Good morning,

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

  • Meeting between Merkel and Monti today after 3.30pm;
  • BoE meeting and ECB meeting tomorrow (BoE meeting starts today);
  • US non-farm payroll data out on Friday;
  • Bob Diamond resigned as Barclays CEO over the Libor fixing scandal – Diamond faces MPs' questioning today at 3pm;
  • Spain is scheduled to auction three-, four- and 10-year debt tomorrow;
  • 10-year Italian debt is yielding 5.735%, 10-year Spanish debt is yielding 6.375%, and 10-year Portuguese debt is yielding 10.084;
  • Brent is trading at $100.18/barrel;
  • Markets closed in the US today.

The markets are in rally mode and this optimism should make up for the weakness we saw in the markets in the last few months and take us to the end of this year. Unless there is an unexpected negative event in the markets, the markets should continue to improve in the coming months.

Analysts are expecting the ECB to cut rates by 25bps tomorrow. The markets are pushing for a rate cut however Christine Lagarde said that Europe does not need a rate cut but more quantitative easing.

An important day for the markets tomorrow as Spain is scheduled to auction three-, four- and 10-year debt. Spain has E85.5bln worth of debt maturing this year whereas Italy has E193.7bln worth of debt maturing this year. More pressure on these governments as they start to raise longer dated debt in the second half of the year.

Factory orders in the U.S. rose in May for the first time in three months, Commerce Department data showed yesterday. General Motors Co., Ford Motor Co. and Chrysler Group LLC reported U.S. auto sales for June that topped analysts’ estimates, lifting expectations that demand for rubber tires will improve.

Stock to watch: Ford Motor (Price $9.60, Price Target $13)

Following a reassessment of intermediate term risks and opportunities, recent market and company-specific developments suggest that these risks are manageable, or diminishing in intensity. We have become less concerned about expectations for the NA and European markets; We have become increasingly confident of Ford's ability to sustain recent market share gains. We have become more comfortable with Ford's ability to mitigate potential deterioration of mix. We have become more comfortable with Ford's pension obligation, and. We are now less concerned about the potential for investment alternatives to detract from Ford's shares. Given our expectation of tight capacity utilization levels in NA for the foreseeable future, we see little reason to believe that the NA market will revert to self-destructive pricing behavior. In addition, we believe that changes to U.S. Automakers' business models–most importantly, the fact that U.S. Automakers' costs are now configured to be above break-even at the trough of the cycle–combined with high probability of a cyclical recovery for the North American Auto sector, dramatically alters the risk/reward profile for Ford's shares. Given growing conviction in the longer term earnings story, we believe that investors may be willing to apply higher multiples to Ford's near-term earnings, consider important cash flow enhancing attributes (such as the company's NOL's), and/or value the company on longer term earnings potential. Buy.

For further information on Ford or other stocks we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli