Good morning,

Markets are called lower this morning. This is what's happening today:

  • Asian stocks fell as China property companies slumped after the government ordered measures to cool prices;
  • The yen strengthened against all its major peers, while Japanese and Indian bonds gained;
  • European finance ministers meet in Brussels;
  • HSBC reports results today.

The Shanghai composite is down 3 this morning after China’s cabinet ordered higher down payments and interest rates for second-home mortgages in some cities, as parliament gathered for an annual meeting. Haruhiko Kuroda (the new president of the BoJ) said the Bank of Japan should refrain from directly underwriting government debt, highlighting the potential for even expanded action by the central bank to disappoint some investors.

European leaders demanded that euro members press on with budget cuts to end the debt crisis as Italy edged closer to a new election after an anti-austerity vote last week resulted in political deadlock. Finance ministers from the 17-member single-currency bloc meet in Brussels today to discuss issues including a bailout for Cyprus. In Rome, a top aide to Democratic Party leader Pier Luigi Bersani said the country may need to hold another election this year after passing new electoral laws.

Italian 10-year bonds climbed to a three-month high last week, jumping 34 basis points to 4.79%. Still, Spanish bonds rallied along with Greek and Portuguese securities on speculation that the European Central Bank, which eased a market panic last year with a pledge to buy sovereign debt, will maintain control over the three-year-old debt crisis.

In the US, just the hint the Federal Reserve would end debt purchases that have supported bond prices sent Treasury yields soaring last month to the highest since April, a reaction that is unwarranted if money markets are a guide. Even as yields rose, overnight index swaps that traders use to speculate on the path of the Fed’s target interest rate for overnight loans between banks signaled that the zero to 0.25% range won’t increase for more than two years. In a bullish sign for bonds, Bank of America Merrill Lynch’s MOVE Index, which tracks the outlook for swings in US government debt rates, shows investors don’t anticipate an increase in price swings.

An interesting stock to watch today is International Airlines Group. Deutsche Bank are bullish on the stock and have a price target of GBP330. The following is Deutsche Bank's arguement for purchasing the stocks, 'Greater confidence underpins medium term outlook and Buy case – We have upgraded our EBITA forecasts by +16% for FY’13E and by +19% for FY14E (see table bottom right) based on higher than expected guidance and renewed confidence in achieving both the 2015 EBITA target and the Iberia restructuring. Furthermore, additional trading benefits from new joint venture partners (Japanese Airlines, Cathay Pacific) and the potential to significantly expand existing ones (American Airlines, post the US Airways merger) should provide additional growth stimuli. We have upgraded our target price from 230p to 330p. We reiterate our Buy stance.'

For more information on International Airlines Group or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli