Home > Blog > Trader talk > Trader Talk: An Analysis of the Markets this Morning

Good morning,

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

  • European Central Bank President Mario Draghi heads a meeting of policy makers today in Frankfurt;
  • Bank of England policy meeting today;
  • Japan’s Nikkei 225 Stock Average fell from its highest close since 2008 as the yen strengthened. Nikon Corp., the country’s third-biggest camera-maker, plunged 19% after cutting its outlook. Losses were tempered as automaker Mazda Motor Corp. jumped 11% after raising its profit projections;
  • China’s Shanghai Composite Index is up 24% since Dec;

Companies reporting results in Europe: Credit Suisse, Swisscom, Sanofi, Danske Bank, Statoil, Vodafone, Daimler, Alcatel-Lucent, HeidelbergCement, Orkla, Nutreco, Dassault Systemes, Umicore, Voestalpine, DNB, Tryg, Smith & Nephew, Skanska, Assa Abloy, Outotec, TUI Travel, SCOR, Lagardere, Air France-KLM, Bellway, ICAP, Compass, Ocado, Playtech, TGS Nopec, Metso, Holmen, Telecom Italia, Eutelsat

Companies reporting results in the US: Coca-Cola, Noble Energy, Exelon, Patterson, KKR, Ingredion, Advance Auto Parts, Philip Morris International Inc, Ocg-Ziff Capital Management Group, Teradata Corp, Sally Beauty Holdings, PennyMac Mortgage Investment Trust, Bunge

An important day in the markets today as the BoE and ECB policy makers meet to decide on interest rates. Economists do not expect either of the two institutions to raise interest rates today. It willl be interesting to see how Draghi is going to deal with the strength we are seeing in the Euro. What his comments will be on the Eurozone economy and if the strength in the Euro has changed the outlook for the Eurozone economy. The ECB estimates the euro-area economy will shrink 0.3% this year before posting growth of 1.2 percent in 2014. The euro’s strength may force it to revise down those projections in March, reopening the door for another rate cut.

In the UK Mervyn King is expected to keep interest rates on hold at 0.5% aswell as maintain the BoE's target bond purchases at GBP375bln. While heavy snowfalls threatened to push the British economy into an unprecedented triple-dip recession, surveys in January suggest Britain might be spared as both manufacturing and services showed expansion. Policy makers will have considered such mixed signals as well as quarterly forecasts produced for this month’s decision.

Alcatel-Lucent today announced 2012 full year results. The company will not be paying a dividend for 2012 after it reported a 4Q12 net loss of E1.37bln vrs and estimated loss of E18.9mln. The large discrepancy was due to an impairment of E1.4bln related to depreciation of goodwill and fixed assets. Sales were in line with estimates at E4.1bln and gross margins came in at 30.4% compared to 29.4%. The Companies CEO will step down this year. Management said that it sees signs of customer confidence in its order book and backlog. In 2013 the company will continue to focus on its performance program and on product areas which are value creative for shareholders.

Another company which just reported results is Credit Suisse. Credit Suisse reported a profit for the fourth quarter that missed estimates and increased its cost-cutting goal. According to Morgan Stanley, a rebound in financial markets would help the Company boost earnings this year. Credit Suisse rose 59% to 27 francs in Swiss trading over the past six months. The bank proposed to pay 10c in cash and 65c in shares as dividend for 2012 after letting shareholders choose the previous year whether they wanted to get 75c a share in cash or in stock to help the company build up capital ratios.

Today two very interesting stocks which I am bullish on are reporting results – Ingredion and Bunge. What's interesting at this point after Ingredion having rallied 54% in the last 6 months is to switch out of Ingredion and into Bunge.

I'm going to quote Citi on Bunge because they just came out with a report yesterday. This is what they are saying before the results –

Top Pick Bunge Reports 4Q12 Earnings on February 7th — We expect a strong 4Q12 earnings report at Bunge, driven by solid soybean crushing margins and strong grain merchandising results. Our $2.40 EPS estimate for the quarter is +4c above consensus estimates of $2.36, and would represent the strongest 4Q earnings result over Bunge’s history, as we see the firm benefitting from a tight global agricultural environment.

Bunge Remains Our Top Pick — Going forward, we believe that Bunge should be in store for strong earnings in 2013 given the company’s leverage to South American agriculture (60% of BG’s long lived assets), which will see increased demand in order to offset reduced grain supplies from the US. With Bunge shares trading at 10.5x 2013 earnings, we see good value in the stock with significant upside potential. Buy. Citi have a price target of $105 on the stock which is currently trading at $79.50.

Citi prefer Bunge to Ingredion for two reasons. The first is that Ingredion is up 54% in the last 6 months and trading at a 52-week high. Plus due to the current valuation and the fact that we are seeing some weakness in sugar prices which will effect its bottom line, it makes sense at this point to switch out of Ingredion and into Bunge to continue taking advantage of the sector and the feel good factor in the markets.

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

Good day and happy trading!

Kristian Camenzuli