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Good morning,
Markets are called to open higher this morning in Europe. This is what's moving the market's today:
1) China’s gross domestic product expanded 7.9% in the fourth quarter from a year earlier, up from a three-year low of 7.4% in the previous period, data showed today;
2) The Bank of Japan may decide to conduct open-ended asset buying to stoke inflation at a two-day policy meeting starting Jan. 21;
3) Technology shares led gains in Asia after Intel Corp. and Taiwan Semiconductor Manufacturing Co. said they will increase capital spending this year;
4) US initial jobless claims week ended Jan. 12 335k vs est. 369k; prior revised to 372k from 371k; 4-wk moving avg. 359.3k;
5) US December housing starts jump 12% M/m to 954k annual rate vs est. 890k; prior revised to 851k from 861k; 4-yr high
European companies reporting results today:
US companies reporting results today:
Yesterday Citigroup and Bank of America reported results. Both companies dissapointed the markets yesterday. Citigroup shares declined 2.92% yesterday closing at $41.24. The Comapny's shares have declined 92% in the past six years. The bank survived the financial crisis with help from $45 billion of rescue funds from the U.S. government, which it later repaid. Citigroup trades at 67% of its book value and 81% of tangible book, it’s theoretical liquidation value. The firm earned a 4% return on equity, a measure of how well it invests shareholder money. That’s below the bank’s estimated cost of equity of about 10%. Citigroup Inc. Chief Executive Officer Michael Corbat, who took over at the third-largest U.S. bank in October, said one of his goals is to “stop destroying our shareholders’ capital.”
Bank of America, the second-largest U.S. bank by assets, fell 4.2% to $11.28 after fourth-quarter net income slumped 63% to $732 million.
Quarterly dividends at both companies have been stuck at 1 cent a share as the banks work to build capital and sell riskier assets to meet regulatory standards. The firms had to slash payouts during the financial crisis to conserve capital and must await regulatory approval to raise them.
Today i another important day for the market with alot of earning reports coming up. Schlumberger is one of the companies reporting results today. This is what Barclays are saying about the stock, 'We continue to believe Schlumberger will be a primary beneficiary of the multi-year upturn in deepwater, exploration and international spending that is in the early stages. In our view, the company is clearly differentiating itself from its diversified oil service peers internationally and, increasingly, in North America as well. Technology introductions, pricing gains in a sold-out seismic market, the continued shift towards performance-based contracts, the Petrofac alliance, the push into China via the JV with Anton Oil, and the subsea JV with Cameron, are likely to result in margin growth and potentially, market share gains. With weaker NAM onshore activity somewhat mitigated by an improving GOM and the international upcycle intact, we think SLB is a must-own stock. We rate the shares Overweight with a price target of $107. The shares are trading at $73.37.
Another company reporting today which interests investors is General Electric. This is what Barclay's have to say about the stock, 'Expectations around GE’s 4Q earnings were re-set lower following reduced top-line guidance at December’s outlook meeting. GE appears well positioned to outgrow peers in 2013 given business mix and visibility within the backlog. Explicit in our recommendation of GE stock is a view that tailwinds are numerous enough to offset macro and execution risks and that GE Capital will shrink at a faster rate than expected, both operational and through asset sales and/or JVs. Overall, we remain comfortable with our more positive view on the stock and see 2013 as another year of rebuilding credibility, simplifying the portfolio, and timing that favors GE’s outsized exposure to gas power and other later cycle markets. Barclays are overweight on the stock with a price target of $25. The shares are currently trading at $21.30.
I'd like to conclude with a comment on the markets. There is enthusiasm in the markets and investors are putting risk back on the table. We are seeing the Euro rally against all currencies, even the safe havens like the Dollar and Swiss Franc. As long as money keeps on pouring into the markets and optimism stays high, it makes sense to stay long the markets. However in times like these when valuations don't make much sense because yields are at ridiculus levels it is imperative that you monitor your portfolio periodically. Just remember this. The yields on European sovereigns is going up. Look at the yield on the 10-year bund on the 10-year gilt. Yields are going up. And they are going up because investors want more risk so they are selling sovereigns and buying corporates. The only problem is that the yields on corporates are already very low and the nominal spread between the two is getting smaller and smaller. And this is where it then makes even more sense to switch out of high yield and into equities to continue earning alpha in 2013.
For more information on the markets or stocks and bonds, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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