Good morning,

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

  • Chinese factory output contracted for a second month in September;
  • Big Japanese manufacturers became more pessimistic in the last quarter, according to the findings of official surveys published today;
  • South Korea announced a third straight decline in monthly exports and shipments from Indonesia slumped the most in three years;
  • The jobless rate in the euro area climbed to 11.4% in August, the most in data going back to 1990, a Bloomberg survey showed before a report today;
  • An Oct. 5 report is forecast to show the US jobless rate rose to 8.2% last month from 8.1% in August;
  • Europe faces a month that may decide the success of the European Central Bank’s bid to end the debt crisis as leaders navigate a tougher approach from creditor countries, unrest in Spain and a looming report on Greece’s finances. With the first of three summit meetings that European Union President Herman Van Rompuy has called “crucial” taking place in Brussels on Oct. 18-19, investor sentiment toward the euro is on the wane;
  • 10-year Italian debt is yielding 5.081%, 10-year Spanish debt is yielding 5.904% and 10-year Portuguese debt is yielding 8.874%;
  • Brent is trading at $111.62/barrel;
  • Apple closed the session at $667.105

European Earnings Growth

Analysts are lowering estimates for European earnings growth by 52%, clashing with investors whose confidence in the European Central Bank helped send equity valuations to a two and a half year high. While the Euro Stoxx 50 Index surged 25% over the past four months, matching the three biggest rallies in the past decade, more than 12,000 estimates compiled by Bloomberg show net income will grow 13% next year, down from the 27% forecast in January. The gauge is trading at 9.5x next year’s projected profit, near the highest since April 2010. Bears say declining estimates for companies from Daimler AG to UniCredit SpA show analysts doubt Europe’s economy will strengthen and that stocks have risen too far, too fast. Bulls say valuations can climb more as the program of unlimited bond purchases unveiled last month by ECB President Mario Draghi will limit government borrowing costs and give debt-laden nations the chance to fix their economies and preserve the euro.


Spain plans to borrow E207.2b next year, the Budget Ministry said today, as pressure builds for Prime Minister Mariano Rajoy to tap the European rescue fund instead of financial markets. Spain’s debt will widen to 90.5% of gross domestic product in 2013 as the state absorbs the cost of bailing out its banks, the power system and euro-region partners Greece, Ireland and Portugal. This year’s budget deficit will be 7.4% of economic output, Budget Minister Cristobal Montoro said at a press conference. Spain’s 6.3% target will be met because it can exclude the cost of the bank rescue, he said.

Spain’s borrowing plans may test investors’ willingness to continue financing the government with the European Central Bank waiting to buy the country’s debt should Rajoy agree to conditions. The government this past week unveiled 43 measures designed to boost economic growth that Economic and Monetary Affairs Commissioner Olli Rehn said go beyond the European Union’s recommendation for Spain’s restructuring.


A Chinese factory index was at 49.8 for September, the first time that it has been below 50 for two straight months since 2009, a statistics bureau report showed in Beijing today.

Japan’s Tankan index of large manufacturers’ confidence fell to minus 3 for the past quarter. South Korean shipments slid for a third month.

In China, measures to support growth may be stepped up after the Communist Party dealt with political issues including laying charges against ousted Politburo member Bo Xilai and setting Nov. 8 for the start of a party congress, Bank of America Corp. said today. Japan’s fiscal response may be complicated by a parliamentary stand-off over financing and an election as early as this year, with Prime Minister Yoshihiko Noda reshuffling his cabinet today to revive support.

Stock to watch: Shaftesbury (Price 528p, Price Target 652p)

Given Shaftesbury's exclusive London West End focus, we believe the group is positioned to benefit from high-quality rental growth. This is driven by consistent demand combined with tight supply constraints in the area. We think Shaftesbury's high-quality growth is enhanced by the group's bias towards retail and leisure assets because such properties have historically experienced more resilient rental growth than offices. The group currently has some larger-than-average development schemes underway in its Carnaby district, which should feed through to higher rents and NAV once complete. Most importantly, we think the developments could have the further advantage of boosting market rents in nearby buildings that Shaftesbury owns. Further, Shaftesbury's shares have significantly outperformed those of other UK REITs historically. We believe this reflects the long-running confidence that investors have had in Shaftesbury's business model and even a modest allowance for this makes its shares more attractive. Buy.

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

Good day and happy trading!

Kristian Camenzuli