Good morning,

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

  • China’s exports and imports rose more than estimated in a January that had five more working days than last year, helping sustain a growth rebound in the world’s second-biggest economy. Overseas shipments increased 25% from a year earlier and imports rose 28.8%;
  • Japan posted back-to-back monthly current- account deficits for the first time since 1981;
  • The ECB and BoE left rates unchanged yesterday;
  • Iceland’s Baa3 credit rating outlook was revised by Moody’s Investors Service to stable from negative, based on the reduced event risk following the European Free Trade Association Court decision in January;
  • EU leaders discuss European crisis at 2nd day of Brussels summit.

Companies reporting results in Europe today – EMS-Chemie, Telecom Italia, MAN, Securitas, Eurocommercial, SSAB, Royal Imtech, Cofinimmo, Catlin, Shaftesbury, Acquarius, Lufthansa, Eiffage

Companies reporting results in US today – AOL, Apollo Global Management, Laboratory Corp of America Holdings, Louisiana-Pacific Corp, Entergy Corp, Buckeye Partners

The Shanghai Index is up 1% but the Nikkei is down 2%…why? In China, exports and imports both rose more than expected in January. This continues to confirm the view that China is doing well and expected to grow at higher rates than 2012. China’s data may indicate a strengthening economy, according to Nomura. Analysts expect economic expansion to pick up to 8.1% this quarter from 7.9% in the previous three months. The central bank said in its fourth-quarter monetary-policy report that growth momentum is “relatively strong” while highlighting concern that inflation risks will increase.

On the other hand the Nikkei is down 2% mainly due to the weak data issued by Sony. Sony shares are trading 10% lower this morning in Tokyo. Sony posted an eighth straight quarterly loss and cut sales targets for TVs, gaming devices and compact cameras.

Yesterday the President of the ECB, Mario Draghi, kept interest rates unchanged at 0.75%. The European Central Bank left interest rates unchanged even as a stronger currency threatens the euro area’s recovery from recession. Recent indicators suggest the euro-area economy may return to growth later this year, easing pressure on the ECB to lower rates further. At the same time, a rising euro could hurt exports and stymie the recovery before it has begun, and looser monetary policy in the US and Japan may continue to weaken the dollar and the yen.

The negative about Draghi when compared to Trichet is that Draghi never comments about the EURUSD whereas Trichet always used to comment. This is worrying especially when we have the EURUSD at $1.35 and analysts predicting it will go to $1.40. Draghi put the EURUSD on the back burner and kept growth rates unchanged going forward. The ECB estimates the euro-area economy will shrink 0.3 percent this year before posting growth of 1.2 percent in 2014. However, I tend to agree with the Chief euro-are economist at Citigroup who said that 'We expect the tone of the statement to turn more cautious on the economic outlook and more relaxed on the outlook for inflation, reflecting the recent increase in some money-market rates and the appreciation of the euro'.

In the UK, the BoE also kept interest rates unchanged at a record low of 0.5%. The Bank of England refrained from adding more stimulus for economic recovery and the Monetary Policy Committee led by Governor Mervyn King said the target for its bond purchases will remain at GBP375 billion.

Two stocks to talk about today are Bunge and Apple. Unfortunately Bunge's results were not as exceptional as they expected them to be and the shares were down 9% in the session. At fault seems to be poor risk management in the quarter, as we believe that Bunge was positioned for a much more bullish crop price environment than what has transpired so far. However, analysts at Citigroup expect this quarter’s results will not impact expectations for 2013. Citigroup did not reduce their price target of the stock and left it at $105/share.

Quoting from a Citi report which just came out, '2013 Outlook Still Robust; Although Bunge Doesn’t Provide Quantitative EPS Guidance – While the 4th quarter was disappointing, we don’t believe it fundamentally impacts our outlook for 2013. We continue to see a strong environment for Bunge and expect management to make this clear on its 10am call.'

Another stock i'd like to comment about is Apple. Apple’s board and management are actively discussing the return of more cash to shareholders and considering a proposal that it issue preferred stock. Apple shares jumped 3% after it responded to a call by Greenlight Capital’s David Einhorn for Apple to return more of its $137.1 billion in cash. He had also urged shareholders to vote against a proposal by the company to eliminate preferred stock without investors’ approval.

Today’s statement suggests Apple is softening its stance on the preferred shares after saying previously in its annual proxy that it has no plans to issue them. Apple also said it’s already committed to returning $45 billion over three years.

Quoting from a Barclays report this morning, 'We believe that Apple has room to increase its total cash outlay for dividends and buybacks by 30-40% over the next 3 years without having to access overseas cash. We note that Apple had about $137 billion of total cash and investments including $43 billion of domestic cash and $94 billion of overseas cash. Based on these balances and our future cash flow estimates, we believe Apple could increase the size of its current 3-yr $45 billion capital return program ($10 billion completed by next week) by 30-40% – without needing to access cash overseas and incurring a tax liability. We are currently forecasting free cash flow of $44.29 billion in 2013 ($46.89 per share) and $51.07 billion in FY14 ($54.35 per share). '

For more information on the stocks mentioned in this blog or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli