Home > Blog > Trader talk > Trader Talk: An analysis of the markets this morning

Good morning,

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

  • Spain asked euro-region governments over the weekend for as much as 100 billion euros ($126 billion) to help shore up its banking system, a sign Europe is tackling a crisis that has roiled markets around the world;
  • Chinese data showed exports grew last month at more than double the pace analysts estimated and crude oil imports rose to a record;
  • 10-year Italian debt is yielding 5.772%, 10-year Spanish debt is yielding 6.216%, 10-year Portuguese debt is yielding 11.069%;
  • Brent is trading at $101.54/barrel

Spain asked euro-region governments for as much as E100b to rescue its banking system. Following are the main details of the agreement, reached on June 9.

  • The loan, worth up to E100b, will be channeled through the state’s bank-rescue fund, known as FROB, and extended to banks that need it. Amount includes “safety margin” Economy Minister Luis de Guindos said in Madrid on June 9;
  • FROB acts as “agent of Spanish government,” which “will retain the full responsibility of the financial assistance and will sign the MOU” Eurogroup of ministers said;
  • Conditions will be “focused on specific reforms targeting the financial sector” Eurogroup said;
  • Progress by Spain on structural reforms and deficit cuts “will be closely and regularly reviewed also in parallel with the financial assistance” Eurogroup said;
  • Only lenders that need capital will get it. Many won’t de Guindos said;
  • The EU still has to decided whether the European Financial Stability Facility or permanent successor European Stability Mechanism will be source of loan;
  • Finland will demand collateral for the loans if they come from EFSF, rather than the ESM, whose loans are senior to other debt;
  • Formal aid request due is 'shortly' Europgroup said;
  • European Commission, after liaising with European Central Bank, the European Banking Authority and the IMF, to provide assessment;
  • Interest rate on loan to be 3%, El Pais reported on June 10. De Guindos didn’t give details, saying only that the terms are “very favorable”;
  • IMF says on June 8 Spanish banks need at least E37b to weather a weakening economy and that figure could rise. IMF official recommends building total buffer of E60b to E80b.
  • E100b is equivalent of about 10% of Spain’s GDP. FROB debt counts as public debt, which amounted to 69% of GDP last year. Interest on loan will affect deficit, de Guindos said;
  • Spain’s deficit was 8.9% of GDP in 2011. Aiming for 5.3% in 2012 and 3% in 2013. Government sees economy shrinking 1.7% in 2012;
  • Spanish banks have E184b of what the Bank of Spain terms “problematic” assets linked to real estate, according to Economy Ministry;
  • De Guindos’s two banking decrees this year ordered banks to make additional 84 billion euros of provisions and buffers, taking the coverage ratio of troubled real-estate assets to 54% and to 45% for all real-estate assets, according to Economy Ministry;
  • FROB has already committed 18.7 billion euros to help struggling lenders. The industry-funded deposit-guarantee fund has agreed to pay back 3.7 billion euros of that, according to the Bank of Spain. Those figures exclude Bankia Group, which is seeking E19b of public funds;
  • FROB previously had E5b in available cash, de Guindos said on May 11.

Stock to watch: Manpower (Price $35.71, Price Target $48)

We like ManpowerGroup due to its strong brand, geographic diversity, and margin upside. ManpowerGroup's global exposure should also mean higher structual growth than US-focused peers. We also believe this cycle will be better than last cycle because of 1) corporate desire for flexibility post the near depression experience of '08-'09, 2) US wages at all-time lows as a percentage of GDP ("cut too deep"), 3) less headwind from IT offshoring and outsourcing than last cycle so better overall growth prospects, and 4) further desire for flexibility due to less business-friendly US government. All of these structural factors should drive the temp penetration rate to new highs, and with it ManpowerGroup's share price. Finally, we think ManpowerGroup has the best peak-to-peak margin growth opportunity due to its higher exposure to 1) permanment placement fees, 2) professional staffing, and 3) higher-margin countries like Germany, Sweden and Italy. We rate MAN as Buy due to its attractive forward valuation, higher-than-expected incremental margins, and still-depressed margin and EPS levels overall. As investors get more confident on Europe, MAN should benefit. Buy.

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

Good day and happy trading!

Kristian Camenzuli