Good morning,

The markets are called to open flat in Europe this morning. Three reasons for a negative session today:

1) Japan – Japanese stocks fell from a 32-month high and the country’s bonds rose as the yen gained for a second day. Platinum slid from its highest level since October.

2) China – China’s foreign direct investment declined for the first full year since 2009 as economic growth slowed and manufacturers relocated to markets with cheaper labor, contrasting with outbound spending that surged to a record.

3) The World Bank cut its global growth forecast to 2.4% from an earlier projection of 3% as government spending cuts, joblessness and low business confidence dragged on developed economies. The Washington-based bank cut the US projection by 0.5 percentage point and predicted a second year of contraction in the euro region. It also lowered projections for emerging markets led by Brazil, India and Mexico.

The markets started the year on a good note. The DAX is up 1% for the year, the FTSE up 3.7%, the Hang Sang up 2.56%, the Nikkei up 1.9% and the S&P 500 up 3.24%. Not to mention high yield bonds which are maintaining their gains so far. Earning season kicked off with Alcoa and Rio Tinto increasing optimism due to a pickup in demand in China. However, the Europeans might have shot themselves in the foot when EU President Herman Van Rompuy said on Jan. 9 'the worst is behind us' and the ECB's President Mario Draghi said on Jan 10 'a gradual recivery should start in the euro-area economy in late 2013.' This 'positivity sent the Euro strengthening against a basket of currencies including the Dollar.

Jean-Claude Juncker, (who leads the group of euro-area finance ministers) said the euro’s 8.4% gain against the US dollar in the past six months is posing a fresh threat to the European economy just as it shows signs of escaping the debt crisis. Juncker called the euro’s value “dangerously high” after the 17-nation currency this week traded above $1.34 against the dollar for the first time since February last year. The euro has rallied amid growing signs in financial markets that the three-year debt turmoil is fading and after European Central Bank President Mario Draghi last week signaled no immediate plan to ease monetary policy further.

There is also a report going round the markets that 500 analysts are expecting European companies to cut their dividend and increase their stockpile even after the cash on balance sheet climbed to the highest since 2008. balance sheets climbed to the highest since 2008, the data show. The forecasts suggest more companies will follow Royal KPN NV and Enel SpA in reducing payouts as the debt crisis pushes unemployment in Spain and Greece to more than 25% and China’s economy cools. Analysts are cutting estimates amid a rally that has sent the Euro Stoxx 50 to a 17-month high as central-bank measures hold down bond yields.

Despite all this news out in the markets, I remain of the view that an investor should remain invested particularly in equities because valuations are very attractive at this point in time. Don't be surprised if you start to see a shift out of high yield and into equities and investors rebalance their portfolios to be able to get as much alpha as possible in 2013.

One last note on Apple. The weakness we are seeing in the price is not reflective of what the company is worth. Infact even those 'few' analysts who had doubts on the stock are now turning bullish. We will know the truth about Apple once they report results on 23.01.13. But all this talk about a cut in supply of parts for the iphone is old news. Barclays told us in the past that the slowdown in demand for parts is coming due to the company having increased their stockpile last quarter to be able to cater for the high demand. Infact, it is the first time in many years that I haven't read an article saying that Apple isn't keeping up with demand. And this is because they learnt from the past and built reserves to cater for demand.

Quoting from a report on CNBC titled – Apple Stock Bottoms here; DeMArk – 'After turning bearish on Apple shares on Sept. 21, Market Studies founder and CEO Tom DeMark said on Tuesday that the bottom was in. The convergence of powerful indicators make a strong case for Apple to pop very soon. This looks like a very strong rally of at least 22%. We wouldn't be surprised tomorrow to see Apple gap up above $494, $495 despite trading lower in the aftermarket today, and it will just move forward from there and be strong for the next couple of weeks and reach $600.'

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Good day and happy trading!

Kristian Camenzuli