Good morning,

Markets are called lower this morning. This is what's happening today:

  • China’s stocks rose the most in three months after a survey showed the nation’s manufacturing may expand at a faster pace this month;
  • Fitch – UK could probably lose its AAA rating;
  • Confidence among Japanese manufacturers hit a near three-year low in the final months of 2012, a Bank of Japan (BoJ) survey showed today;#
  • EU leaders focus on next steps for the Eurozone;
  • 10-year Italian debt is yielding 4.635%, 10-year Spain is yielding 5.386% and 10-year Portuguese debt is yielding 7.150%;
  • Brent is trading at $108.40;
  • Gold is trading at $1698.63/ t oz;
  • Apple closed the session at $529.69

The markets are called to open lower in Europe despite the good news out of China and a positive EU leaders meeting. European Union leaders ended a two day meeting. Two main points came out from the meeting. The first is that Greece will get the E35bln tranche of aid and that they agreed on making the ECB the supervisor for the Eurozones largest banks.

In China, the December preliminary reading for HSBC’s purchasing managers index compares with the 50.8 median estimate of economists and a final reading of 50.5 for November, the first time in 13 months it was above the expansion-contraction dividing line of 50. Anhui Conch, China’s biggest cement maker, rose 3.6% to 18.56 yuan to its highest level since November 2011. Tangshan Jidong Cement Co. climbed 6.7% to 13.82 yuan. Sany Heavy, the biggest Chinese machinery maker, advanced 6.7% to 9.25 yuan.

S&P has joined Fitch and Moody's in putting the UK's AAA rating on negative watch for a possible downgrade. The reason the AAA is in jeopardy is that the government is taking a bit longer than it promised to stabilise public sector debt as a percentage of GDP. Even with the benefit of the significant new interest rate subsidy the government receives on the third of its debt held by the Bank of England, and despite a windfall of more than £28bn from the liquidation of assets held in Royal Mail's pension fund, public sector net debt is rising far faster and for longer than the Treasury hoped a year ago.

In Japan, the worse the news, the better for the markets because investors want to Yen to weaken. Confidence among Japanese manufacturers hit a near three-year low in the final months of 2012, a Bank of Japan survey showed today, adding to concerns about the already weak economy. The central bank's quarterly Tankan survey came just days after official figures showed the world's third-largest economy shrank in the July-September period, fuelling fears it is slipping into recession. They also come ahead of national polls Sunday that are expected to see Prime Minister Yoshihiko Noda ousted in favour of Shinzo Abe, who has promised to press more aggressively for a looser monetary policy. The worst Tankan results since the start of 2010 are likely enough to persuade the BoJ to take additional easing steps and this is what the markets want – more stimulus and a weaker Yen.

UBS is in the headlines this morning. The probe into manipulation of LIBOR continues to haunt banks with reports that Swiss banking giant UBS could face a fine of $1 billion to settle rate-rigging allegations next week – more than double that paid by Barclays, the only bank to so far announce a payout over the scandal. Current negotiations between the bank and financial authorities are likely to end in UBS publicly settling as early as Monday, according to a report in the Financial Times.

In the US, President Barack Obama held a discussion with Republican House Speaker John Boehner in an attempt to overcome the political stalemate on the fiscal cliff. While neither the Republicans or Democrats are reporting a breakthrough, both sides say the line of communication remains open.

Stock to watch: General Motors (Price $25.12, Price Target $31)

Deutsche Bank Comments: We believe that GM's configuration represents a dramatic departure from "The Old GM". Costs are competitive and its products are gaining increased traction. Moreover, GM is now solidly profitable and cash flow generative at the bottom of the demand cycle in its core North American market. We believe this alone dramatically alters the risk/reward profile for investors. GM has the potential to benefit greatly from a cyclical recovery in NA, with operating leverage possibly greater than any other global automaker. GM should also benefit from a future restructuring of its European operations as well as its favorable BRIC exposure. Free cash flow is already quite strong despite a relatively low US SAAR and despite heavy European losses. Buy.

For further information on General Motors or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli