Good morning,

Markets are called to open higher this morning. This is what's happening today:

  • Asian stocks climbed with gold amid optimism central banks will maintain loose monetary policies to boost economic growth. The yen strengthened against most of its major peers, while oil dropped;
  • The US Federal Reserve will start a two-day policy meeting tomorrow after a government report last week showed the world’s largest economy expanded less than analysts forecast;
  • At a time when politicians are squeezing budgets to cut borrowing, the bond market is clamoring for more debt, pushing yields on almost $20 trillion of government securities to less than 1%;
  • The greenback retreated after data on Friday showed U.S. gross domestic product expanded at a 2.5 percent annual rate in the first quarter, falling short of market expectations for 3.0% growth;

EUROPEAN EARNINGS All times CET, estimates where available:

  • Erste Group Bank (EBS AV) 7:30am, 1Q GAAP net EU182.7m
  • Fiat (F IM) afternoon, 1Q adj. loss-shr EU0.015
  • Pohjola Bank (POH1S FH) 7am, 1Q GAAP EPS EU0.21
  • Svenska Cellulosa (SCAB SS) 8am, 1Q GAAP EPS SEK1.54
  • Petroleum Geo-Services (PGS NO) 8am, 1Q adj. net EU64.8m
  • TNT Express (TNTE NA) 8am, 1Q adj. net EU12.3m
  • Atlas Copco (ATCOA SS) 11am, 1Q GAAP EPS SEK2.67
  • Galp Energia SGPS (GALP PL) pre-mkt, 1Q adj. net EU67.4m
  • Luxottica (LUX IM) TBD, 1Q adj. net EU156.3m
  • Swedish Match (SWMA SS) TBD, 1Q adj. EPS SEK3.34
  • Deutsche Boerse (DB1 GR) TBD, 1Q adj. EPS EU0.92 (1 est.)
  • Aberdeen Asset (ADN LN) 8am, 1H adj. EPS GBP0.14
  • Greene King (GNK LN) 8am, 4Q sales, trading

Markets are called to open higher in Europe despite the disappointing growth figures out of the US last Friday. Italian centre-left politician Enrico Letta said he had won support of other parties to form a coalition government that will include one of former prime minister Silvio Berlusconi's closest allies as deputy prime minister.

Goldman Sachs recommends going long in 10-year benchmark Italian govt bonds (BTPs) against their French counterparts (OATs), given big macro valuation gap existing between them, according to note yesterday.

  • Spread closed at 231 bps on Friday; GS would set its initial target at 180 bps, and stops on a close above 260 bps
  • Long-end of France now in vulnerable position: spread pick-up in 10-year area doesn’t reflect its relative fundamental picture (it trades close to two standard deviations “rich” on GS’ valuations), and could attract fresh shorts should broader market take a negative turn
  • If trend towards EMU-spread compression continues, as GS expects, Italy should be one of main beneficiaries, as 10-to 30-year part of BTP curve now stands out as one of cheapest among most liquid EMU markets, when judged against macro and fiscal factors.

Amazon, the world’s largest online retailer, decreased the most in more than a year after forecasting operating profit that missed estimates as the company invests in warehouses and digital content. Shares fell 7.2% to $254.81 at the close in New York, the biggest decline since February 2012. Amazon predicted an operating loss of $340 million to a profit of $10 million, compared with analysts’ projections for a profit of $165.1 million. Net income in the first quarter dropped 37% to $82 million, or 18 cents a share, from $130 million, or 28 cents, a year prior.

Barclays Research reported the following after the results, 'Amazon continued its trend from last quarter of decelerating revenue growth coupled with improving margins, as revenue grew 22% Y/Y compared to our estimate of 24%, and the company’s 2.7% CSOI margin topped our estimate by 60bps. Shipping efficiencies and increased revenue contribution from AWS and 3P sales helped drive the margin expansion, while slowing international growth, particularly in the media segment, weighed on Amazon’s top-line. Shares traded down in the after-market as we believe investors may be focused on the company’s 4th consecutive quarter of deceleration in paid-unit growth compounded by weaker than expected 2Q guidance. Given the relatively neutral results this quarter, we are maintaining our $260 PT based on ~20x our 2014E FCF/share of $13.30.'

Barclays Research reported the followign after the results, 'There is something of a two-way pull in Total’s shares at present. I/B/E/S consensus earnings estimates have hardly changed YTD compared to the wider European oils sector down an average 7%. This combined with the movement in the share price has made the Total stock look relatively cheaper. What remains a challenge though is the evolution of both cash flow and upstream production. 1Q p roved a weak quarter in this regard. Production fell 2% y/y and a large working capital build and the timing of dividend payments in affiliates weighed on operating cashflow. We accept that production, and hence cashflow, should improve as we move through the remainder of 2013 and 2014, but with 1Q cash flow annualising at $27bn in a $112/bl environment (adjusting for working capital moves) it suggests that meeting the $29bn/year cashflow goal on average 2013-2014 in a $100/bl world is not going to be easy. Total is not an expensive stock, but without signs that the significant capex programme is delivering either production or earnings we still struggle to see why the shares outperform the wider sector. Given current valuations further material downside is likely limited and so in the context of our relative rating system we see the shares as a more marginal Underweight than previously.

For more information on Amazon or Total, or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli