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Good morning,
Markets are called to open higher this morning. This is what's happening today:
Obama and Boehner met at the White House yesterday with a few days left to avert more than $600 billion in automatic spending cuts and tax increases that go into effect next year if a budget deal isn’t reached. Obama lowered his tax revenue demand by $200 billion and offered to start tax rate increases at $400,000 in income instead of $250,000, moving closer to a budget deal with House Speaker John Boehner. Obama’s revised plan would raise $1.2 trillion in taxes in the next decade and cut $1.22 trillion in spending. Obama wants a large enough debt ceiling increase for the next two years and would accept a new inflation yardstick that would reduce Social Security cost-of-living increases. Boehner and Majority Leader Eric Cantor will give House Republicans an update on the negotiations today.
China has set its initial target for economic growth at 7.5% for a second year and tightened its inflation goal to the lowest level since 2010. Policy makers said during the annual central economic work conference that ended on Dec. 16 that they aim to keep inflation at about 3.5%. Shanxi Securities Co. jumped 7.6%, pacing gains for financial shares, after CCB International said brokerages are the best way to invest in the stock rally. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. led a gauge of material producers to the biggest gain among 10 industry groups after the commerce ministry said exports will strengthen in 2013 and Goldman Sachs Group Inc. boosted its economic growth forecasts.
Japan’s incoming Prime Minister Abe backed the central bank when it raised interest rates in 2006, a move he now says was a mistake. His shift may signal less tolerance for deflation in the third-largest economy. Abe, whose party swept to victory in elections for the lower house of Parliament two days ago, will have the chance to reshape the Bank of Japan next year, when the terms of its governor and two deputies expire. Abe, who met with central bank Governor Masaaki Shirakawa today, said yesterday that he wants a 2% inflation target. The BOJ is forecast to boost its asset purchases as soon as Dec. 20.
My opinion is to remain invested in these markets going into 2013. We heard it from Barclays and many other analysts that 2013 will be the year for equities. At the beginning of 2012 we heard that American stocks were the ones we should be buying because of all the uncertainty in the markets. Infact, they rallied nicely though now the valuation gap between US corporates and European ones has widen to a point which makes European stocks look much more attractive. So it makes sense to start shifting out of the Dollar (which is expected to continue weakening in 2013 because of stimulus carried out by the Fed) and into European names. Don't forget that although alot of companies are listed in Europe does not make then dependent on the European economy. Most European names export to emerging markets.
Stock to watch: Cisco ($20.11, Price Target $22)
Cisco remains the dominant player in many parts of the data networking industry. While the uncertain macro merits caution, we note secular market drivers are contributing to an acceleration in demand for networking capacity; drivers such as 10GE switching, virtualization, Clouds, 4G/LTE, video, and Web 2.0. We are constructive on the prospects for mid to high single-digit growth in FY12 (we are modeling 6.3%) based on catalysts such as: 1) the 10GE datacenter switching and Layer 4/7 upgrade cycle, driven by Intel Romley and VMWare VSphere5 upgrades; 2) the LTE packet core and edge/core routing upgrade cycles; and, 3) IP video collaboration. A fundamental improvement in sales execution combined with meaningful revenue growth prospects from the 10GE datacenter, and from the LTE and video infrastructure upgrades, is the basis for our Buy rating. Longer-term, we see meaningful prospects for upside to our estimates and to the consensus view based on a modest recovery in global IT spending, and Cisco's leadership position in major spending themes such as datacenters, video, and the mobile Internet.
For further information on Cisco or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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