Home > Blog > Trader talk > Trader Talk: An Analysis of the Markets this Morning

Good morning,

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

  • Asian stocks and commodities climbed for a second day as Chinese inflation rose less than economists forecast. U.S. stock-index futures increased and the yen trimmed losses that brought it to the brink of 100 per dollar for the first time in four years;
  • Tata Steel Ltd., India’s biggest producer, is considering selling some of its U.K. assets as a weakening economy erodes demand leaving factories underutilized;
  • Lagardere said it’s exiting EADS through stake sale valued at about EU2.3b. Societe Generale, Credit Agricole, Merrill Lynch are offering 61.1m EADS shares for Lagardere’s holding unit Sogeade in EU37.35-EU37.95 apiece price range, term sheet obtained by Bloomberg;
  • Companies in Europe reporting results today are JKX Oil & Gas, Victrex, Robert Walters and Air-France-KLM;

Alcoa, the largest U.S. aluminum producer, reported first-quarter earnings that exceeded analysts’ estimates as demand from airplane and car manufacturers increased. Net income rose to $149 million, or 13 cents a share, from $94 million, or 9 cents, a year earlier, the New York-based company said yesterday in a statement. Earnings excluding an income-tax benefit and other one-time items were 11 cents a share, beating the 8-cent average of 18 estimates compiled by Bloomberg. Alcoa’s shares, which rose 1.8 percent yesterday in New York before the results were released, trimmed some of those gains in after-hours trading as the company also reported sales

that missed estimates. Revenue dropped because of lower aluminum prices and the impact of smelter curtailments in Spain and Italy, Alcoa said.

On Friday, JP Morgan reports results. Deutsche Bank Research have a BUY recommendation on JP Morgan with a price target of $53. The shares closed the session yesterday at $48.58. We are positive given: 1) likely additional expense savings from efficiency initiatives ahead, 2) declining mortgage-related costs, 3) strongest leverage among the money centers to a consumer recovery, 4) solid capital and building quickly, and 5) diverse revenue streams/products with leading market share. Given these, we think the risk/reward is compelling vs. peers. BUY.

Wells Fargo also reports results on Friday. Deutsche Bank have a HOLD recommendation with a price target of $37/share. The shares are currently trading at $37/share. We believe WFC is best positioned for mortgage activity remaining stronger than expected given its market share of about one-third. And gain-on-sale spreads remain very wide (and have seemingly increased of late). However, both of these are well known and we believe already reflected in the stock. Outside of mortgage, other trends may be a bit sluggish reflecting further NIM pressure, only modest balance sheet growth, and likely higher-than-expected expenses (even outside of those related to mortgage volumes). Stepping back longer term, we think WFC could be a winner from an eventual revamp in the mortgage finance model (ie the GSEs). However, increasing uncertainty over how this plays out may weigh on/limit upside to WFC. HOLD.

For more information on Alcoa, JP Morgan, and Wells Fargo, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli