Good morning,

markets are called lower this morning. This is what's happening today:

  • Asian stocks fell for a second day, bond risk in the region rose and South Korea’s won slid after Australia’s central bank cut its economic growth forecast and U.S. service industries expanded less than projected. Australia’s central bank cut its growth estimate by half a percentage point to 3% for 2012, citing weak labor and housing markets;
  • The Institute for Supply Management said yesterday that its U.S. non-manufacturing index fell to a four- month low of 53.5 in April;
  • American employers added 160,000 positions last month and the jobless rate remained at a three- year low of 8.2%, according to Bloomberg surveys before the government releases data today;
  • BNP Paribas SA, France’s largest bank, said first-quarter profit rose 9.6%, helped by the sale of a stake in property company Klepierre SA and a rebound in fixed-income trading revenue;
  • 10-year Italian debt is yielding 5.5%, 10-year Spanish debt is yielding 5.785%, 10-year Portuguese debt is yielding 10.751%;
  • Brent is trading at $116.24;
  • US jobs data out today for April.

Markets are going to open lower this morning on concern that the job data out of the US will come in worse than expected. The NASDAQ closed the session 1.16% down yesterday whereas the DAX closed the session 0.24% down. Alot of things are happening in the world at the moment and investors are waiting to see the outcome. What is the jobless claims figure in the US for April, who will win the elections in France are amongst the many questions being asked by investors at this point in time.

European Central Bank President Mario Draghi left open the option of further stimulus if the economy continues to deteriorate as investors await the outcome of elections in Greece and France. While policy makers didn’t discuss lowering interest rates at a meeting in Barcelona yesterday, Draghi pointed to new growth and inflation forecasts next month that may change the ECB’s policy stance. Uncertainty about the commitments of future leaders in Greece and France to fiscal reforms, paired with worsening economic data and renewed tensions in financial markets, may force the ECB’s hand.

There are significant downside risks to the ECB’s growth outlook. Draghi indirectly hinted at next month’s ECB meeting when the bank will publish its new projections. Since the ECB may lower its growth forecasts, the rate-cut discussion will stay with us.

Incumbent French President Nicolas Sarkozy is seen headed for a loss in Sunday’s presidential elections, as the final day of campaigning gets under way. Sarkozy’s performance in a televised debate Wednesday received a lukewarm response, and he was further hampered when far right and centrist candidates refused to endorse him.

Elections will also take center stage in troubled Greece, where voter dissatisfaction with severe austerity measures is expected to punish the main parties, New Democracy and Pasok, which have endorsed the country’s bailout and its conditions.


Facebook Inc. is betting its growth prospects will persuade investors to pay 99 times earnings for its initial public offering, a higher multiple than 99% of companies in the Standard & Poor’s 500 Index. The world’s most popular social-networking site will seek a market value of as much as $96 billion, offering shares at $28 to $35 each, a regulatory filing showed yesterday. The Menlo Park, California-based company will begin meeting investors next week and is scheduled to price the offering on May 17, data compiled by Bloomberg show.


BNP Paribas SA, France’s largest bank, said first-quarter profit rose 9.6%, helped by the sale of a stake in property company Klepierre SA and a rebound in fixed-income trading revenue. Net income climbed to 2.87 billion euros ($3.77 billion) from 2.62 billion euros a year earlier, the Paris-based company said in a statement today. Earnings surpassed the 2.67 billion- euro average estimate of 10 analysts surveyed by Bloomberg.

The bank began trimming its balance sheet last year as capital requirements and funding costs increased. BNP Paribas reiterated that it will reach a 9% common equity Tier 1 ratio under Basel III capital standards by the end of the year as it retains earnings and reduces assets. The March sale of a stake in Paris-based Klepierre led to a 1.8 billion-euro gain in the quarter and will bolster capital.

BNP Paribas “had good operating performance” both in its main consumer-banking markets and in its capital markets business, Chief Executive Officer Jean-Laurent Bonnafe said in the statement. “Solvency is strengthened, the size of the balance sheet has been reduced,” he said. Excluding one-time items, profit fell 22% to 2.04 billion euros in the quarter, the bank said. BNP Paribas had an 843 million-euro charge stemming from a rule that requires banks to book a loss if the price of their debt rises. It also recorded 142 million euros of losses on sovereign bond sales.

Stock to watch: Intesa San Paolo (Price E1.2, Price Target E1.9), Unicredit (Price E3.1, Price Target E5.3)

ISP has been the main beneficiary of the February three-year LTRO, in our view, and the most solid player in Italy from both a capital and a liquidity standpoint. With a valuation of 0.5x P/TE, we still rate it a Buy. We have a positive stance on Unicredit as well, essentially on valuation grounds; in the event of initial delivery on cost cutting and Italian restructuring, we believe the stock could become even more attractive to investors. Both stocks have been penalized by renewed concerned on sovereign risks, substantially following the Italian banks index, which has collapsed 27% since mid-March. However, ISP and UCG’s prospective profitability and their solidity should justify a better performance versus smaller peers in Italy, which will likely be more affected by the current recession.

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

Good day and happy trading!

Kristian Camenzuli