TheChek News Flow

Britain can use strict “right to reside” rules to limit access to child benefit for non-UK citizens, according to a verdict from the EU’s highest court.

The case was brought by the European Commission, which argued that the UK discriminated against other EU citizens by demanding that all recipients of child benefit have a “right to reside” in the UK.

Although the European Court of Justice said that the policy did amount to “unequal treatment” between UK and other EU citizens, this was justified by the “the need to protect the finances of the host Member State”, according to statement from the court.

Last week, during which the S&P 500 was down 0.2%, BofAML clients returned to selling US stocks, following a week of net buying. Previously, clients had sold stocks for 19 consecutive weeks, the longest selling streak in our data history. Net sales of $3.8bn last week were the largest since mid-April, with selling led by institutional clients (the biggest sellers during the majority of the selling streak—see Chart 3). Private clients were also net sellers; this group has sold stocks for the last eighteen consecutive weeks, though in lesser magnitude vs. institutional clients. Meanwhile, hedge funds were net buyers last week after selling stocks in the prior two weeks. Small, mid and large caps all saw outflows. Buybacks by our corporate clients picked up slightly last week, but still remain weak, with

the four-week average tracking its lowest since January 2015.

Clients sold single stocks across all ten sectors last week. Only ETFs saw net buying, as they have for the past five weeks. Net sales were the most sizeable in Health Care—which has seen among the largest and most consistent sales this year amid uncertainty over the US election and a positioning unwind—and Financials, which was the worst-performing sector last week as expectations for the next rate hike were further pushed out. Year-todate, clients have been cumulative net sellers of single stocks in all sectors except Telecom.

• Energy, Health Care and Utilities saw net selling by institutional clients, hedge funds and private clients alike last week. No sector saw net buying by all three groups.

• Net sales of mid-caps last week were notably the fifth-largest in our data history (since ’08), and the largest in three months.

• Pension fund clients were net buyers of US stocks last week, following a week of net selling. Net buying was driven by ETFs and Tech stocks; Health Care stocks saw the biggest net sales. This group remains a net buyer of stocks year-to-date, which was true in 2015 and 2014 as well. See Pension fund flows for details.

Record high corporate bond and (US) stock prices…yet June FMS shows investors have a mountain of cash…negative summer “events” (e.g. BREXIT) could thus quickly become tradable buying opportunities.

June FMS big bear signals: cash level of 5.7% (up from 5.5%) = highest since Nov’01; BofAML Risk & Liquidity Index at four-year low; lowest global equity allocation vs. cash/bonds/commodities since Jul'12; most crowded FMS June trade = “long quality”.

…FMS risk aversion consistent with recession yet global growth and profit expectations at six-month high, global inflation expectations at one-year high.

…FMS shows large short in sterling and FTSE (Exhibit 1); contrarians note stubborn longs in Eurozone, banks, tech most vulnerable to “BREXIT”, while unloved UK assets, resources most upside to a “BREMAIN” vote.

Potential combo of “summer of shocks” and “Quantitative Failure” = high cash; hopes for new radical policy stimulus low…record FMS reading for fiscal policy “too restrictive” and 62% say no “helicopter money” next 12 months.

Sustained risk upside unlikely without sustained EPS growth…but long GBP, long stocksshort cash, long US-short Eurozone, long discretionary-short healthcare, long resourcesshort REITs = trading opportunities should policy makers react to market volatility.

Globally, sentiment remains weak: global asset allocators are holding the highest average cash balance (5.7%) since Nov’ 01, while equity allocations have dropped to 4- year-lows. Cash allocations of European fund managers also remain elevated. Within equities, low conviction is also evident in regional and sector preferences.

Regional allocations show Europe remains the most-preferred region (net 26% overweight), despite converging from extremes. Relative positive views are driven by growth optimism and the belief that ECB will stay the course of max-easing. Positioning implies that fund managers are hoping for mean-reversion on the European vs US equity market trade, which has made 60-year lows. However, the European Style Cycle continues to argue for staying out of Europe.

BREXIT is the biggest ‘tail risk’ by far, keeping the UK as the most underweighted equity market globally, and Sterling appearing the most undervalued it has been in the history of the survey. In case of an exit, UK large cap stocks should be relative winners given their higher Quality characteristics and low domestic exposure.

This month sees no European sectors with extreme overweights (>30% net overweight) or underweights (<40% net UW), hence none of our contrarian signals are triggered. Broadly speaking, longs are focused on defensive themes with Telecoms, Healthcare, and Food & Bev most overweight. Banks remain the least-preferred.

