Good morning,

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

  • Portugal Rating Outlook Raised to Stable by S&P on Budget Plan
  • Draghi Confronts Italy Impact as ECB Seen Keeping Rates on Hold
  • BOE Reopens Stimulus Toolbox as Economists Split on Next Move – Pound dropped to lowest since July 2010 before the Bank of England concludes a two-day meeting today;
  • Yen rose after the Bank of Japan refrained from expanding monetary stimulus at a policy meeting today;
  • Carrefour, Telecom Italia, Adidas and Aviva reports results today


  • 10:30am: Spain to Sell 3.75% 2015 Bonds
  • 10:30am: Spain to Sell 4.5% 2018 Bonds
  • 10:30am: Spain to Sell 5.4% 2023 Bonds
  • 10:50am: France to Sell 4.25% 2018 Bonds
  • 10:50am: France to Sell 2.25% 2022 Bonds
  • 10:50am: France to Sell 2.75% 2027 Bonds

The yen, euro and sterling all struggled on Thursday with the pound hitting a 2.5 year trough as markets positioned for more stimulus from the Bank of England, and waited for the outcomes of the Bank of Japan and European Central Bank meetings.

Given the event risk surrounding the three central bank events, investors turned to the U.S. dollar, further encouraged by data showing U.S. private employers added a larger-than-expected 198,000 jobs in February. The report increased hopes that Friday's U.S. non-farm payrolls will surprise on the upside and helped drive the dollar to six-month highs against a currency basket.

Among the three central banks, the BOE is seen most likely to add more stimulus to the economy having faced a drip-feed of dismal economic data recently. A growing number of economists reckon another 25 billion pounds of government bond buying is in the offing. The ECB, which meets in Frankfurt against a backdrop of political deadlock in Italy, is expected to hold fire for now, but perhaps open the way to looser policy in the future.

Analysts expect no action from the BOJ until after a new governor is installed in coming weeks. Markets see fresh stimulus measures at the next meeting in early April. Anticipation of aggressive easing from the BOJ has made the yen the worst performer among major currencies this year. The dollar has risen about 8 percent so far this year, while the euro is up nearly 7 percent.

Adidas reports results today. Citi are bullish on the stock. Adidas is trading at E71.67 and Citi have a price target of E83. This is what they have the say before the results today, 'Buy rating, €83 target price — Our €83 (raised from €76 given valuation year rollforward) 12-month target price is based on adidas Group holding a c.11x EV/EBIT multiple to Dec-14E, which is equivalent to a 17x PE and 2.2% dividend yield to the same forecast year and underpinned by an €86 DCF. adidas Group is Buy rated and on the Citi Focus List Europe.'

Aviva is also another company Citi are bullish on. This is what they said in a report prior to the results –

Three catalysts to close valuation gap – Aviva continues to trade at a significant valuation gap to peers, in our view, in spite of significant restructuring. Aviva remains on Citi’s Focus List Europe and we see three key dates in 2013 to help it re-rate and close this gap vs. peers:

– 7 March: We expect flat 2012 dividend and a positive statement on sustainability.

– 8 August: We expect bottom line improvement from cost cutting to start to show at 1H13 results, offsetting earnings dilution from disposals.

– c2 September: We expect Aviva to give notice to call hybrid on 2 October, with only partial re-financing issuance.

We reiterate of Buy rating on Aviva ahead of it reporting preliminary 2012 results on 7 March 2013. It remains one of our top picks for 2013 in the insurance sector and is on the Citi Focus List Europe.

To a large degree, we feel that the actual numbers will be secondary to the message around them: the restructuring story does not yet appear to have gained traction with investors and this will be the market’s first opportunity to hear the new CEO’s views on the group.

We are looking for a strong statement on dividend policy and sustainability. We expect the 2012 dividend to remain at the level of 2011 (26p per share for the full year), but even if it were to be re-based, we feel that a positive statement on the group’s dividend intentions would remove some of the ‘uncertainty discount’ in the stock price.

We expect Mark Wilson to confirm the group’s restructuring plan. While it is possible that there may be some changes to details in the plan (timing for improving operating performance in some business units or further scope for cost reductions), we think any changes to its central goals (eg the commitment to reducing leverage) may be taken negatively by the market.

Citi have a price target of £4.79 on Aviva with is currently trading at £3.60.

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

Good day and happy trading!

Kristian Camenzuli