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Markets are called to open lower this morning. This is what's happening today:
German 10-year yields matched a record 1.127% on July 23, three days before Draghi promised to do “whatever it takes” to defend the euro. The Sept. 6 announcement of a plan to buy bonds of countries that request aid helped drive the rate to 1.73% on Sept. 17, the most since April 26.
Spanish 10-year yields, which reached a euro-era high of 7.75% on July 25, have fallen more than 2 percentage points to 5.69% yesterday, while Italian 10-year yields have dropped to 5.05% from 6.71% that day.
The euro also rallied following Draghi’s comments, climbing 5.1% against the dollar since July 26, and strengthening by 4.7% against the yen.
However, even as policy makers strive to end the three-year debt crisis, the region’s economic outlook is weakening. Euro-area surveys on Sept. 20 showed services and manufacturing output fell to a 39-month low in September adding to evidence the economy is heading for a recession. Figures yesterday showed German business confidence unexpectedly fell to the lowest in more than two and a half years in September. We are in a period where the ECB has laid down its framework to save the euro but the fundamentals will ultimately creep back in and you will see new problems flare.
Stock to watch: Edison International (Price $45.98, Price Target $50)
We have a Buy rating based on its strong regulated growth profile and merchant coal option, which should not be negative for value since the segment is ring-fenced. EIX consolidated EPS includes a very weak earnings outlook for EME, which we do not believe is particularly relevant to EIX's shareholder value since the segment is ring-fenced and its obligations are non-recourse to EIX. We remain confident that management will not support EME with parent funding based on management comments and their track record of requiring challenged businesses to stand on their own. Thus, we believe headline valuation metrics (P/E for example) obscure the fundamental mis-pricing of EIX's utility.
For more information on Edison International or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
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