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Good morning,
Markets are called higher this morning. This is what's happening today:
Italy’s voters handed former leader Silvio Berlusconi a blocking minority in the Senate, sparking concern that turmoil in Europe will undermine prospects for a global economic recovery. An interesting point to note is that Australian government bonds are poised to snap four months of losses as Italy’s election deadlock revives demand for the highest-yielding top-rated sovereign debt. The notes handed investors a total return of 0.8% this month through yesterday, according to Bank of America Merrill Lynch index data, ending the longest losing stretch since December 2010. Australia may return its budget to surplus next year, while Italy’s deficit is projected to swell to 3.4%, according to the Organization for Economic Cooperation and Development.
European Central Bank President Mario Draghi signaled the bank has no intention of tightening monetary policy anytime soon with inflation projected to “significantly” undershoot its 2% target next year. While the ECB’s balance sheet may shrink naturally as confidence returns to financial markets and banks repay emergency loans, policy makers are far from considering an exit from monetary stimulus. Draghi foresees for next year an inflation rate which is significantly lower than 2 percent.
In the US yesterday, Bernanke said the central bank’s easing policies are helping to improve demand for homes and cars, and that the housing market is recovering. He made his semi-annual testimony to Congress after speaking a day earlier in the Senate.
Gold headed for a fifth monthly decline in the longest run of losses since 1997 as investors reduced holdings by more than 100 metric tons on concern that US stimulus may be curtailed as the economy recovers. The metal was little changed at $1,598.19 an ounce today.
Japanese Prime Minister Shinzo Abe nominated Asian Development Bank President Haruhiko Kuroda to lead the nation’s central bank, raising the likelihood of further monetary stimulus this year.
Deutsche Telekom AG, Germany’s largest telephone company, reported fourth-quarter earnings before some items that missed analysts’ estimates because of higher spending to add customers in Germany and retain mobile-phone subscriptions in the US.
An interesting stock to look at is JP Morgan. Deutsche Bank are overweight on the stock with a price target of $53 (the shares are currently trading at $49). The following is Deutsche Bank's reasoning for the overweight rating in JPM – On Tue, JPM hosted its annual investor day. Mgmt did a good job highlighting good long term earnings power (of over $26b without higher rates, or close to $7/share), revenue growth opportunities (esp. outside of the US), and efficiency savings (which we calculate will total $4b per annum over the next three years). Equally important, JPM seems likely to deliver industry leading returns in the near-term as many peers are in the midst of restructuring, retooling, and/or building capital. Our BUY rating reflects this, an upward bias to consensus estimates and an attractive valuation (JPM trades at a discount to US market sensitive banks on 2013E and in-line on 14E/15E).
For more information on JP Morgan or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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