Ashtead +1-2% PBT beat, operationally company fine, share buyback annc'd

Crest Nichol M/P Numbers look fine first glance, co remains confident for FY

Danone +1-2% Co confirms 2016 sales. Sees solid improvement in 2016

Direct line unch received approval for use of its partial internal model

Firstgroup +1-2% Revs light, PBT better, commentary reads well

Gam Holding -10% Effectively warning ahead of 1H16 results, PBT down 50%

Gerry Weber M/P H1 sales inline, for FY rev €890-920m (cons at €905m)

Go Ahead -5% GTR looks worse, facing challenging environment

Halma M/P Headline no's 1% beat, stock has been great performer

Miners M/P Iron Ore & Steel have given up all of yday's gains and more

Novo Nord -1-2% Novo’s Victoza Cuts Heart Complications 13% in Diabetics

Oils -1% Brent is still stuck in and around the $50 mark

Premier Farn +5-8% Daetwyler buys PFL in recommended cash offer. 165p/shr

Ted Baker unch Rev +11.9% in the 19 weeks to June 11, outlook solid

*DANONE-Lifts targets for Op Margin in 2016 Confirms Sales........+1%

*NOVO NORDISK-Victoza reduced CV risk by 13% in Leader Study......+1%

*PREM FARNELL-Daetwyler to buy Farnell for CHF1.09b(51% prem).....+47%

*GAM-Pft warning,Pft before tax & after tax in H1 down 50%........-7%

*ABENGOA-Green Plains to buy Abengoa's Ethanol Mills for $200m....+0.5%

*VINCI-Credit Agricole,Ardian 2 buy Vinci's stake in Indigo.......+0.5%

*AIR FRANCE-Pilots to decide in coming days on more strikes.......-0.5%

*NOVARTIS-Gilenya can trigger PML which destroys the brain........-0.5%

*KUKA-Midea satisfied with 49% of Kuka says Handelsblatt..........-0.5%

*G/WEBER-Sales 230m(225),Ebitda 15.4m(16.3),Ebit 4.5m(4.3)........-1%

*ADP-Paris Airports traffic +1.4%,Passengers 8.55mln..............+0.5%

*AIRBUS-1st delivery of A400M with tactical cap-not confirmed.....U/C

UK

* ASHTEAD-FY.#'s ahead of fcast.End markets remain strong.£200m buy back..+2-3%

* CREST NICHOLS-H1.Rev +22% (£408.1m)Re-iterates FY16 guidance..............+1%

* FIRST GRP-FY.Rev sml miss,EBITDA i/l,EPS slightly ahead.o'look inline.....+2%

* GO AHEAD GRP-PreClose.WARNING.GTR Franchise margins weaker than exp's...-5-7%

* HALMA-FY.#'s slightly ahead.Current yr in line with exp's.................+1%

* PREMIER FARNELL-Daetwyler agrees 165p/sh cash offer......................+46%

* TED BAKER-Update. Sales +11%, margins lin line.On track to meet exp's.....+1%

Macro :

- Buffett Seeks to Buy German Cos With ~EU50m Profit: Handelsblatt

- Four Polls Put U.K. on Course to Leave EU as ‘Sun’ Backs Brexit

- Renewed speculation that EU seen extending sanctions on Russia by another six months next week

Keep an eye on :

- ABG SM : Abengoa receives combined $350m offers for US ethanol facilities; seeks court approval for auctions-WSJ

- ADP FP : ADP Paris Airport Traffic Rises 1.4% in May to 8.55m Passengers

- AF FP : Air France Pilots to Decide on More Strikes in Coming Days: AFP

- AAPL US : Apple Opens Siri, Maps to Developers, Redesigns Music Service

- AAPL US : Apple Moves Toward Direct Competition With PayPal: Piper

- AVV LN : Schneider/Aveva Bid Doesn’t Say What Changed, Why Now, Citi Says

- CAST SS : Castellum to Invest Up to SEK10b in New Space Next 3 Years: DI

- BN FP : Danone Forecasts Higher Profitability This Year on Cost Control

- DBHN GY : Deutsche Bahn 1Q Profit Said to Fall by EU42m: Handelsblatt

- ERICB SS : Ericsson Said to Lay Off 3,000-4,000 Employees This Summer: SVD

- FER SM : *FERROVIAL: TALKS TO BUY PERU PIPELINE FOR EU2.4B: CONFIDENCIAL

- GAM SW : GAM Holding 1H Pretax Down 50% Due to Fall in Performance Fees

- GWI1 GY : Gerry Weber 2Q Revenue Beats, Ebitda Misses; Sticks to Outlook

- MEO GY : Karstadt Raises Sales Forecast for Year, Bild Reports

- NOVO DC : Novo Nordisk’s LEADER Data Solid, ‘Failed to Impress:’ Jefferies

- PFL LN : Datwyler Offers to Buy Premier Farnell for 165p Per Share

- PUB FP : Cheil Worldwide 030000.KR +3.1% (shareholder talks end)

- RCS IM : RCS public offer may receive improved public offer from Cairo Communication on 17 June - Milano Finanza

- SU FP : Schneider/Aveva Bid Doesn’t Say What Changed, Why Now, Citi Says

- GLE FP : SocGen’s Oudea Wants Basel Rules on Ecofin Agenda: Echos

- VCH SW : Charles Voegele to Apply for Judicial Reorganization in Belgium

- DG FP : Credit Agricole, Ardian to Buy Vinci’s 24.6% Stake in Indigo

- ZBH US : Zimmer Biomet Holders KKR, Goldman, TPG to Offer 11.1m Shares