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

Good morning,

Markets are called to open lower this morning, This is what's happening today:

  • Foreign direct investment in China fell for a sixth month in April, underscoring risks of a deeper slowdown in Asia’s biggest economy;
  • EU Finance ministers meeting for a second day today;
  • Greece, without a government for more than a week, must decide today whether to pay 436 million euros to bondholders who shunned last month’s debt swap;
  • European governments hinted at giving Greece extra time to meet budget-cut targets, as long as the financially stricken country’s feuding politicians put together a ruling coalition committed to austerity;
  • Merkel, set to host Hollande in Berlin today hours after his inauguration, said she won’t alter her approach to the crisis in the wake of her party’s “bitter, painful defeat.”;
  • Moody’s Investors Service downgraded 26 Italian banks yesterday;
  • Treasury seven-year yields matched the record low set yesterday ahead of a report today that economists forecast to show Europe’s economy shrank 0.2% in the three months to the end of March. That would be the first contraction since the last quarter of 2009, according to data compiled by Bloomberg;
  • Facebook Inc. plans to raise the price range for its initial public offering to $34 to $38 a share from the previous range of $28 to $35, according to a person with knowledge of the matter;
  • 10-year Italian debt is yielding 5.697%, 10-year Spanish debt is yielding 6.227% and 10-year Portuguese debt is yielding 11.113%;
  • Brent is trading at $111.08/barrel;
  • EURUSD 1.2830

Greece’s post-election impasse multiplied the signs of stress in European markets yesterday. The euro fell for the 10th time in 11 days and stocks surrendered a two-day gain. Bond yields in recession-wracked Spain, the next potential candidate for financial support, touched a five-month high. European governments hinted at giving Greece extra time to meet budget-cut targets, as long as the financially stricken country’s feuding politicians put together a ruling coalition committed to austerity.

Greek President Karolos Papoulias will call party leaders together today, the ninth day of post-election maneuvering, to make the case for a government of prominent non-politicians. The head of the biggest anti-bailout party, Alexis Tsipras, will attend after boycotting yesterday’s bargaining sessions.

Greece’s caretaker government will also announce whether it will repay 436 million euros due today on a note held by investors who shunned its bond-loss accord. Paying the holdouts in full would anger investors who took losses in this year’s debt restructuring, while withholding payment could be construed as default.

Greece’s predicament magnified doubts about the health of Spain, the only euro country to remain mired in recession through 2013, according to European Commission forecasts published last week.

Ten-year Spanish yields rose as high as 6.36% before settling at 6.23% yesterday, compared with 6.01% at the end of last week. The extra yield over benchmark German levels widened to 477 basis points. Spain’s woes helped drag up Italian 10-year yields to 5.71% from 5.51%.

The euro traded near an almost four- month low amid mounting doubts that Greece can avoid an exit from the currency union as the region’s finance ministers meet for a second day in Brussels.

Facebook

Facebook Inc. plans to raise the price range for its initial public offering to $34 to $38 a share from the previous range of $28 to $35, according to a person with knowledge of the matter.

The new range may be announced in a regulatory filing as soon as today, said the person, who asked not to be identified because the plans haven’t been made public.

Facebook, already planning the largest-ever Internet- company IPO, would raise as much as $12.8 billion and seek a valuation of as high as $104.2 billion, based on the upper end of the new range. Chief Executive Officer Mark Zuckerberg, in a roadshow to pitch the IPO to investors, may be winning over skeptics who initially balked at buying the shares, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business,

“Raising the range would be the best signal of what the underwriters are hearing from their institutional buyers who have seen the roadshow,” Gordon said. “Despite the doubts, the buyers like what they’re hearing.”

At the upper end of the new range, Facebook would be valued at 26 times trailing 12-month sales, more than double Google Inc.’s valuation when the search-engine operator went public in 2004. The company was already in a position to surpass United Parcel Service Inc. as the most valuable company in history to go public in the U.S., based on market capitalization, data compiled by Bloomberg and Dealogic show.

Bond to watch: 8.667% BNP 2013-49

Price: 100

Currency: EUR

Yield to call: 8.667%

Coupon: 8.667%

Callable date: 11/09/2013 @ 100

Interest payment date: 11/09/2013

Minimum Piece/Increment: 50,000/50,000

Rating: BBB+

This bond has negative convexity meaning that its price will not move far away from par as there is a large probability that this bond will be called @ 100 on 11/09/2013. This bond would be a good option where to park money until the situation in Europe starts to improve as the volatility in the share price is much lower than that of other instruments in the market. Always get advice from your adviser whether the bond fits your risk/reward profile before taking a position in the bond.

For further information on the 8.667% BNP 2013-49 or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli