Good morning,

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

  • Housing starts in the U.S. surged 15% in September to the highest level in four years, adding to signs the industry at the heart of the financial crisis is on the road to recovery;
  • China’s economy grew 7.4% in the third quarter from a year earlier, government figures showed, matching the median analyst estimate;
  • Leaders from the 27-member nations of the European Union will begin a two-day summit in Brussels today;
  • 10-year Italian debt is yielding 4.757%, 10-year Spain is yielding 5.445% and 10-year Portuguese debt is trading at 7.642%;
  • Brent is trading at $113.57/barrel;
  • Apple closed the session at 645.74

Markets are rallying on expectations Greece won’t get kicked out the euro, Spain will get the money it needs and the ECB will use its balance sheet to limit potential turmoil. Spanish 10-year bonds rose yesterday, driving yields to their lowest in six months and leading gains in Greek, Italian and Portuguese debt. All this enthusiasm because the market is close to certain that the Spanish Prime Minister will ask for a bailout in November! Though always keep in mind that nothing is ever certain with governments, more and more so when they haven't even confirmed it themselves.

Also another very important point to mention is that a June proposal to replace national deposit guarantees with an EU-wide scheme, billed at the time as an integral step in building a banking union, was deleted from the final version of a September paper prepared by the European Commission. That document called only for national deposit guarantee funds backed by some common rules.

So do keep your feet on the ground because the markets have come up alot and some negative news or no news for the matter could easily erase a good portion of the gains. Keep in mind that the DAX alone is up 25% for the year.

Moving on to China, China’s industrial production, retail sales and fixed-asset investment accelerated in September, reducing the urgency for added stimulus to support the economy after a seven-quarter slowdown. Gross domestic product expanded 7.4% in Q312 from a year earlier. China’s third-quarter growth figure compares with a previously reported 7.6% expansion in Q212. Industrial production rose 9.2% in September, rebounding from a three-year low of 8.9% expansion in August.

Premier Wen Jiabao yesterday said that China's economic growth has started to stabilize. The government is confident of achieving annual targets and the economy will continue to show positive changes. The State Council said that it will maintain proactive fiscal and prudent monetary policies this year.

The People’s Bank of China has refrained from monetary easing since July after cutting interest rates twice in one month. The central bank lowered the reserve-requirement ratio for lenders three times from November to May to boost lending and support growth. At the same time, authorities have accelerated approvals for investment projects and rolled out tax support for exporters.

In the US, US builders started construction on homes in September at the fastest rate since July 2008, a further indication that the housing recovery is strengthening and could help the economy grow.

US companies reporting Q312 results today:

  • Southwest Airlines
  • Diamond Offshore Drilling
  • Philip Morris International Inc
  • Baxter International Inc
  • Morgan Stanley
  • Verizon Communications Inc
  • Union Pacific Corp
  • Google
  • Sandisk

Stock to watch: Intel (Price $21.72, Price Target $28)

Deutsche Bank comments: INTC reported 3Q12 results above the mid-pt of revised guidance but offered a cautious outlook for 4Q12 as macro headwinds persist. As a result, INTC is taking its inventory/GM medicine by cutting factory utilization to below 50%. While this aggressive action will hit GM hard in 4Q (-6ppts q/q), we believe it is a prudent strategy in an uncertain demand environment and sets the stage for margin recovery in 2013. Despite the more muted outlook and heavy investments in R&D/manufacturing, our ests are largely unchanged. We believe Intel is poised for a return to revenue growth in 2013 and therefore we reiterate our Buy rating and $28 P/T.

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

Good day and happy trading!

Kristian Camenzuli