Good morning,

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

  • Policy makers from the Federal Reserve, the European Central Bank and the Bank of England all meet within 24 hours next week, before the fifth anniversary of the financial crisis in August;
  • Citigroup estimated there is a 90 percent chance Greece will exit the euro within 18 months, having previously given odds of 50 percent to 75 percent;
  • Canon Inc. tumbled 8.7 percent in Tokyo after cutting its profit forecast;
  • Data today is forecast to show U.S. orders for durable goods rose 0.3 percent in June from 1.3 percent in May, according to the median estimate in a Bloomberg News survey of economists;
  • 10-year Italian debt is yielding 6.446%, 10-year Spain is yielding 7.376% and 10-year Portugal is yielding 11.444%;
  • Apple closed the session at $574.97 and Priceline closed the session at $631.04;
  • Brent is trading at $103.84

The most interesting news out this morning is Citi's 90% probability that Greece will leave the Eurozone in the next 18 months. This is what they have to say.

Citi economists and strategists continue to expect further near-term rating downgrades in the euro area, and a broader range of downgrades over the longer term including the US, UK and Japan. We do not expect any upgrades among advanced economies, other than a technical one for Greece exiting from expected default status.

We expect a wide series of ratings downgrades among EMU countries in the next 2-3 quarters, with at least a one-notch downgrade by at least one major agency for Austria, Belgium, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal and Spain. Ratings in periphery countries are likely to be hit by economic weakness, with resultant adverse debt and deficit trends over time. In addition, we now believe the probability that Greece will leave EMU over the next 12-18 months is about 90% (versus 50-75% previously). As before, we assume, for the sake of argument, that Grexit will occur on 1 January 2013, but stress this is an assumption rather than a forecast of the precise date. Grexit, if it occurs, is likely to intensify capital flight from periphery countries. For the core countries, as Moody’s recently highlighted, sovereign ratings are likely to be hit by worries that the worsening EMU crisis will eventually lead to greater fiscal burden sharing, rising bank recapitalization costs, or adverse effects from economic weakness on the fiscal outlook. Over the longer term, we expect further downgrades among many EMU countries.

With economic weakness and fiscal slippage, the UK’s AAA sovereign rating is also likely to come under question. We expect that S&P will put the UK on Negative Outlook in the near term, and if growth remains elusive then the UK will probably lose its AAA status from at least one major agency over the next 2-3 years. The US is currently on Negative Outlook by both Moody’s and S&P and we continue to expect a one-notch downgrade over the next 2-3 years. We also envisage downwards ratings pressure for Japan over the next 2-3 years, predicated on longer-term debt sustainability trends. The pool of solid AAAs is likely to become smaller and smaller, with only Canada, the Australasian countries, Switzerland and the Scandis likely to remain AAA Stable over the near term and longer term.

Stock to watch: Siemens (Price $67.32, Citi's Price Target E85)

Siemens says reaching FY earnings target has become “clearly more ambitious,” sees moderate FY organic sales growth.

• 3Q income from cont ops EU1.23b VS EU763m Y/y; est. EU1.41b

• Note: Siemens in April cut forecast for FY net from cont. ops to EU5.2b-EU5.4b from EU6b

• Rev. EU19.54b vs EU17.84b; analyst est. EU18.94b

• Says 9-month earnings at short-cycle lower than expected

• EPS from cont ops EU1.37 vs EU0.83

• Fossil power was largest earnings contributor in qtr

• Plans to spin off Osram lighting division

• Call 10:30am +44 20 7784 1036 pin 8506456

• Earlier: ABB 2Q Net Misses Ests.; Says Confident on Short- Term Outlook

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

Good day and happy trading!

Kristian Camenzuli