(UBS) European Economic Outlook 2016-17

* European recovery to continue, exposed to external risks
Today, we present our updated economic forecasts for 2015-16 and publish our 2017
projections for the first time. We expect the Eurozone recovery to continue, with real
GDP growth of 1.5% in 2015 (previously 1.4%) and 1.8% in 2016 (previously 1.9%),
followed by 1.8% in 2017. Nominal GDP growth should pick up more visibly, from
2.2% in 2015 to 2.9% in 2016 and 3.4% in 2017. We expect growth to be carried by
domestic demand, while the impact of foreign trade is likely to be slightly negative. The
key drivers of growth in 2016/17 should remain: (a) the ECB's easy monetary policy; (b)
low oil and commodity prices supporting household consumption; (c) fiscal policy
turning mildly growth-supportive; and (d) the recovery of credit conditions.

* Inflation to recover gradually, helped by additional ECB easing
We expect inflation to recover from 0.6% y/y by end-2015 to 1.5% by end-2016 and
1.7% by end-2017, still below the ECB's target of 'below, but close to 2%'. We expect
the ECB to decide, on 3 December, to extend its QE programme (€60bn per month) by
3-6 months beyond September 2016 and to cut the deposit rate by 10bp to -30bp. We
project the ECB balance sheet to reach €3.5trn, or 33% of GDP, by March 2017.
Despite the ECB's easy policy stance, we expect EUR/USD to reclaim lost ground, to
1.16 by end-2016 and 1.20 by end-2017, helped by the Eurozone recovery.

* 2016 downgrade for Germany, upgrades for Italy and Spain
We still expect 1.5% growth for Germany this year, but have cut our 2016 forecast to
1.9% from 2.1%, given increased external risks; yet, domestic demand should remain
solid. We turn even more positive on Italy as reforms seem to lift business confidence,
and upgrade our growth forecast to 0.8% from 0.6% for 2015 and to 1.5% from
1.4% for 2016. We also remain constructive on Spain.

* Downside risk from China, EM; upside potential from structural reforms, credit
A hard landing in China and more economic trouble in the EM world are currently the
biggest downside risks for the Eurozone, we think. Disruptive Fed tightening and
disturbances from domestic politics in Europe could also prove challenging. On the
positive side, a meaningful acceleration in structural reforms in the Eurozone and a
faster-than-expected recovery in credit could provide meaningful upside.

* UK: Pushing back the first BoE rate hike to May 2016
Outside of the Eurozone, the United Kingdom's solid growth continues, although the
pace has cooled a little. We forecast growth of 2.4% in 2015 and 2016, followed by
2.3% in 2017. While wage growth is picking up due to a tightening labour market,
external risks have led us to push back our call for the first BoE rate hike to May 2016.
There is a risk that the UK referendum on EU exit may weigh on growth. For
Switzerland, we forecast GDP growth of 1.0% for 2015, 1.4% for 2016 and 1.8% for
2017. Growth in Sweden should remain solid (3.0%/2.6% in 2016/2017), while the
outlook for Norway is more challenging, given lower oil prices. Monetary policy in the
Nordics and Switzerland is in the shadow of the ECB, and the Riksbank, Norges Bank
and SNB will need to maintain easy policy to keep their currencies in check.

>>> Lagardere Studios could raise EUR 100m via 30% stake sale

Lagardere Studios could raise EUR 100m via 30% stake sale

Listed French media and sports group Lagardere, advised by SG, is understood to be close to finalising the arrival of new investors for its TV production subsidiary Lagardere Studios, French weekly Le Point reported.

The report said that the investment could be made via a reserved capital increase, giving a 30% stake in exchange of a EUR 100m payment, valuing the business at around EUR 300m. Potential investors include investment funds, private individuals and French state-owned investor Bpifrance.

This development was also reported in daily Les Echos, which cited several sources as saying that the funds would be used to finance the expansion of the group in Europe and potential acquisitions of targets with annual revenues of up to EUR 40m.

Lagardere Studios generate annual revenues of between EUR 200m and EUR 250m, the report added.

Le Point, Les Echos

>>> US After Hours Summary: NLS +11.1%, ONDK +11%, LMNX +11%, QL

After Hours Summary: NLS +11.1%, ONDK +11%, LMNX +11%, QLYS -11.2%, FIT -9.1%, CAR -8.5% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: NLS +11.1%, ONDK +11%, LMNX +11%, SANM +9%, RNG +8.7%, NPTN +7.5%, RTEC +4.9%, FN +4.2%, ELNK +4.2%, TXRH +3.8%, ALL +3.5%, ALJ +2.3%, CDE +2.2%, LB +1.9%, SSNC +1.7%, ALDW +1.6%, MCEP +1%, CHGG +0.7%

Companies trading higher in after hours in reaction to news: BKD +15.3% (concluded executive search process; hired Labeed Diab as COO and Lucinda Baier as CFO), ZSAN +10.2% (reported positive results from the Phase 1 clinical trial of ZP-Triptan patch for migraine), CVM +4.9% (Park West Asset Management disclosed 5.7% passive stake in 13G filing), MWW +1.4% (CEO disclosed purchase of 25000 shares, worth total of $155.5K; transaction date 10/30), P +0.3% (Eminence Capital discloses 5.6% passive stake in 13G filing)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: QLYS -11.2%, FIT -9.1%, CAR -8.5%, DWRE -7.3%, UNXL -6.7%, CGNX -5.8%, GGP -4.1%, TNET -4.1%, CYH -3.2%, THC -3.1%, AIG -2.9%, AXON -2.8%, AMC -1.8%, ZIOP -1.3%, TDOC -1%, AEIS -0.9%, ENH -0.7%, MDU -0.7%, PXD -0.6%, AHL -0.4%, OTTR -0.4%, DNB -0.2%, CBT -0.1%, MIC -0.1%

Companies trading lower in after hours in reaction to news: ASC -7.4% (announced a 4 mln share secondary offering by selling stockholder, GA Holdings), HTZ -4.1% (lower following weak earnings results from peer Avis Budget (CAR)), SUI -2.3% (commenced a 3.25 mln share underwritten public offering of common stock), AREX -2.2% (to be removed from the S&P SmallCap 600)

>>> Asian Update

Asian Mid-session Update: RBA stands pat but notes low inflation to open the door to more easing

***Economic Data***
- (AU) RBA LEAVES CASH RATE TARGET UNCHANGED AT 2.00%, AS EXPECTED
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 115.2 v 113.4 prior; highest level since February 2014
- (NZ) NEW ZEALAND OCT ANZ COMMODITY PRICE M/M: 6.9% V 5.5% PRIOR; 2nd straight increase
- (NZ) NEW ZEALAND OCT QV HOUSE PRICES Y/Y: 14.0% V 12.6% PRIOR
- (KR) SOUTH KOREA OCT CPI M/M: 0.0% V -0.2%E; Y/Y: 0.9% V 0.7%E; CPI CORE Y/Y: 2.3% V 2.1%E

***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 closed, S&P/ASX +1.3%, Kospi +0.5%, Shanghai Composite flat, Hang Seng +1.4%, Dec S&P500 -0.1% at 2,094

***Commodities/Fixed Income***
- Dec gold flat at $1,135/oz, Dec crude oil +0.2% at $46.23/brl, Dec copper +0.2% at $2.32/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 3.0 tonnes to 689.3 tonnes; lowest since Oct 13th
- TRP.CA: Request suspension of US permit for Keystone XL pipeline
- (KR) South Korea sells 30-yr govt bonds, avg yield 2.30%
- (CN) PBoC to inject CNY10B in 7-day reverse repos (35th consecutive injection); Offer yield 2.25%, unchanged from prior

***Market Focal Points/FX***
- Tokyo markets were closed for holiday and China held steady, but the focus for the session was on Australia and the close call for today's RBA rate decision. Despite the even-keeled commentary from the RBA in recent statements, the soft Q3 CPI and the decision by lenders to raise mortgage rates so as to offset higher capital requirements has boosted speculation for an easing going into today's meeting. Instead, the RBA merely acknowledged the lower inflation in deciding to hold rates steady at 2.00%, adding that property lending conditions are still accommodative despite the higher borrowing rates. AUD/USD was volatile around the decision as RBA left itself some room for an easing down the road, but traded firmer by about 40pips above $0.7210. S&P/ASX held its gains of over 1%, and 3-year rates fell 2bps to 1.84%.

- Among notable press reports related to China, economists with ANZ forecast another RRR cut before the end of the year as a possibility. An investigation of corruption charges against the 2nd highest ranking exec at Dongfeng Motor also sent its shares sharply lower.

- Tokyo markets were closed, but there was a notable Nikkei feature suggesting analysts are increasingly skeptical that BOJ Gov Kuroda will be able to achieve 2% CPI by the time his term ends in 2018. This is well beyond the H2 of 2016 timeframe expressed by the central bank last week. Japan Center for Economic Research (JCER) also put out its estimated for Sept GDP falling into a contraction for the first time in 4 months, driven by a 0.5% drop in consumer spending.

- Korea CPI was slightly higher than expected, but remained below the BOK target range of 2.5-3.5%. Separately, a BOK report pledged to keep monetary policy accommodative as the ongoing recovery is steady and as inflation is expected to remain low.

- In FX, outside of the volatility around the RBA decision in AUD/USD, dollar majors were little changed. USD/JPY traded in a 20pip range below 120.85, EUR/USD was supported in a 20pip range above 1.10, and NZD/USD traded within 20pip on either side of 0.6750 ahead of the upcoming dairy auction results later today.

