Trader Talk: An Analysis of the Markets this Morning

Good morning,

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

• A Chinese manufacturing index signaled the first expansion in 13 months. The preliminary reading was 50.4 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. It compares with a final level of 49.5 for October. A reading above 50 indicates expansion;

• US jobless claims fell by 41,000 to 410,000 last week, Labor Department data showed;

• The Thomson Reuters/University of Michigan final index of consumer sentiment for November was little changed at 82.7, a five-year high, from the prior month’s 82.6;

• Israel and the Palestinian militant group Hamas agreed to end more than a week of air strikes and missile attacks, after talks brokered by Egypt’s Islamist leaders and the US;

• Eurozone PMI for November out later on today;

• EU Leaders set to meet in Brussels for budget talks;

• 10-year Italian debt is yielding 4.835%, 10-year Spain is yielding 5.696% and 10-year Portuguese debt is yielding 7.774%;

• Brent is trading at $111.03/barrel;

• Gold is trading at $1730.94/oz;

• Apple closed the session at $561.70;

• Today markets are closed in the US for Thanksgiving – Tomorrow Black Friday in the US – check out for retail sales figures.

Markets closed positive yesterday in the US, followed by a positive session in Japan and now a positive start in Europe. Ironically the Shanghai index is trading lower this morning because economists have scrapped projections for any easing of monetary policy for the rest of 2012 due to the positive news coming out of China.

The market is not taking into account the downgrade of France by Moody's or the disagreement between the EU and the IMF on the Greek bailout. What they are focusing on is the positive news coming out of the US and China. We are starting to see signs of expansion in China after 13 months. The economic recovery continues to gain momentum in China. Nomura said that growth will pick up strongly this quarter to an 8.4% annual pace from 7.4% in the previous three months. There is also speculation that the Chinese government will accelerate measures to boost the equity market.

The positivity on China is coming after companies are forecasting better results. China Gas Holdings Ltd., which supplies more than 7 million residential users and 40,000 industrial and commercial customers, said yesterday that it expects to report a “significant increase” in profit in the six months through September. Its shares gained the most in two weeks.

In the US, the number of Americans filing new claims for jobless benefits fell last week but remained elevated due to superstorm Sandy, a sign the storm is proving to be a substantial disruption to the labour market. Other data yesterday showed stronger growth in US manufacturing in November. The US is continuing to perform well and move in the right direction despite the worry of the fiscal cliff.

European leaders willl begin a two-day summit in Brussels on the next budget. UK Prime Minister David Cameron has threatened to veto a proposed spending increase that he says is excessive at a time when states are engaged in austerity policies. The PMI for the Eurozone is expecting to come in disappointing today. Euro-zone services and manufacturing output probably contracted for a 10th month in November, adding to signs that a slump in the 17-nation currency union will extend into Q412.

It should be a quiet session today as markets are closed in the US for Thanksgiving. Tomorrow will be an interesting day for the markets as US shoppers start going out to buy their Christmas presents. US stores offer good discounts on Black Friday and analysts guage the sales figures which give an indication of how retailers will perform in the Christmas period.

I remain of the view that it is wise to be IN and not out of the markets. Things are improving and they will continue to improve as we move into 2013. Don't forget the rally we have seen in Q112. This time round alot of American's especially institutions were selling stock to pay capital gains in 2012. All the money that went out of the market will find its way back in pushing up prices. Don't forget that despite the strength we have seen in the markets in 2012, shares are still trading below their long term average. It makes sense to be more overweight Europe that the US going into 2013. It make sense to be exposed to gold and it still makes sense to hold on to you high yield bonds despite it being the best performing asset class for 2012 so far.

Get professional advice when in doubt and always review you portfolio periodically because things change very fast in the market and you don't want to get caught on the wrong side of the trade.

Stock to watch: Barrick Gold (Price $34.79, Price Target $54)

Deutsche Bank Comments: Barrick Gold Corporation (ABX) based in Toronto, Canada, is the world's largest gold mining company with operations in the Americas, Africa and Asia-Pacific. Barrick also has exposure to copper and silver, and holds interests in platinum and nickel development projects, as well as in oil and gas properties. 2011 performance was lackluster following Barrick's unexpected decision to acquire copper producer Equinox Minerals for ~C$7.3bn in April, which was not well received by the market. Medium-term growth depends on the successful integration of Equinox and execution of the Cortez Hills, Pueblo Viejo and Pascua-Lama projects, which are estimated to increase attributable gold production ~20% from 7.6m oz in 2011 to ~8.4m oz in 2015, as well as the expansion of recently acquired Lumwana copper project. Thereafter, other projects could provide additional opportunities for growth, such as Cerro Casale. We rate Barrick a Buy on attractive valuation and given our bullish gold price outlook.

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

Good day and happy trading!

Kristian Camenzuli