Good morning,

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

  • EU Leaders summit starts today. There is concern that today’s summit in Europe won’t yield results after German Chancellor Angela Merkel hardened her position against joint euro bonds;
  • Bigger-than-expected gains in Japanese retail sales;
  • U.S. housing boosted confidence in global growth. Orders for U.S. durable goods and contracts to buy homes rebounded in May;
  • 10 year Italian debt is yielding 6.181%, 10-year Spanish debt is yielding 6.872% and 10-year Portuguese debt is yielding 10.138%;
  • Brent is trading at $93.51;
  • The ECB is expected to cut rates by 25bp to 0.75% in its next meeting on July 5.

Today its all about the EU summit. We have the Germans who do not want Eurobonds because it doesn't want to continue bailing out countries who fall short of expectations. On the other hand the French want things to move fast but on the other hand doesn't want to lose power of the government to EU institutions. The probability is that the leaders will agree on a banking and fiscal union, but they will not come up with details and a timeline of how and banking and fiscal union will be implemented. More times than not, EU leaders have disappointed the markets after a meeting because they do not conclude much and leave the markets in the same position they were before the meeting. The expectation is the same this time round though the situation is much more serious. EU leaders cannot continue sitting on the sidelines and do nothing.

The leaders need to start addressing the problems and agree on a way of how to solve the problems in the Eurozone. Merkel is saying that European countries need to hand over power of individual country budgets to EU institutions rather than individual governments. In layman terms, Merkel is saying the EU must first work on a fiscal union before starting to talk about Eurobonds.

In my opinion investors would be better off waiting to see what comes out of the summit before injecting cash into the markets. If nothing concert comes out of the EU summit, then more pressure will be on the ECB to do something in its next meeting on July 5. Analysts are expecting the ECB to cut rates by 25bp to 0.75%. The ECB needs to start cutting rates and both the ECB and leaders needs to come up with ways and means of how to get the European economies out of this mess. Europe needs direction a clarity before it can start moving forward and investors pumping money back into the markets.

Stock to watch: SBA Communications (Price $57.45, $70)

We expect SBA Communications (SBAC) to generate the fastest growth in FCF/share within the tower sector. We continue to believe the wireless tower sector will represent one of the key fundamental bright spots within the telecom industry in 2012 based on substantial 4G network upgrades. Furthermore, we expect SBA will use excess liquidity to pursue activities, such as tower acquisitions and share buybacks, that may be accretive to near-term and long-term forecasts for FCF. We therefore rate the shares a Buy.

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

Good day and happy trading!

Kristian Camenzuli