Good morning,

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

  • The Bank of Japan, the European Central Bank and the Bank of England hold policy meetings today, after the Reserve Bank of Australia unexpectedly cut interest rates on Oct. 2;
  • Investors are also awaiting U.S. data on weekly initial jobless claims today and September payrolls tomorrow. A private report yesterday showed better than expected employment gains, while the Institute for Supply Management’s non-manufacturing index rose to the highest in six months;
  • Oil slid yesterday after the U.S. government reported that crude production climbed to the highest level in more than 15 years. The U.S. Energy Department report showed output rose by 11,000 barrels a day to 6.52 million a day last week, the most since December 1996. Total fuel consumption in the four weeks ended Sept. 28 decreased 0.3 percent to the lowest level since April;
  • 10-year Italian debt is trading at 5.096%, 10-year Spanish debt is trading at 5.784% and 10-year Portuguese debt is trading at 8.636%;
  • Brent is trading at $108.58/barrel;
  • Apple closed the session at $671.45

Another busy day for the markets which should keep investors on the edge as the Bank of Japan, the European Central Bank and the Bank of England hold policy meetings today.

Mario Draghi is waiting for Spain to get back to him on whether his plan to save the euro is needed. One month after the European Central Bank president unveiled an unprecedented bond purchase program to rescue Spain and Italy, Spanish Prime Minister Mariano Rajoy is showing reluctance to ask for the aid he pushed for with Italy on concern about the terms attached to it. As ECB policy makers meet in Slovenia today, Spanish 2-year note yields are more than 50 basis points higher than the five-month low touched on Sept. 7, the day following their last decision.

Spain will face a test of that pressure today as it sells as much as E4b of bonds after Spain's Finance Minister said that officials are still considering whether they actually need ECB help. Italian Prime Minister Mario Monti cautioned last week that aid shouldn’t hinge on more conditions than leaders already signed up to and the International Monetary Fund shouldn’t need to police it.

Investors will watch Draghi’s presentation today for clues on progress since he unveiled an unlimited government bond- purchase plan which would see the ECB buying maturities of up to three years in the secondary market. The ECB would act if countries applied for aid to the euro region’s bailout fund, the European Stability Mechanism, which would then purchase government bonds in the primary market.

On one hand you have Italy and the ECB putting pressure on Spain to apply for funding with the ESM and on the other hand you have Germany telling Spain to wait before it does anything. This just creates more uncertainty and more volatility in the markets.

Spain has yet to signal if it will accept such terms. The Spanish government announced plans to borrow E207.2b next year, which would increase its debt load to 90.5% of GDP.

Moving on to the US, markes closed flat despite the positive ADP data. US investors are now waiting to see what will come out of the Central Bank meetings and the September payrolls data out tomorrow.

Food for thought – Nasdaq stocks, close to their highest levels since the bursting of the technology bubble a decade ago, are still the cheapest relative to profits since 1996 as gains are outpaced by growth in industry earnings, led by Apple Inc. Apple has surged 63% this year, reaching a record of $702.10 last month as investors waited for the release of the iPhone 5. Apple is expected to report profit excluding some items of $8.4 billion on sales of $36 billion in the fiscal fourth quarter, according to the average of analyst estimates compiled by Bloomberg.

Stock to watch: MetroPCS (Price $12.24, Price Target $15)

Deutsche Bank: Maintain Buy rating on MetroPCS and increase price target to $15

Maintain Buy rating on MetroPCS and increase price target to $15 Yesterday, MetroPCS (PCS) and T-Mobile USA (TMUS) confirmed they are in discussions to combine their businesses. We maintain our Buy rating on PCS and raise our price target to $15 (from $12). We believe a combination of PCS with TMUS, or another national carrier, is a likely first step in long awaited, and much needed, wireless consolidation. In this note, we discuss the implications of this potential deal for TMUS/PCS, other carriers and the tower operators.

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

Good day and happy trading!

Kristian Camenzuli