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Markets are called lower this morning. This is what's happening today:
Today is another important day for the markets with the ECB and BOE meeting and the Spanish auction. Tomorrow is also an important day with the with the non farm payroll data coming out of the US for the month of June. The US markets have to play catch up since they were closed yesterday for the 4th of July celebrations.
It is very important to analyse what Draghi has to say about the European economy today after last weeks EU leaders meeting. The ECB always gives a detailed review of where the economy is at this point in time and what the future prospects are. Analysts are expecting a 25 basis points cut in interest rates. If the ECB does not cut rates, it will have a negative effect on the markets as investors have been expecting a rate cut since last meeting. There is a general consensus in the markets that the ECB needs to do more in order to kick start growth in Europe.
Regarding China, the markets keep on hoping for further stimulus and investors have not given up hope that this will materialize in H212.
Moving on to the US, tomorrow will put further pressure on the Fed to implement QE3. The unemployment rate has come down month-on-month though has stopped falling in the previous months. If the rate doesn't continue to fall, it would put pressure on the Fed to intervene in order to get the unemployment rate down below the 8% level which is still very high. The elections will be held in November of this year. Obama is expected to win the elections and this would be a positive for the markets. Analysts are expecting QE3 to take place in Q113 after the elections take place.
In my opinion investors should remain invested in the markets at this point in time particulary in non-cyclicals and defensive stocks. It is wise to take positions in cyclicals which have lost most of the gain they made in Q112 and are still growing at a healthy rate. Regarding the Dollar, we are still overweight the currency compared to the Euro until we see signs or strength coming out of the Eurozone.
Stock to watch: General Motors (Price $20.67, Price Target $31)
We believe that GM's configuration represents a dramatic departure from "The Old GM". Costs are competitive and its products are gaining increased traction. Moreover, GM is now solidly profitable and cash flow generative at the bottom of the demand cycle in its core North American market. We believe this alone dramatically alters the risk/reward profile for investors. GM has the potential to benefit greatly from a cyclical recovery in NA, with operating leverage possibly greater than any other global automaker. GM should also benefit from a future restructuring of its European operations as well as its favorable BRIC exposure. Free cash flow is already quite strong despite a relatively low US SAAR and despite heavy European losses. Buy.
For further information on General Motors or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
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