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Markets are called higher this morning. This is what's happening today:
An interesting day for the markets today with an ECB and BOE meeting. Neither Central Bank is expected to cut rates in the meetings. Goldman Sachs does not expect the UK to cut rates further this year however they do expect further expansionary monetary policy (though not in the form of quantitative easing). Goldman expects the BoE to focus on credit easing or other 'unconventional' steps, suchs as reducing haircuts on collateral, or even direct purchases of bank debt.
Moving on to the Eurozone, the ECB is facing the uncomfortable reality that it has almost run out of options to provide additional stimulus for the economy. The ECB has forecast the eurozone economy will shrink 0.3% in 2013, with a gradual recovery kicking in later in the year. Some indicators of business sentiment have risen recently, although they remain at levels indicating the eurozone is still in recession at the start of 2013 — just not shrinking as fast. Unemployment has hit 11.8%, the highest since the euro was introduced in 1999.
The ECB's key weapon recently has been not interest rates but its offer to buy unlimited amounts of bonds issued by indebted countries, on condition that they tap a European financial aid program that would demand budget cuts in return. No country has requested that aid so far. But the mere announcement of the program pushed borrowing rates down for two of the most troubled governments, Italy and Spain, easing the risk they might be unable to handle their massive debts.
The refinancing rate is what banks pay to borrow from the ECB. That in turn should influence how much banks charge businesses and consumers to borrow. The problem now is banks hurt during the financial crisis are not passing on those lower rates to customers, but charging significantly more to lend money. Under such conditions, another cut to the refinancing rate by the ECB would do little to help the economy.
ECB President Mario Draghi has said that unconventional measures such as the bond purchases offer were doing more to lower borrowing rates in the real economy than a rate cut would. As the bond-buying offer boosted confidence in financial markets, some banks felt more comfortable charging less for loans. In fact, the bond-buying program called Outright Monetary Transactions (OMT) has been so effective in lowering governments' high bond market borrowing costs that some economists are now seeing a chance it may not be used for months, if ever. Infact, there is a high probability that we could go through the whole of 2013 without the OMT being activated.
So far so good. The ECB managed to calm markets however keep in mind that nothing has actually changed to push yield on sovereigns so low. Just remember that "Normally something happens in life — experience tells us things don't always stay calm." – Holger Schmieding, chief economist at Berenberg Bank.
Moving on to China things seem to be moving at a very attractive pace. China’s exports rose more than forecast last month and a broad measure of credit surged 28%, helping the nation’s new leaders sustain a pickup in economic growth after a seven-quarter slowdown. China’s exports rose 7.9% for all of 2012 while imports gained 4.3%, missing the government’s target of 10% growth in combined trade. Overseas shipments increased 20.3% in 2011 and imports advanced 24.9%. The worst year for trade in the past decade was 2009, when exports fell 16% and imports tumbled 11.2%. The US replaced the European Union last year as China’s largest export market.
Stock to watch: Monsanto
Monsanto raises 2013 ongoing EPS forecast to $4.30-$4.40 vs Oct. forecast $4.18-$4.32, est. $4.40; view doesn’t include 20c-25c contribution related to Roundup business in Brazil.
• Raises 2013 free cash flow forecast to $1.8b-$2b vs prior $1.7b-$1.8b
• 1Q EPS 62c vs est. 36c, range 23c-45c
• 1Q sales $2.94b vs est. $2.64b, range $2.46b-$2.75b
• Seeds and Genomics segment sales up 14% Y/y on strength in corn seed and traits
• Ag Productivity segment sales up 31% Y/y; remains focused on established strategy for Roundup after 2010 reset
• MON up 4.1% pre-mkt, breaking above Jan. range $95-$97
For further information on Monsanto or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
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