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Good morning,
Markets are called to open flat this morning in Europe. These are the main events that are moving the markets this morning:
Companies in Europe reporting results today: SABMiller, Fresnillo, Cairn, Alstom, Douglas, Castellum, SEB
Companies in the US reporting results today: Delta Air Lines, Johnson & Johnson, Freeport-McMoRan, Verizon Communications, IBM, Google, Advanced Micro Devices
The news from the Bank of Japan is good but investors are disappointed because expansionary monetary policy is being delayed till 2014 and there is no time limit in place to reach the inflation target of 2%. The Bank of Japan came out saying that they will adopt a stategy similair to that adopted in the US where the central bank will buy an unlmited amount of debt in the market until they will start to see inflation kick back in and reach 2%. In 2011 there was deflation of -0.28% and in 2012 the figure is expected to come out somewhere close to zero. Investors aren't happy with the way the BOJ is going to deal with the problem of deflation in the country becuase they are going to wait till 2014 to start the program and secondly they didn't give a time frame in which they want to reach the inflation target of 2%. If they did give a time frame, the market would be able to calculate how fast and how much the BOJ will be pumping into the economy. The fact that there is no time limit could mean that it could take much longer than expected to reach the target.
Having said all this the fact that the BOJ is all out to kick start the economy is a positive thing. Investors are the most bullish on Japan’s markets in more than three years and confident that Prime Minister Shinzo Abe will weaken the yen to boost exports as he tries to end two decades of deflation.
In Europe we are seeing that as usual, Germany and France are in disagreement on how and when the ESM should finance banks directly rather than go through governments. France and Ireland want this new tool to be put into place as quickly as possible. On the other hand, Austria and Germany are saying that direct bank aid shouldn’t start until the European Central Bank takes up its new role as single supervisor within the currency zone, which isn’t expected until 2014. In the meantime, the ESM needs to leave its resources free to be a lender of last resort.
Today is another big day in the US as alot of well know blue chips report results – amongst them are Google and IBM. Google is trading at $704.51 and the majority of analysts are bullish on the stock with price targets above the $800 level. Analysts expect inline results driven by rapid growth in mobile and display, despite an increase in traffic acquisition costs and continued slowdown in desktop search growth. Analysts suggest consensus reflects core Google growth of 10.0%-10.5% quarter-on-quarter.
With IBM, we are seeing investors becoming less interested in the stock, given the company’s limited upside potential and muted revenue growth profile at a time when broader tech end markets could be bottoming. A potential bottoming could set the stage for nimbler, higher growth companies to find firmer footing after a tenuous nine months.
I'd like to end the blog with a paragraph from an article on bloomberg which continues to show investor optimism in the markets as they put risk back on the table.
International investors are the most bullish on stocks in at least 3 1/2 years, with close to two- thirds planning to raise their holdings of equities during the next six months, according to a Bloomberg survey. As the global financial and business elite gather in Davos for their annual forum, 53% of respondents to the Bloomberg Global Poll also say equities will offer the highest return in the next year. That’s a 17 percentage point jump from the last poll in November and the most since the quarterly survey of investors, analysts and traders who subscribe to Bloomberg began in July 2009.
Behind the enthusiasm for shares: growing confidence in the US economy and ebbing concerns about Europe. America is in its best shape in two years, according to the poll, with a majority of the 921 surveyed on Jan. 17 describing the economy as improving. In a sign the euro-area’s three-year debt crisis is easing, only 45 percent said the region’s economy is still deteriorating, down from seven in 10 two months ago.
“There does appear to be some cautious optimism that things are slowly being resolved,” Ben Kelly, an equity analyst at Louis Capital Markets in London and a poll participant, said in an e-mail. “There are some positive shoots that people are grabbing on to.”
For further information on the stocks mentioned in this blog or other stocks and bonds, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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