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Good morning,
Markets are called to open flat in Europe. This is what's happening today:
Companies in Europe reporting results today: UBS, KPN, Munich RE, BG Group, BP, Enel, Vinci, Givaudan, Roiyal Imtech, YIT, Tele2, Alfa Laval, ARM Holdings, Kesko, TDC, Neste Oil, Orion, Stora Enso, TalkTalk, St Mowden, QinetiQ, Banco Espirito Santo, Italcementi
Companies in the US reporting results today: Becton Dickinson and Co, AGCO Corp, SunCoke Energy Inc, HCA Holdings Inc, Diamond Offshore Drilling, Emerson Electric Co, Spectra Energy Corp, Archer-Daniels-Midland Co, Cardinal Health, Sirius XM Radio, Estee Lauder, Arch Coal, Kellogg, Computer Sciences
We are seeing some negativity in the markets after the Spanish Prime Minister is being accused of corruption, the Italian elections on the doorstep and orders placed with US factories increased less than forecast in December, reflecting a drop in non-durable goods that partly countered gains in construction equipment and computers.
Now people start to question if the bond bubble is about to burst and if sentiment is going to turn negative as investors start to remove risk from the table. I personally think this is a much bigger problem for fixed income than it is for equities because from a fundamental point of view, high yield are much more expensive than equities so if the market had to turn negative, they will be the ones hit hard.
I do believe that a bubble has been formed in high yield though on the other hand I think it is pre mature to comment on whether the bubble has burst just because we are seeing some negative signs from the market. All in all, this earning season was a good one with most companies beating forecasts. It now depends on how well and how fast the problems in the global economy are solved.
The nest important date for the markets is the 7th February. The European Central Bank meets on Feb. 7 while euro-area leaders gather for a summit the same day. The ECB, which has held its main refinancing rate at 0.75% since July, will make no change at its next policy decision, according to the median forecast of economists surveyed by Bloomberg. It will be important to see what Draghi has to say about the European economy as well as what the ECB and the EU leaders will do to bring growth back to the Eurozone.
Don't forget that the EURUSD is trading at 1.3486. The strength of the Euro is a threat to stability and growth in the Eurozone. It will be interesting to see what the ECB has to say about the EURUSD in the meeting next Thursday.
This morning UBS reported results and increased its dividend by 50%. The results were better than expected however, the company reported a loss for the quarter after having to account for a fine for trying to rig global interest rates and costs tied to job cuts. The net loss amounted to 1.89 billion Swiss francs ($2.08 billion), compared with a profit of 323 million francs a year earlier. The loss was smaller than the 2.16 billion-franc mean loss estimate. Chief Executive Officer Sergio Ermotti is cutting 10,000 jobs over three years and exiting most debt-trading businesses to focus the bank on money management and boost return on equity, a measure of profitability, to at least 15% in 2015. Chairman Axel Weber said in an interview last month that while market trends have improved, he expects a “bumpy” recovery this year.
UBS has risen 48% to 15.62 francs in Swiss trading over the past six months, compared with a 27% gain in the Bloomberg Europe Banks and Financial Services Index, which tracks 40 companies. UBS said it plans a dividend of 15 cents a share, up from 10 cents in the previous year.
For more information on UBS or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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