Good morning,

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

  • The yen dropped against all of its major peers as traders bet the Bank of Japan will add to stimulus measures as early as next week;
  • The final reading of French gross domestic product will probably confirm a 0.3% contraction in the fourth quarter, the biggest in almost four years, according to the median forecast of economists in a Bloomberg News survey;
  • Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency;
  • Cyprus Rating May Be Cut by Fitch; Country Ceiling Revised to B;
  • Deutsche Telekom’s T-Mobile Adds IPhone as MetroPCS Deal Looms;
  • European companies reporting results today include TUI Travel, Lloyd's, ICAP etc.

Not good news out of Cyprus this morning. Cyprus is on the verge of an unprecedented financial experiment: imposing controls on money transfers in an economy that doesn’t have its own currency. Countries from Argentina to Iceland have used similar measures in the past to defend against devaluation. Being part of the euro zone may make it harder for the Mediterranean island to enforce restrictions, as any money that leaves the banking system can be taken out of Cyprus without losing value. That also may make it more difficult to meet the goal set yesterday by Finance Minister Michael Sarris to lift any controls in “a matter of weeks.” When economies in Asia and Latin America tried to stem the outflow of money in the 1980s and 1990s, they ended up keeping the measures in effect for six months to two years. Iceland, another island nation with an outsize banking system, still has capital controls five years after its banks collapsed in 2008.

On a more positive note (from Bloomberg) – 'Jesper Madsen, manager of the Matthews Asia Dividend Fund, beat rivals over the past five years with companies whose earnings are less vulnerable to economic slowdowns. Now, he’s turning to riskier stocks as investors are bidding up shares of stable companies. The $4.5 billion fund run by Madsen advanced 3.4 percent since 2008 after adjusting for price swings, the top gain among 14 U.S.-traded funds with more than $1 billion that invest at least half of their assets in Asian stocks, according to the BLOOMBERG RISKLESS RETURN RANKING. The Matthews Asia Dividend fund had the highest absolute return and the lowest volatility among peers, which include offerings from Fidelity Investments and Franklin Resources Inc.’s Mark Mobius.'

Today Lloyds report results. An interesting piece on UK Banks by Barclays Research is as follows, 'Downgrading RBS on further restructuring, retaining Underweight on Lloyds: For RBS, we see the recent announcement of a further scaling back of the Markets business and the plan for a partial IPO of Citizens in the US as negative for the earnings and RoE outlook. We are concerned that the downsizing could materially damage the Markets and Corporate Banking franchise and that a partial IPO of Citizens looks to be of limited capital benefit and comes at the cost of earnings. With our expectation of sustainable RoTE reduced to 10.5% and concerns on the risk of further restructuring we cut our rating to Equal Weight and our price target to 300p from 330p. We continue to see Lloyds’ profitability as challenged, something that could be exacerbated by further capital requirements and we retain an Underweight rating and 40p price target on the stock. Amongst the UK banks, we prefer HSBC with a superior growth and dividend outlook, rating it Overweight.'

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

Good day and happy trading!

Kristian Camenzuli