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Good morning,

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

  • The Nikkei 225 Stock Average surged 2 percent to its highest level since September 2008;
  • Shinzo Abe will nominate Haruhiko Kuroda as central bank governor. Kuroda said this month the central bank has “substantial room” for monetary easing;
  • China’s manufacturing is expanding at the slowest pace in four months, a private survey showed today;
  • U.K. stripped of Aaa status by Moody’s citing continuing weakness in growth outlook and resulting challenges to fiscal consolidation;
  • Italy elects new govt, voting ends at 3pm

Companies in Europe reporting results today: PostNL, Exor, Bunzl, Pearson, Petra Diamonds, Senior Bovis Homes, Hiscox, Domino's Pizza, Genus, Associated British Foods.

BOND SALES/PURCHASES:

• 11am: Italy to sell up to EUR3b zero 2014 bonds

• 11am: Italy to sell 2.1% I/L 2021 bonds

• 11am: Italy to sell 3.1% I/L 2026 bonds

• 11:30am: Germany to sell EU3 Bln 12-mth bills

• 2:50pm: France to sell up to EUR3.8b 84-day bills

• 2:50pm: France to sell up to EUR1.9b 161-day bills

• 2:50pm: France to sell up to EUR1.8b 343-day bills

A busy week for the markets. Europe is main items are dominating the news. The Italian elections and the downgrade of the UK. Italy's parliamentary elections kick off Sunday, with polls suggesting the center-left led by Pier Luigi Bersani is on track to defeat controversial three-time prime minister Silvio Berlusconi. But Berlusconi's rise in the polls in recent weeks, combined with widespread public disillusionment, means that nothing about the race is a foregone conclusion.

The UK has lost its top AAA credit rating for the first time since 1978 on expectations that growth will remain sluggish over the next few years. The ratings agency Moody's became the first to cut the UK from its highest rating, to Aa1. Moody's said the government's debt reduction programme faced significant challenges ahead. Chancellor George Osborne said the decision was a stark reminder of the debt problems facing our country and that the UK will go on delivering the plan that has cut the deficit by a quarter.

In the US, investors are awaiting US data this week including the Institute for Supply Management’s factory index, durable goods orders, household spending, new-home sales, the S&P/Case-Shiller index of home prices and fourth-quarter gross domestic product. Federal Reserve Chairman Ben S. Bernanke is due to testify before lawmakers tomorrow and the next day.

China’s manufacturing is expanding at the slowest pace in four months. The preliminary reading of a Purchasing Managers’ Index was 50.4 in February, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 52.3 final reading for January and the 52.2 median estimate. A number above 50 indicates expansion. Today’s report may damp optimism that an economic rebound is gaining traction following a seven-quarter slowdown and the weakest annual expansion in 13 years. The benchmark Shanghai Composite Index last week dropped the most since May 2011 on concern the government will expand restrictions on the property market to curb home-price gains.

Stock to watch: American International Group (Price $38.45, PT $41)

Deutsche Bank Price Target and comments – PT US41 – AIG is one of the largest P&C, life insurance, and retirement services companies in the world, although it emerges from a government restructuring a different, smaller, somewhat simpler company than it was in 2008. The company has proposed a lofty goal of targeting a 10%+ ROE in 2015. This involves execution, cost-cutting, capital management and high interest yields. We believe the company may be able to execute on some of these plans. However, we currently believe that what potential AIG investors crave is stability. If the company is able to show quarterly consistency, implementation of a nominal dividend and deployment of cash into interest bearing investments, we believe the stock can appreciate. Further, as the company monetizes assets for the purpose of share repurchase, we believe ROE can move closer to 8%, while BVPS grows faster. There is additional upside associated with improved operations at its United Guaranty subsidiary, actualization of deferred tax assets and gains in its diminished derivatives portfolio. Buy.

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

Good day and happy trading!

Kristian Camenzuli