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Markets are called to open flat this morning. This is what's happening today:
It's all about the elections tomorrow in the US that are driving the markets this week. A Romney victory should be better for the markets than an Obama victory but whoever wins the race shouldn't have a big impact the markets. The major difference between the two is that Romney wants to spend more to increase economic growth in the country whereas Obama wants to get other countries to spend more on American goods and stimulate demand through them. Citi is of the opinion that a Romney win will be better for the markets. However, knowing that it takes years for policies to be put into place and start making a difference, it shouldn't make much of a difference to the markets who wins the elections. So far it seems that Obama is in the lead.
No matter the winner, the next President faces difficult fiscal realities given the $1T+ deficits of the day. He’ll also face a threat environment that includes a potentially “nuclear” Iran, an emerging China, an unstable middle-East, a frosty Russia, and a growing concern over cyber security. So the road ahead is anything but easy for the new president.
The markets are in a wait and see mood. Although data coming out of the global economies are improving slowly, analysts are still cutting global growth forecasts. And it always comes back to the Eurozone. JP Morgan had expected Eurozone growth to start picking up in Q113 though are now forecasting a flat quarter. And this is all because the OMT program which the ECB came up with is not having the desired effect. The program is helping yieldings come down but is not circulating money in the economies to stimulate growth. So although we have lower yields on Spanish and Italian paper, money is still not being circulated and without it, growth will always remain under pressure.
Having said this, data is slowly improving in the markets and this should help improve sentiment in the markets. For example, global PMI data has been coming out positive for the last two months and we are seeing a pick up in demand. Although hurricane Sandy is of a concern to many, its distruction of wealth has nothing to do with the distruction cause by hurricane Katrina or Andrews. For example the distruction on wealth by Katrina was valued at $160bln whereas the distruction of wealth of Sandy is around the $10-20bln. I'm not saying that Hurricane Sandy didn't create problems to the US economy. What i'm saying is that the damage it caused is much less than that of other hurricanes.
One negative effect which comes to mind is retail sales for the month of October. Many retailers where hit in the last week of October and this has had a negative effect on their bottom line. Hopefully, NYC will get back to normal as soon as possible.
My opinion is to stay invested in the markets. Analysts are expecting a rally to come because data is improving. Alot of stocks are trading on very interesting valuations especially in Europe. Always get professional advice when in doubt.
Stock to watch: Ryanair (E3.97, Citi's Price Target E4.25)
Bloomberg – Ryanair Holdings Plc, Europe’s biggest discount airline, boosted fiscal second-quarter profit 23% and raised its forecast for full-year earnings after being able to lift summer fares more than anticipated.
Net income for the three months ended Sept. 30 increased to 496.8 million euros ($637 million) from 404 million euros a year earlier, the Dublin-based carrier said today. Analysts had expected earnings of 440 million euros, based on five estimates.
Ryanair increased average fares 7 percent while adding 8% more passengers. Annual earnings will be in the range of 490 million euros to 520 million euros, versus 502.6 million euros in fiscal 2012, it said, having previously forecast profit would shrink to between 400 million euros and 440 million euros.
For further information on Ryanair or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
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