Good morning,

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

  • Japanese stocks rose for a third day and the yen weakened as the government announced stimulus measures;
  • Chinese shares fell after the nation’s inflation accelerated faster than estimated, limiting room for easing;
  • 10-year Italian debt is yielding 4.153%, 10-year Spain is yielding 4.887% and 10-year Portuguese debt is yielding 6.181%;
  • Brent is trading at $111.51/bbl;
  • Gold is trading at $1672.75/ t oz;
  • Apple closed the session at $523.51

Markets in Europe are called to open higher once again. The DAX is up 1.26% for the year so far after closing 30% up in 2012. In the US we are also seeing a good performance with the S&P up 3.22%. But the market which is stealing the spotlight so far this year is Japan. Prime Minister Shinzo Abe said Japan will spend 10.3 trillion yen ($116 billion) to accelerate a recovery from recession as speculation rose that the Bank of Japan will step up monetary easing.

Sharp, Japan’s biggest maker of liquid-crystal displays, jumped 9.9% after the Mainichi newspaper reported it expects to post an operating profit for the first time in five quarters. Honda which gets 81% of sales abroad, climbed 1.7%. A weaker yen boosts the outlook for overseas income. Abe’s package will increase gross domestic product by about 2 percentage points and create about 600,000 jobs, according to the Cabinet Office. The BOJ is set to adopt the 2% inflation target advocated by Abe, doubling its existing goal without setting a deadline for achieving it, according to people familiar with central bank officials’ discussions. The yen touched 89.35 per dollar, the weakest since June 2010. The Japanese currency depreciated 0.3% to 118.16 per euro, after earlier dropping to 118.59, the lowest level since May 2011.

In 2012 everyone talked about the EURUSD. In 2013 however, everyone is talking about the JPYUSD. If you look at the chart, all you see is a weakening Yen and this is what Japanese companies want! A weaker currency to export more. The lower the Yen goes, the more Japanese companies sell and the higher the markets go.

We have a different story out of China. The positive news coming out the economy coupled with the acceleration in inflation is reducing the probability of further stimulus in China. China’s inflation accelerated more than forecast to a seven-month high as the nation’s coldest winter in 28 years pushed up vegetable prices, a pickup that may limit room for easing to support an economic recovery. The consumer price index rose 2.5% in December from a year earlier. The quickening in inflation makes further policy loosening less likely, after data yesterday on exports and credit growth underscored the strength of China’s economic rebound.

However, the fact that things are going well in China is a positive and the fact that the Chinese President declared that if necessary he will stimulate the economy to create growth adds to the conviction of the China exposure in a portfolio. The same can be said for the US. There is worry that the Fed will stop QE in 2013. HOWEVER, this is still just speculation and I agree with PIMCO who said that just become some members in the Fed are of the opinion that QE should stop, the key players in the Fed will continue pushing for QE until they see a material decline in the unemployment rate. So I wouldn't worry about China and the US at this point in time.

On a closing note, I think portfolios should be exposed to agriculture if an investors wants exposure to emerging markets. This of it this way. You get exposure to emerging markets though non-cyclical stocks. The probabilities are all in your favor and after going through Monsanto's results and forecasts for 2013, I am more convinced of the story. Its still good to be in the markets. Just make sure you manage your portfolio periodically.

Stock to watch: Lyxor ETF Japan

“There is significant scope for the equity market to outperform in 2013 if Abe’s promised reforms are undertaken,” said Sean Darby, chief global equity strategist at Jefferies Group Inc. in Hong Kong. “A weaker yen would be beneficial for export-led sectors such as the automobile, electronics and machinery sectors.”

For further information on yxor ETF Japan or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli