Good morning,

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

  • Talks over Fiscal Cliff commence;
  • Japan’s Prime Minister Yoshihiko Noda will dissolve parliament today, triggering an election on Dec. 16 that polls suggest his Democratic Party of Japan will lose;
  • Superstorm Sandy drove the number of people seeking unemployment benefits up to a seasonally adjusted 439,000 last week, the highest level in 18 months;
  • The International Monetary Fund remains “fully engaged with Greece” and has not backed away from the requirement that the country reduce its ratio of debt to gross domestic product to 120 percent by 2020;
  • Dell Inc. forecast a fourth straight quarter of declining sales as diminishing demand for personal computers overshadows the company’s efforts to diversify into more profitable products for data centers;
  • 10-year Italian debt is yielding 4.886%, 10-year Spain is yielding 5.885% and 10-year Portuguese debt is yielding 8.776%;
  • Brent is trading at $108.15;
  • Gold is trading at $1713.93/oz;
  • Apple closed the session at $525.62

The markets sold off yesterday aswell. Superstorm Sandy drove the number of people seeking unemployment benefits in the US up to a seasonally adjusted 439,000 last week, the highest level in 18 months. The unemployment rate rose slightly in October from 7.8% in the previous month because more Americans began looking for work.

However the US economy appears to have grown faster over the summer than first thought, based on a handful of positive September reports on inventory growth and trade released this month. Many economists now predict growth at an annual rate of roughly 3% in the July-September quarter, up from the initial estimate of 2% reported last month. The government releases its second estimate for third-quarter growth on Nov. 29.

Still, many economists say the economy is growing in the current October-December quarter at a weak annual rate below 2%. The storm combined with cautious consumers to lower retail sales in October. Consumers may also be holding back because of anxiety over big tax increases and spending cuts known as the "fiscal cliff" that will take effect in January unless Congress and the White House reach a budget deal by then. Many companies are likely to scale back hiring and investment, too, until the fiscal cliff debate is resolved.

However the overall picture is looking positive. While the Fed said it will keep the stimulus going even after data show the economy is improving, the foreign exchange market indicates that gains in US employment, housing and consumer confidence may prompt changes in policy sooner. The dollar will rally next year versus the euro and yen, based on the median estimate of more than 50 strategists from Barclays Plc to Nomura Holdings Inc. surveyed by Bloomberg.

In Japan, Shinzo Abe, the leader of the main opposition Liberal Democratic Party, said yesterday the Bank of Japan should pursue unlimited monetary stimulus to end deflation. Japan’s government today downgraded its view of the economy for a fourth month, the longest streak since the global financial crisis. Gross domestic product shrank last quarter at the fastest pace since 2011’s earthquake. Infact the Nikkei is the best performing index today as the Yen starts to weaken against other currencies.

The markets are selling off and yet nothing has changed. When the markets were up 25% in Q112, we knew about the fiscal cliff in the US, we knew about the worries of contagion for both Spain and Italy, we knew that China was slowing down because of weakness in demand from the developed world and the Eurozone is back in recession. But we knew all this. We didn't know about Hurricane Sandy and the fact that it will have an negative effect on unemployment in the short run. But everything else we knew.

I went through a JP Morgan report yesterday that said that investors should remain invested in high yield and equities going into 2013. They are predicting that the European economy should start picking up by the end of Q313 and this is on the back of money from the OMT starting the circulate in the Eurozone economies. High yield are up c20% this year and they still see scope in holding on. Not only that, the sectors they are bullish on are the ones which are most risky. And the reason for this is simple.

At the moment we are seeing risk being put back on the table. But this is all psychological as investors start to fear the worst. But the markets are forward looking. If you believe that Spain will ask for a bailout, that the President of the US will come up with a package of tax cuts and expenditure reduction which congress accepts, China and Japan will continue stimulating their economy and the money from the OMT will start entering the Eurozone economy early 2013, then it is good to be in the market. Don't forget that we have seen risk being put on the table many times before in the past. However, it is also true that we have seen strong rallies in the markets.

So the situation is this. The world economies are in a much better situation then they were at the start of 2012. The Eurozone being in a recession once again is no surprise, we knew this. Though we also know that we should start seeing growth in Europe at the beginning of 2013. It is most likely that the US will not fall back into recession in 2013 because Obama and Congress will come to an agreement on the tax cuts. The US economy and China are already showing signs of improvement. My opinion is that despite the current bearishness in the markets, it is good to remain overweight the markets because it is in times like these that it makes sense picking up stock and not when the markets are up 25%. We expect to start seeing a recovery in 2013 and it is good to start getting exposure in 2012 in order to be positioned for when we start seeing positive economic data and company earnings out of the global economy.

Stock to watch: NetApp Inc. (Price $30.20, Price Target $40)

Deutsche Bank comments: NetApp remains our preferred storage investment idea and is well positioned to benefit from improving IT spending in conjunction with an improving macro economy. Further, we believe product revenues are the best leading indicator of NetApp's software and Services business lines (software and services attach follow subsequently). We also believe IT Storage is early cycle and will be an early beneficiary (strategic and operational importance) of the loosening of IT budgets. Further, with NTAP's past sales-force investment now complete and focus on OPEX absorption high, we expect very attractive contribution margins on new revenue once the IT spending environment improves. We thus rate the shares a Buy.

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

Good day and happy trading!

Kristian Camenzuli