***Equities***
US equities / ADRs:
- KING: To be acquired by Activision for $5.9B, $18/shr cash (20% premium over Oct 30th close); Announced after close of extended session
- LMNX: Reports Q3 $0.22 v $0.10e, R$60.6M v $57.3Me; +11.2% afterhours
- ALL: Reports Q3 $1.52 v $1.32e, R$9.0B v $7.96Be; +2.8% afterhours
- LB: Raises Q3 $0.51-0.53 v $0.48e (prior $0.40-0.45); reports Oct SSS +5%; +2.6% afterhours
- CYH: Reports Q3 $0.51 v $0.56e, R$4.85B v $4.91Be; -0.4% afterhours
- THC: Reports Q3 $0.29 v $0.30e, R$4.69B v $4.64Be; Authorizes $500M share buyback (15.3% of market cap); -2.9% afterhours
- AIG: Reports Q3 $0.52 v $1.03e; -3.0% afterhours
- FIT: Reports Q3 $0.24 v $0.10e, R$409M v $347Me; Morgan Stanley agrees to release lock up restrictions for 2.3M shares; -8.1% afterhours
- CAR: Reports Q3 $1.98 v $1.99e, R$2.58B v $2.62Be; -8.6% afterhours
- QLYS: Reports Q3 $0.19 v $0.13e, R$42.5M v $42.3Me; -10.8%; -10.3% afterhours

Notable movers by sector:
- Consumer discretionary: Bega Cheese BGA.AU -1.5% (takeover target speculation)
- Financials: Industrial Securities Co 601377.CN +1.3% (to spin off unit); Evergrande Real Estate Group 3333.HK +2.4% (Oct YTD result); Agricultural Bank of China (ABC) 1288.HK +1.0% (President under probe)
- Industrials: Dongfeng Motor 600006.CN -4.2% (exec under probe); Daewoo Shipbuilding & Marine 042660.KR +8.7% (SK Group denies in talks for acquisition); Alexium International Group AJX.AU +1.6% (files for US listing); Kia Motors Corporation 000270.KR +4.0%, Hyundai Motor Co 005380.KR +2.8%(Oct vehicle sales); GrainCorp GNC.AU -1.2% (guidance)
- Technology: Mesoblast Ltd.:Technology
P:MSB.AU % (application to list on Nasdaq)
- Materials: Alumina AWC.AU +2.4% (curtailment)
- Energy: Hidili Industry International Development 1393.HK-1.3% (not in position to pay notes); Santos STO.AU +3.5% (speculation for equity raise)
- Healthcare: Livzon Pharmaceutical Group 1513.HK -13.6% (non-public share issuance)

>>> Activision Blizzard to Acquire King Digital

Activision Blizzard to Acquire King Digital Entertainment in $5.9 Billion Deal
Videogame company Activision Blizzard has agreed to acquire "Candy Crush Saga" owner King Digital Entertainment in a deal with a total equity value of $5.9 billion.

Under the deal, ABS Partners, a wholly owned subsidiary of "Call of Duty" maker Activision Blizzard, will buy all of King's outstanding shares for $18 each in cash.

FT : Pfizer spurned by GSK before Allergan talks

Pfizer spurned by GSK before Allergan talks http://on.ft.com/1Rqr7NN

Pfizer approached GlaxoSmithKline about a possible takeover in recent weeks but was rebuffed before confirming its talks about a possible bid for Allergan last week.
Three people familiar with the matter told the Financial Times that Pfizer had looked seriously at GSK as a potential target, but the US group’s overtures received a cool reception from GSK and the talks are now dead.

Ian Read, Pfizer chief executive, has since decided to focus on a deal with Dublin-based Allergan as he seeks a large “inversion” deal to lower the company’s tax rate through a foreign acquisition.
Pfizer and Allergan announced last week that they were in “preliminary friendly discussions” about a combination which would create the world’s biggest pharmaceuticals group with a market capitalisation over $300bn.
An acquisition of GSK, with a market capitalisation of about $105bn, would have been on a similar scale to the potential combination with Allergan, which has an equity value of $121bn.
Two people said the talks with GSK did not get far enough for a price to be discussed. GSK’s share price closed at £13.97 on Monday.
GSK and Pfizer both declined to comment.
The US group’s interest in GSK, the UK’s biggest drugmaker by sales and market capitalisation, came 18 months after it failed in a £69.4bn hostile bid for the number two UK group, AstraZeneca. That deal faced heavy opposition from British politicians fearful of the impact on jobs and investment and it was widely agreed that any further attempt by Pfizer to buy a big UK drugmaker would need to be on a friendly basis to soothe domestic concerns.

A takeover of either GSK or Allergan would create controversy in Washington because of Pfizer’s desire to move its official headquarters overseas to reduce exposure to high US corporate tax rates. Allergan paid an effective tax rate of 4.8 per cent last year versus 25.5 per cent for Pfizer.
However, GSK would have presented additional political complications in the UK and the reluctance of its board to engage with Pfizer hardened the US group’s view that a deal with Allergan was more achievable.
For its part, GSK felt emboldened to resist Pfizer’s advances as its performance shows tentative signs of stabilising after a torrid two years of declining sales and a damaging corruption scandal in China. Sir Andrew Witty, chief executive, last week said a recovery was under way when he announced better than expected third-quarter results.
GSK is due to brief investors on the outlook for its research and development pipeline in New York on Tuesday, with Sir Andrew promising details on 40 experimental medicines as evidence that the UK group can overcome decline in its best-selling but ageing respiratory drug, Advair.
Sir Philip Hampton has been on a listening tour of investors since taking over as GSK chairman in May. While he has been left in no doubt about their disgruntlement over the company’s recent underperformance, people familiar with the meetings say he is confident that investors are willing to give GSK time to make its turnround work after a $20bn asset swap with Novartis of Switzerland last year reshaped the group.
Other obstacles to a deal cited by people familiar with GSK included a perceived cultural mismatch with Pfizer and an unwillingness to consider a large volume of the US company’s shares as part of any offer.

>>> US Close Dow+0.93% S&P+1.19% Nasdaq+1.45% Russell+2.09%

Closing Market Summary: Energy and Health Care Lead Stocks Higher

The stock market charged higher to begin November with the Nasdaq Composite setting the pace. The tech-heavy index surged 1.5% while the S&P 500 (+1.2%) followed right behind.

Equity indices started the trading day on an inconspicuous note after the overnight session featured some mixed economic data. In China, October Manufacturing PMI missed expectations (49.8; expected 50.0) while final Caixin PMI improved to 48.3 from 47.6, but remained below 50.0, indicating continued contraction. Asian markets ended the day on a broadly lower note, but the investor sentiment improved after European participants joined the fray and the market was treated to mostly better than expected PMI readings from regional economies. The eurozone Manufacturing PMI improved to 52.3 from 52.0 (expected 52.0), helping lift European markets off their opening lows.

Once the U.S. session got going, an opening trot higher turned into a daylong charge paced by energy and biotechnology as both groups built on their October gains. Biotech names wasted no time, rallying from the opening bell to send the iShares Nasdaq Biotechnology ETF (IBB 338.06, +12.60) higher by 3.9%. For its part, the health care sector spiked 2.1%, but the group was overtaken by the energy sector (+2.4%) during the afternoon.

The energy sector charged higher with the likes of Chevron (CVX 94.96, +4.08) and ExxonMobil (XOM 85.28, +2.54) extending their post-earnings gains even as crude oil lost 1.0%, sliding to $46.12/bbl, despite little change in the Dollar Index.

While the final standing did not suggest any underlying weakness, most sectors did not fare nearly as well as energy and health care. To be fair, financials (+1.5%) and industrials (+1.2%) also displayed relative strength, but technology (+0.9%), consumer discretionary (+0.5%), and consumer staples (+0.6%) lagged.

The consumer staples sector was pressured by beverage names while Sysco (SYY 41.04, -0.21) lost 0.5% despite reporting a one-cent beat. Over on the discretionary side, apparel retailers struggled in the morning, but largely recovered during the afternoon. On a separate note, Chipotle Mexican Grill (CMG 624.00, -16.23) fell 2.5% amid news of an E. coli scare that prompted the closure of 43 stores in Oregon and Washington.

Unlike stocks, Treasuries slipped in the morning and maintained their losses into the afternoon. The 10-yr note settled on its low with the benchmark yield rising four basis points to 2.19%.

Today's participation was roughly in-line with average as more than 845 million shares changed hands at the NYSE floor.

Economic data was limited to Construction Spending and ISM:

  • September construction spending jumped 0.6% to a seasonally adjusted annual rate of $1.09 billion while the consensus expected an increase of 0.4%
    • The uptick in total spending flowed from a 0.6% increase in private construction and a 0.7% increase in public construction spending
  • The Institute for Supply Management (ISM) reported that the October ISM Index registered a 50.1 reading versus 50.2 in September while the consensus expected a downtick to 50.0
    • This was the lowest reading since May 2013, but there was some expansionary activity below the surface with new orders increasing to 52.9 from 50.1 while the production index rose to 52.9 from 51.8

Tomorrow's economic data will be limited to the 10:00 ET release of the Factory Orders report for September (consensus -0.9%).

  • Nasdaq Composite +8.3% YTD
  • S&P 500 +2.2% YTD
  • Dow Jones Industrial Average 0.0% YTD
  • Russell 2000 -1.5% YTD