Good morning,

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

  • Core consumer prices in Australia gained less than economists forecast last quarter, giving the central bank scope to resume interest-rate reductions;
  • Francois Hollande, the winner of the first round of France’s elections, said yesterday that Europe’s austerity measures have fueled despair;
  • Data later today may show American consumer confidence fell for a second month, while U.S. home sales rose, according to economists surveyed by Bloomberg;
  • 10-year Italian debt is trading at 5.73%, 10-year Spanish debt is trading at 6.005%, and 10-year Portuguese debt is trading at 11.494%;
  • Brent is trading at $118.62/barrel;
  • Apple closed the session at $571.70 and Priceline closed the session at $699;
  • Apple report results today after the bell;
  • Italy to sell bonds maturity in 2014, 2017 and 2019 today and Spain will sell 84-day and 175-day T-bills.

The markets sold off yesterday across the globe. There were two main reasons for this. The first is that China reported a PMI number for March which was below the 50 level and the second reason was that the ECB did not want to take the IMF's advice and cut interest rates further in order to stimulate growth in Europe. Let's start off with China. Morgan Stanley, Deutsche Bank and Nomura are bullish on the Chinese economy and believe that the economy will grow at a rate greater than 8% in 2012. This rate is higher than the one predicted by the Chinese Premier Wen Jiabao who estimated a growth rate of 7.5% for 2012. The bullishness of the analysts is coming on the back of further quantitative easing in the Chinese economy. As I have said many times in my previous blogs, China has ample ammunition it can use to carry out expansionary monetary policy. However, until that day comes we will see further volatility across the markets. My opinion is to build a position in ETFs exposed to the Chinese economy to be able to take advantage of the current weakness and be in the market when the Chinese announce that they are going to stimulate the economy.

The second reason why there was a selloff in the markets was because Draghi does not want to take the IMF's advice and cut interest rates below 1%. The ECB keeps on saying that it is the governments that need to get their act together and solve the current crisis in Europe and not the ECB. If anything we can say that the ECB is coherent in what it says because it has stuck to this mandate and hasn't moved away from it ever since the crisis began. Unfortunately, there is alot going on in Europe at the moment apart from the crisis. There are the elections taking place in France and elections will be held in Greece next month. There is also the possibility for elections to take place in the Netherlands. All this brings with it uncertainty in already difficult times.

Yesterday for the first time in 2012 we saw the CAC trade in negative territory. The CAC is down 2% on the year and the DAX is up 10.19% losing half of its gains since the start of the year. It is interesting to point out that the CAC is trading on a P/E of 9.98x and a dividend yield of 5.31%. The DAX on the other hand is trading on a PER of 13.12x and a dividend yield of 3.73%. Although the yield on the DAX is lower than that of the CAC, it is still attractive considering that the 10-year bund is only yielding 1.644%.

We have seen the Euro weaken against the Dollar and is now trading at $1.3158/Euro. The weakness of the Euro and the Strength of the Dollar is one of the main reasons why the DAX is up much more than the other European indices. I continue to believe that the Euro should continue weakening against the Dollar and we could see the EURUSD at levels close the $1.2/Euro as we move closer towards the end of 2012.

I still think that an investor should be net long this market despite the current weakness we are seeing at the moment. A quarter of the companies have reported results so far and 81% have beaten expectations. This is not being reflected in the prices because the markets are more worried on the global economic situation rather than fundamentals of individual stocks. And this is where the opportunity arises. As investors are more worried about global contagion, they are not taking advantage of building a portfolio in good names and picking up the stocks at attractive prices. It is true that the news out of China was disappointing though we knew it was coming. This is why we are betting on further stimulus in the economy. On the other hand in Europe, although there is volatility because of contagion concerns particularly when referring to Spain and Portugal, I continue to believe that neither of these two countries will follow the same procedures as Greece.

It is true that both Spain and Portugal are facing financial difficulties though it is more likely that both countries will be given aid rather than have to carry out a private sector involvement exercise. Will we know more on how this will be carried out closer towards the end of the first half of 2012.

Whilst investors are more worried about the macro-economy, this is where the opportunity lies. Picking up stocks whose price is not moving much on the back of good results and a good outlook. It is in times like these when it is beneficial to build a portfolio in strong names and let it run its course.

Moving on to the US, the Federal Reserve tried to bring more clarity to policy making in January by releasing Fed officials’ forecasts for interest rates. Instead, it may be creating confusion. Policy makers tomorrow will probably repeat their plan to keep the benchmark interest rate low at least through late 2014.

Today is a big day for Apple shareholders because the company reports results. With key catalysts now priced into the stock (i.e. the share buyback, the dividend, a new iPad sales trajectory), investor focus is returning to iPhone sales and subsequent product update; we are raising iPhone 4S estimates and expect the iPhone "5" to include LTE and launch toward the latter part of C3Q12. We see ample room for iPhone estimates to work still-higher through YE as no product equal has yet appeared on the market. We expect~15% appreciation relative to the market over the next 12 months for AAPL shares; the June quarter looks to have fewer catalysts, but any stock disappointment should be fleeting as 'next iPhone' hype appears.

Stock to watch: First Niagara Financial (Price $8.83, Price Target $12)

We expect upside to trading multiples in FY12 with a more meaningful pause in M&A activity, as we expect pro forma EPS/ROTCE could be robust enough to reduce investor deal fatigue and reinvigorate interest in the shares. While obscured by M&A, FNFG's market share opportunity and organic growth story are attractive, in our view, and likely to capture greater investor focus over time. Buy.

For further information on First Niagara Financial or other stocks we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli