNDERWEIGHT AT JPMORGAN
*HOUGHTON MIFFLIN RAISED TO BUY VS NEUTRAL AT GOLDMAN
*MERCK KGAA RAISED TO EQUALWEIGHT AT MORGAN STANLEY
*NORDEX RAISED TO ADD VS REDUCE AT ALPHAVALUE
*QIAGEN RAISED TO BUY VS HOLD AT HSBC
*RENAULT RAISED TO ADD VS REDUCE AT ALPHAVALUE

>>> Down
*AUTONEUM HOLDING CUT TO NEUTRAL VS BUY AT UBS
*AVG TECHNOLOGIES CUT TO MARKET PERFORM AT JMP SECURITIES
*HOST HOTELS & RESORTS CUT TO SECTOR PERFORM AT RBC CAPITAL
*POEYRY CUT TO SELL AT NORDEA
*POTBELLY CORP CUT TO NEUTRAL AT ROBERT BAIRD
*SHELL CUT TO SECTOR PERFORM AT RBC CAPITAL
*STEVEN MADDEN CUT TO NEUTRAL AT B. RILEY
*WEYCO GROUP CUT TO NEUTRAL AT B. RILEY

>>> PT Change

>>> Initiation
*ALCOBRA RATED NEW EQUALWEIGHT AT BARCLAYS
*JRP GROUP RATED NEW EQUALWEIGHT AT BARCLAYS; PT 119P
*VIASAT RATED NEW HOLD AT JEFFERIES, PT $85

>>> Call

>>> Asian Update

Asian Mid-session Market Update: China manufacturing PMIs diverge; Fed's Dudley sees markets underprice policy tightening expectations

***Economic Data***
- (CN) CHINA JULY CAIXIN PMI MANUFACTURING: 50.6 V 48.8E; 1st expansion since Feb 2015
- (CN) CHINA JULY MANUFACTURING PMI (GOVT OFFICIAL): 49.9 V 50.0E (1st contraction in 5 months); NON-MANUFACTURING PMI (SERVICES): 53.9 V 53.7 PRIOR (7-month high)
- (JP) JAPAN JULY FINAL PMI MANUFACTURING: 49.3 V 49.0 PRELIM; confirms 5th straight contraction
- (AU) AUSTRALIA JULY MELBOURNE INSTITUTE INFLATION M/M: -0.3% (biggest decline in 6 years) V +0.6% PRIOR; Y/Y: 1.0% V 1.5% PRIOR
- (AU) AUSTRALIA JUNE HIA NEW HOME SALES M/M: +8.2% V -4.4% PRIOR; 3-month high
- (AU) AUSTRALIA JULY CORELOGIC RPDATA HOUSE PRICES M/M: 0.8% V 0.5% PRIOR
- (AU) AUSTRALIA JULY AIG MANUFACTURING INDEX: 56.4 V 51.8 PRIOR; 4-month high; 13th month of expansion
- (KR) SOUTH KOREA JULY PMI MANUFACTURING: 50.1 V 50.5 PRIOR; 4th straight expansion
- (KR) SOUTH KOREA JULY TRADE BALANCE: $7.8B V $8.7BE; Exports Y/Y: -10.2% v -4.4%e; Imports Y/Y: -14.0% v -10.6%e
- (KR) SOUTH KOREA JUNE CURRENT ACCOUNT BALANCE: $12.2B (record high) V $10.4B PRIOR; GOODS BALANCE: $12.8B (record high) V $10.7B PRIOR
- (ID) Indonesia July PMI Manufacturing: 48.4 v 51.9 prior; lowest reading since Dec 2015
- (ID) INDONESIA JULY CPI M/M: 0.7% V 0.8%E; Y/Y: 3.2% V 3.6%E; CPI CORE Y/Y: % V 3.5% V 3.6%E
- (TH) THAILAND JULY CPI M/M: -0.3% V 0.0%E; Y/Y: 0.1% V 0.5%E; CPI CORE Y/Y: 0.7% V 0.8%E

***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +0.3%, S&P/ASX +0.7%, Kospi +0.7%, Shanghai Composite -1.3%, Hang Seng +1.3%, Sep S&P500 +0.4% at 2,176

***Commodities/Fixed Income***
- Dec gold flat at $1,357/oz, Sep crude oil +0.3% at $41.74/brl, Sep copper +0.2% at $2.22/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 3.9 tonnes to 958.1 tonnes
- SLV: iShares Silver Trust ETF daily holdings rise to 10,877 tonnes from 10,842 tonnes prior; multi-year high
- FCG.NZ: Maintains FY16/17 payout forecast at NZ$4.75-4.85/kg
- (SA) Saudi Aramco to cut its official selling prices for Asian customers by 10% in Sept
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6277 V 6.6511 PRIOR; 5th straight firmer Yuan fix; strongest Yuan fix since Jun 24th
- (CN) PBOC to inject CNY120B in 7-day reverse repos
- (JP) BoJ offers to buy ¥70B in 1-yr and under JGBs; ¥400B in 1-3 yr JGBs, ¥420B in 3-5 yr JGBs, and ¥1.25T in T-Bill
- (KR) South Korea Finance Ministry sells KRW1.65T vs. KRW1.65T indicated 3-year treasury bonds, avg yield 1.205% v 1.215% prior

***Market Focal Points/FX***
- Asian equity markets are mixed, with Shanghai Composite lagging following disappointing set of China PMI data while other indices continue to rally on expectations of easy Fed for longer after a particularly soft US advance Q2 GDP on Friday. Fixed income markets are no longer pricing in a rate hike until Sept of 2017 as USD consolidated the Friday selloff in the Asia session. USD/JPY traded in a 50pip range above ¥102, AUD/USD traded 15pips around the 0.76 figure ahead of tomorrow's RBA decision, and NZD/USD traded up about 40pips from the lows to $0.7230 following affirmed FY16/17 payout outlook from Fonterra.

- Fed is in damage control as traders flocked to Treasuries after disappointing Friday's Q2 GDP report put validity of FOMC assertions of economy prepared for removal of accommodation into question. New York Fed Pres Dudley - one of the more dovish members - said it is still premature to rule out a hike before the end of 2016, adding the market expectations of 1 hike through 2017 is too complacent. Dudley said he still sees US GDP at about 2% over 18 months even with medium-term risks skewed to the downside. He did acknowledge that aftershocks from Brexit could pose some medium-term risks and that a sizeable economic pickup remains unlikely given softer business investment going into US elections.

- China's official July PMI saw manufacturing contract for the first time in 5 months, even as services hit a 7-month high. Key PMI components were also mixed - New Export Orders slowed to 49.0 v 49.6 m/m, but Employment rose to 48.2 v 47.9 m/m and Input prices reached 54.6 v 51.3 m/m. In contrast, Caixin Manuf PMI figure was surprisingly strong at 50.6 v 48.8 prior - the 1st expansion since Feb of last year. Resident economist noted stabilizing due to the gradual implementation of proactive fiscal policy, though adding the pressure on economic growth remains, and supportive fiscal and monetary policies must be continued. Economist with ANZ explained the divergence as a function of weaker CNY, noting that SMEs (measured more closely by private Caixin) stand to benefit from Yuan depreciation much more than the bigger SOEs.

- Investors are still digesting the underwhelming BOJ announcement late last week that only expanded ETF program rather than cutting rates deeper and adding to annual asset purchases. Given the rally in financials that have been struggling under negative rate environment, there is a wide range of views whether this was appropriate policy and also what the BOJ will deliver at the Sept meeting after it reviews economic conditions. Nomura argues that Sept meeting could feature changes of how the easing program is structured and may potentially start to target specific level of JGBs rather than the pace of buying, while Barclays claims that while there is some benefits to ETF buying, it will not produce immediate benefits in terms of sparking more inflation. PM Abe's advisor Hamada recommends that Japan acknowledges it is already monetizing its debt and proceed with an aggressive joint monetary/fiscal program.

***Equities***
Notable movers by sector:
- Consumer discretionary: Gome Electrical Appliances Holdings 493.HK -5.3% (profit warning); Clarion Co 6796.JP +7.4% (Q1 result); Kose Corp.4922.JP +8.4% (Q1 result); Panasonic Corporation 6752.JP -7.1% (Q1 result); Fairfax Media FXJ.AU -1.2% (impairment charge); Fonterra FCG.NZ +1.8% (maintains payout forecast)
- Financials: Future Land Development Holdings 1030.HK -0.8% (H1 result); Fosun International 656.HK +0.4% (asset sales plan); SOHO China 410.HK +5.3% (property disposal)
- Industrials: NGK Spark Plug Co 5334.JP +8.0% (Q1 result); China Shipping Development Co 1138.HK +5.7% (profit alert); Sumitomo Chemical Co 4005.JP -10.2% (Q1 result)
- Technology: MediaTek Inc 2454.TW +2.3% (Q2 result); NEC Corp 6701.JP -10.9% (Q1 result); Tech Pro Technology Development 3823.HK +4.4% (bounce from short seller report); Hoya Corp 7741.JP +8.2% (Q1 result)
- Materials: Citic Resources 1205.HK -1.2% (H1 result); Tokuyama Corp 4043.JP +8.5% (Q1 result); St Barbara SBM.AU +7.6%, Newcrest Mining NCM.AU +2.7% (gold gains)
- Energy: Sundance Energy Australia SEA.AU -3.3% (quarterly result); Inner Mongolia Yitai Coal Co 3948.HK +2.8% (profit alert); Huadian Fuxin Energy Corp.816.HK +5.0% (profit alert)
- Healthcare: Mediceo Paltac Holdings Co 7459.JP +6.7% (Q1 result); Miraca Holdings 4544.JP +12.3% (Q1 result)

WSJ : Modest Stimulus Measure Signals Possible Retreat at Bank of Japan


Modest Stimulus Measure Signals Possible Retreat at Bank of Japan
In its lukewarm easing actions, the central bank may be acknowledging limits of monetary policy

TOKYO—The Bank of Japan may have begun to retreat from its “whatever it takes” policy stance, effectively shifting pressure to the government to use fiscal spending and structural changes to help revive the economy.

The central bank announced only a modest dose of monetary stimulus Friday, disappointing investors who expected a bolder move to complement a new government spending package.

That alone was taken as confirmation by many economists that the BOJ has run up against the limits of monetary policy. The BOJ’s plan, also announced Friday, to conduct a “comprehensive assessment” of the effects of its policies at the next policy board meeting in September underscored that conclusion.

It will be the first such review since BOJ Gov. Haruhiko Kuroda unleashed what investors dubbed a “monetary bazooka” in early 2013, vowing to achieve 2% inflation within two years by taking bold, pre-emptive action anytime that price goal appeared threatened.

More than three years later, the central bank’s goal is out of reach for at least the next year, according to the most optimistic estimates. And Japan’s economy has sputtered in recent quarters, contributing to a growing global consensus that monetary policy alone won’t be enough to rescue developed economies from stagnation.

“I wouldn’t say everything has gone badly, but I also wouldn’t say everything has worked well,” Mr. Kuroda said at a news conference Friday.

Mr. Kuroda dismissed suggestions that the central bank had run out of ammunition. He noted that it nearly doubled its purchases of Japanese exchange-traded funds to ¥6 trillion ($57 billion) annually, up from ¥3.3 trillion. He said there was still room for additional purchases of Japanese government bonds, and to push a negative interest rate on some bank reserves even lower.

But the BOJ’s actions—or lack of them—may have sent the stronger message. Despite high expectations and pressure from the government to act, the central bank didn’t expand its JGB purchases—the main pillar of its quantitative easing program—and didn’t cut that interest rate.

People at the BOJ have suggested that it couldn’t significantly expand its JGB purchases from the current ¥80 trillion annually without straining the market. The BOJ owns more than a third of outstanding JGBs, with its balance sheet rising to 85% of gross domestic product as of May.

Now the BOJ will examine that impact of its JGB purchases on the market as part of its policy assessment, which will look at the effects and drawbacks of its easing measures, Mr. Kuroda said. The central bank will also examine how low short- and long-term interest rates have affected the health of commercial banks, he said.

Mr. Kuroda said he and the other eight board members will “candidly examine what is needed ... to achieve our 2% price-stability target at the earliest possible date.”

Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute, was among economists who concluded from the BOJ’s actions and Mr. Kuroda’s words that quantitative easing had reached its limits, and was looking for a way to make them more sustainable in a longer battle against deflation than originally expected.

Mr. Nagahama said he thought the BOJ might use the policy review to make the case for gradual changes, including dialing back its purchases of JGBs, which he said are unsustainable at ¥80 trillion annually.

Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, said that in addition to scaling back its JGB purchases, the BOJ may also “freeze” negative rates, which are deeply unpopular with banks and the public.

Mr. Kuroda hasn’t ruled out the possibility of undertaking additional action if the result of the analysis calls for it.

The BOJ could also use the policy review to more clearly spell out its views on the need for additional monetary stimulus, including further rate cuts, while addressing the perceived risks, according to Masaaki Kanno, chief economist at JPMorgan Securities.

Mr. Kanno said the “odds are high at the moment that the BOJ will both increase its JGB purchases and push interest rates further into negative territory in September.”

Yet even if the BOJ stood pat indefinitely, its current policies amount to extraordinary monetary stimulus. The yen, though considerably stronger than it was a year ago, remains much weaker than when Mr. Kuroda took office. A weak yen has been a key element of Mr. Abe’s growth program.

A person close to the government said Finance Ministry officials share the view that it is time for Mr. Abe’s government to deliver the more-robust fiscal spending from long-term perspectives and structural overhauls necessary to revive the economy. Monetary easing, while necessary, will continue but will play a more complementary role, the person said.

Mr. Abe said Wednesday that he would announce a ¥28 trillion spending package next week, though actual new spending is expected to be a fraction of that. In June, he pushed back a sales-tax increase scheduled for next year until 2019, part of a shift toward looser fiscal policy to address sputtering growth.

Mr. Abe’s advisers had called on the BOJ to expand its easing simultaneously. The BOJ showed a willingness to be part of the effort in Friday’s policy statement, saying it believed its increased purchases of ETFs and existing loose monetary policy would produce “synergy” with the Abe government’s efforts.

WSJ : Didi Chuxing to Buy Uber's China Operations

Didi Chuxing to Buy Uber's China Operations
A deal between Didi and Uber could be announced as early as Monday

BEIJING—China’s homegrown ride-hailing champion, Didi Chuxing Technology Co., has reached a deal to acquire Uber Technologies Inc.’s China operations, people familiar with the deal said, marking an end to their bruising competition for passengers.

A deal could be announced as early as Monday, the people said.

As part of a share-swap deal, Uber will become the largest shareholder in Didi Chuxing after combining its UberChina unit with the Chinese ride-hailing company, according to one of the people.


The deal comes as China officially legalizes ride-hailing services, with nationwide guidelines released last week.

Uber and Didi have duked it out for China’s potentially lucrative ride-sharing market by spending huge sums to attract drivers and passengers to their competing services. But both the companies’ investors and Chinese regulators have exerted increasing pressure on them to halt the expensive subsidy battle. China’s new ride-hailing regulations, which will go into effect in November, forbid running ride-hailing services below cost.

Didi raised $7.3 billion in its latest fundraising round in June, which included a $1 billion investment from Apple Inc. and valuing the Chinese ride-hailing startup at $28 billion. Other backers of Didi also include Chinese e-commerce giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd.

UberChina is backed by Chinese search giant Baidu Inc., which will also become a shareholder in Didi after the share-swap deal is completed, according to one of the people.

—Yang Jie contributed to this article.

>>> What to look at this Week End - 30th & 31st July 2016

Weekly Update
Dow -2.50% S&P -0.07% Nasdaq +1.22% Russell +0.58% Brazil +0.54% Nikkei -0.35% Hang Seng -0.33% CSI -0.66% Shanghai -1.11% EuroStoxx +0.62% FTSE -0.09% CAC +1.34% Dax +1.87% Ibex -0.15% MIB +0.41% SMI -0.82%
This week investors digested a deluge of corporate earnings reports and key economic data while oil prices continued retreat. The S&P500 finished out near another all-time high, while the DJIA was weighed down by weak earnings commentary from several component names. The advance Q2 US GDP estimate showed the US economy has grown at less than a 2% pace for three straight quarters. Expectations for Japanese stimulus ratcheted up and the same went for the BOE. The US Federal Reserve hinted towards an increasing willingness to raise rates later this year, but market reaction/expectations suggest the consensus view is the Fed remains firmly in a wait and see mode. For the week, the DJIA fell 0.8%, the S&P500 slipped 0.1%, while the Nasdaq rose 1.2%.

Macro :
- Renzi Says Italy Fund Solves Bank Bad-Loan Issues: Repubblica
- Clinton Leads Trump After Dem. Convention: Reuters/Ipsos Poll
- Paschi Fix ‘Awkward’ to Roll Out to All Italian Banks: Barclays
- Dombret Says German Banks Must Change Business Models: Bild
- Deficit Fine Would Have Humiliated Spain, Moscovici Tells Pais
- Qatari Diar Delays Part of Chelsea Barracks Project: S. Times
- EU Banks Won’t Need to Set Up U.K. Subsidiaries Post-Brexit: FT

Keep an eye on :
- A2A IM : A2A, Montenegro Sign New Shareholder Agreement for Utility EPCG
- AC FP : AccorHotels aims high in Brazil expansion
- AIR FP : Airbus to Keep Working With India After Tanker Tender Is Dropped
- AF FP : Air France to Fly More Than 80% of Monday Services Amid Strike
- AAL LN : Anglo American Set to ‘Unbundle’ Kumba, CEO Tells Telegraph
- BKIR LN : Bank of Ireland Says Capital Level Is ‘Strong’ After Stress Test
- BCP PL : Banco Comercial Says Had ‘Strong’ Results in ECB Stress Tests
- BCP PL : Fosun Says BCP Investment to Extend Business in Europe, Africa
- POP IM : Banco Popolare Solid Under Stress Test: CEO to Messaggero:
- BBVA SM : BBVA to Work With ECB on Capital Planning
- BMPS IM : Paschi Approves Sale of EU27.7b Gross NPLs at 33% Value: Stampa
- BMPS IM : Paschi Plan Execution Risk Not Very Low But Manageable: CEO
- BMPS IM : EU: Monte Paschi Capital-Raising Plan Fully in Line With Rules
- CABK SM : CaixaBank FL CET1 8.5% in Stress Test, Bank Says
- DBK GY : Deutsche Bank Can Build Up Capital Organically, Lewis Tells FAS
- EDF FP : Hinkley Point presents cost and security issues
- FGR FP : France’s Hollande Seeks Further Investment in Autoroutes: Figaro
- ENI IM : Talks on Mozambique at Very Advanced Stage: Eni CEO to MF
- FRA GY : Fraport Sells Thalita Stake to Qatar Investment Authority
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FT : Vivendi warns Mediaset of “other plans”

Vivendi warns Mediaset of “other plans”

Vivendi’s chief executive has said his group’s ambitions to become a media and content power house in southern Europe do not depend on its planned alliance with Italy’s Mediaset.
Arnaud de Puyfontaine’s stark assessment comes as Vivendi tries to renegotiate an April agreement to buy Mediaset Premium, the Italian company’s pay-TV unit, as part of a wider deal in which the two media groups would take a 3.5 per cent stake in each other.

This tie up was hailed as an important complement to Vivendi’s 24.9 per cent stake in Telecom Italia, enabling the Paris-based company to expand its base in the region and take on the likes of Sky.
But the plans ran into trouble after Vivendi took issue with Mediaset’s growth projections for the pay-TV unit, claiming they were “unachievable”. An ensuing dispute now pits French billionaire and Vivendi chairman Vincent Bolloré in a struggle for supremacy with Silvio Berlusconi, Italy’s former prime minister and Mediaset’s founder.
In an interview with the FT, Mr de Puyfontaine said that while he still hoped a deal with the Italian broadcaster was possible, Vivendi had other ways to seek growth in the region.
“We started this journey with other plans,” he said. “If it does not happen, we will make the journey with other plans. We have different options.”
Last week, as the relationship between the two sides deteriorated, Vivendi threatened to sue Mediaset for defamation after the Italian group claimed to be surprised by an alternative offer from the French company.
Mediaset said in a statement on Tuesday that an alternative offer from Vivendi to acquire just 20 per cent of Mediaset Premium plus a 15 per cent stake in Mediaset was a surprise and had come “absolutely out of the blue”.
But Mr de Puyfontaine told the FT that Vivendi had first raised its concerns in a letter sent to Mediaset on May 12. He said that his company had since communicated, through meetings and phone calls, numerous times with Mediaset. “When we see Mediaset saying that it came out of the blue, that is factually wrong,” said Mr de Puyfontaine. “There are a whole range of assertions that are just wrong and we can’t accept that.”

Stressing that he still wanted to do a deal with the Italian broadcaster, Mr de Puyfontaine added: “As the saying goes, we hope for the best and plan for the worst.”
Mediaset rejected Vivendi’s alternative offer last week, fearing the 15 per cent stake proposal might be the start of a creeping control that many associate with Mr Bollore’s business style.
However, Mr de Puyfontaine dismissed any notion that Vivendi wanted ultimately to take control of Mediaset. “We firmly state that the intention is not to take control,” he said of Vivendi’s alternative proposal. “If we had wanted to do that, it would have been much easier to go in the market and build a stake.”
He stressed that he still believed in the merits of an alliance with the Italian broadcaster but said Mediaset’s projections for its lossmaking pay-TV unit were over optimistic. “If you tell me that you are selling me a Ferrari but it turns out to be a Fiat Punto, there is a problem,” he said. “Mediaset Premium is a problem in terms of its business plan.”