Good morning,

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

  • German industrial production rises, according to economists est;
  • Germany, Norway, France sell bills;
  • U.K. credit rating affirmed by S&P as outlook remains negative;
  • Monte dei Paschi says 2011 loss would swell if loans accounted for as CDSs;
  • Britain’s economy will struggle to gather momentum until the 2H even as business sentiment and hiring intentions improve, according to a survey by BDO;
  • European Companies reporting results today include Barry Callebaut and Polymetal International;

Equity markets came under pressure on Friday after a disappointing non-farm payrolls report capped a week of unsettling US economic data that fuelled concerns the country’s economic recovery might be losing momentum.

This time, Federal Reserve policy makers are prepared for the summertime slump. During the past three years, the Fed planned to cut accommodation early in the year only to boost it after economic growth lagged behind its forecasts. Determined not to repeat the error, the Fed will probably push on with $85 billion in monthly bond purchases through the summer, said Drew Matus, a former Federal Reserve Bank of New York economist.

Last week was a big week for central banks. The European Central Bank left interest rates unchanged but appeared to leave the door open for a cut in coming months as president Mario Draghi acknowledged downside risks to an anticipated recovery in the eurozone in the second half, Mr Draghi’s dovish tone prompted a knee-jerk dip in the euro against the dollar – although the single currency quickly rallied and ended the week back above $1.30, up from its close at the end of the previous week of $1.2840.

Japan’s Nikkei 225 Index has risen 6.4 percent and the yen has declined 5.6 percent since the Bank of Japan said April 4 it would double bond buying to reach its target of 2 percent annual inflation within two years. The yen fell 1 percent to 128.01 per euro after touching 128.44, the weakest since January 2010. Japan rebounded to a current-account surplus in February as a depreciating yen and record monetary stimulus improved the outlook for a revival in the world’s third-biggest economy.

The cost of insuring corporate bonds in Japan against non-payment extended falls to the least in 2 1/2 years, credit-default swap prices show. The Markit iTraxx Japan index declined4 basis points to 92 basis points, according to Citigroup Inc. prices.

Stock to watch: Telecom Italia (Prie E0.58, Price Target E1.18)

Deutsche Bank Research – he company targets over Euro 22bn OpFCF cumulated 2012-14bn after Euro 15bn capex. Net free cash flow after financial charges and taxes should be in excess of EUR11.5bn, which should allow the company to at least maintain its healthy dividend stable and bring debt near EUR25bn by 2013. This is c. 2x EBITDA vs. 2.5x in 2011. We see guidance achievable both in the long term and in 2012. For 2012, revenues and EBITDA are set to remain flat yoy in organic terms and debt to fall to EUR27.5bn also helped by c. 0.5bn disposals. Domestic revenues and EBITDA are guided to fall mid single digit yoy, which should be offset by Brazilian sales and EBITDA to grow 7/8% yoy and Argentina's fast growth. We see material upside potential, the stock trades at a significant discount to the sector and saving shares yield is c.9% (ordinaries c. 6%): Buy. We see upside potential to our target price should T.I. agree with Cassa Depositi e Prestiti the creation of a NETCO (access network company). T.I. and CDP are likely to combine forces in domestic fibre roll out, in our view: EU commissioner Kroes' decision to keep ULL prices at c. E9 till 2020 makes creation of a NEWCO where T.I. confers its copper network and CDP injects cash plus Metroweb, much easier as copper valuation is more straightforward. Although such a deal would take time, the creation of a NEWCO with a very stable revenue stream and high margins could pave way to an important re-rating of a substantial part of T.I.'s wire line business.

For more information on Telecom Italia and other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli