Good morning,

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

  • Two German lawmakers said the country is open to credit aid for Spain, signaling a softening of resistance before a summit of European Union leaders tomorrow;
  • US data today may show housing starts improved in September, following a report yesterday showing a rebound in industrial production;
  • Credit Suisse Group AG said the Chinese economy is probably bottoming;
  • 10-year Italian debt is trading at $4.926, 10-year Spanish debt is trading at 5.784%, 10-year Portuguese debt is trading at 7.948%;
  • Brent is trading at $113.89;
  • EU leaders will go into a brainstorming session Thursday in the first of three summits being held before Christmas in the hope of ending the year with a deal on a stronger economic and monetary union;
  • Lloyds Banking Group rose 6% to near the top of the FTSE-100 Index amid reports the Financial Services Authority has given the green light to plans to bolster its finances by swapping assets with its Scottish Widows life insurance arm;
  • Apple jumped 2.37% closing the session at $649.79. The world's most valuable company has invited the media for a "special event" on October 23, where it is rumored to unveil a smaller version of its iPad tablet dubbed "iPad Mini."

Companies are meeting and beating expectations in the US. The markets had a great run yesterday. We saw the NASDAQ close at 1.21%, the S&P 1.03% and the Dow Jones 0.95%. Apart from the positive news coming out of US companies, we had positive news also coming out of the US economy as Industrial production rose 0.4% in September after having fallen 1.4% in August.

Throughout 2012 I was bullish on both the dollar and US stocks and kept on saying how important it is that a portfolio be overweight both US companies and the Dollar. Now we are coming towards the close of 2012 and things are changing. It is not that the US isn't going strong despite the slow expected growth of 2% for the economy. US companies are still meeting and beating estimates. But its all about valuation. And since alot of money has been shifted out of European names and gone into US names, the gap between valuations of US companies and European names is now substantial. It is not time to start moving out of the Dollar and move into European names with strong balance sheets and visbility into future earnings.

It wasn't just the US that rallied yesterday. Europe also closed in the green with the DAX up 1.58% and the CAC up 2.36%. I am much more positive about Europe than I was at the beginning of the year. Let's face it, 2012 had alot in store for the markets, not to mention the problems which began in summer of 2011. There was alot of talk about Greece and the situation has been solved for the short term. Now investors are shifting focus on Spain. And its good we finally came to this point because all the volatility we saw in the markets in 2011 and 2012 was never really about Greece. It was always the contagion fear of Spain and Italy. And we are finally here. Will Spain finally ask for a bailout? First the rally in the markets as we expected the Spanish Prime minister to ask for a bailout then the sell-off after the Germans told the Spanish to wait. In my opinion, its only a matter of time before Spain formally asks for a bailout and the probability is it will come in November. The market is convinced Spain will ask for a bailout because yields on the 10-year keep on coming down!

Spain occupied investors’ minds after media reports said late Monday that Madrid is ready to formally request financial aid but that officials are delaying an announcement because of concerns about the effect on other euro-zone countries. A formal bailout request is necessary for Spain to allow the European Central Bank to buy its sovereign debt. The reports said that Spain is considering requesting a direct line of credit, rather than seeking immediate aid from the European Stability Mechanism rescue fund. Germany is open to granting Spain a precautionary credit line to the rescue fund, Bloomberg reported, citing senior coalition lawmakers.

My opinion is to hold onto your positions till the end of the year. It doesn't make sense to start selling out at this point in time for two main reasons. The first is that we are at a crucial point in the markets where something has to be done regarding Spain and the markets are optimistic they will ask for a bailout and this will be good for both equities and the Euro. On the other hand we are moving closer towards the end of the year and the markets always rally towards the close of one year and the open of another.

Companies reporting Q312 results today in the US:

  • Bank of America
  • Halliburton
  • St Jude Medical
  • PepsiCo
  • Bank of New York Mellon
  • BlackRock
  • eBay

Stock to watch: AIXTRON SE (E9.89, Price Target E15)

Deutsche Bank comments: AIXTRON SE is the world leader in MOCVD equipment (~90% of revenue in FY10) used in the production of LEDs and is benefiting from a growing number of end applications for LEDs. Due to AIXTRON's market position (~50-70% globally over >10 years) the company should be a prime beneficiary of this trend, in our view. The company has a very strong balance sheet with net cash of ~E3 per share (excluding customer pre-payments) at the end of FY11. We rate the stock Buy on significant upside to our target price.

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

Good day and happy trading!

Kristian Camenzuli