Good morning,

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

  • China’s non-manufacturing purchasing managers’ index climbed to 58 in March, a six-month high, official data show. The nation’s government has tools including monetary policy to protect growth should the pace of economic growth be threatened;
  • The Dow Jones Industrial Average closed at the highest level since 2007 after the Institute for Supply Management’s U.S. manufacturing index rose at a faster pace than forecast;
  • BOE and ECB meetings later on this week;
  • FOMC meeting today;
  • US Jobs Report for March out on Friday;
  • 10-year Italian yielding 5.105%, 10-year Spanish yielding 5.35% and 10-year Portugal yielding 11.666%;
  • Brent is trading at $125/barrel;
  • Spanish government to approve budget

Markets rallied yesterday in the US after the ISM number for March came out above expectations. The US ISM index surprised on the upside, rising to 53.4 in March, from 52.4 in February (consensus 53.0, Danske Bank 53.4). Although a bit mixed, the details support a picture of on-going growth in the US manufacturing sector. The momentum in positive news keeps on emerging from the US economy despite the negative news we hear from Europe. Today is a very important day because there is an FOMC meeting and we will see what else the Federal Reserve has to add on the recovery of the US economy.

The Fed rate is at a low of 25 basis points and is expected to remain so till late 2014 until the economy's improvement results in an increase in inflation which in that case would result in the Fed increasing rates at an earlier stage. If the Fed concludes that there are inflation pressures because of an increase in the circulation of money in the economy, this is a good this. If inflation is caused due to growth it means money is changing hands and consumers are spending, something we are not seeing in Europe.

The future of all economies are in the hands of politicians. Bernanke said that the US needs further quantitative easing to continue growing and reducing the unemployment rate below the current 8.3%. European economies are not growing and the ECB is not stimulating growth. In my opinion the ECB needs to start cutting rates to stimulate growth and weaken the value of the Euro.

If the Fed keeps on pumping money into the US economy which is already growing at a decent rate compared to the rest of the world and the ECB sits on the sidelines and does nothing, the Euro will continue strengthening against the Dollar and this will further weaken the European economy. The Euro needs to weaken in order to make European goods more competitive and increase exports. The EURUSD can't remain at the 1.33 level. It must come down or else Europe will never get out of the no growth environment.

The US have it going good. Cost of production in China is increasing and certain companies already left China and started producing in the US. So jobs are also being created this way. It is true that the 2% growth rate is below the long term average though with inflation at the target rate of 2% the Fed has the option of stimulating growth. And although jobs are moving out of China back into the US, the standard of living of the Chinese is improving and although exports to Europe have fallen, the PMI numbers came in much better than what HSBC were expecting.

My opinion is that every portfolio should be exposed to the US and China. US and Chinese companies in a portfolio will result in a co-variance which is lower than the variance of each individual constituent. And the high return from Chinese corporates will help boost alpha in a portfolio. It is an ideal mix of cash rich blue chips which provide both growth and a decent dividend as well as that extra kick you'll be wanting to add to your portfolio in order to beat the index.

Hang in there. Don't get tempted to sell because you will miss the boat. Traders are out there praying for a weak day in the markets to dip their toes back into the water. In hindsight, everytime we had a weak trading day this year, the markets bounced back towards the end of the session or at the open of the following day. Stay out of Europe and look for value in the US and emerging markets.

If you don't want currency exposure you can always invest in Europe though make sure you are entering the stock for the right reasons and not just because the herd is going into one name, you do the same. And my last advice today is to hang on to Chinese stocks becuase it's just a matter of time before the Chinese government carries out some form of expansionary monetary policy. Even Morgan Stanley yesterday jumped on board with Nomura and Deutsche Bank in increasing their growth targets for China in 2012. I think all portfolios should be exposed to a Chinese ETF. Check out iShares MSCI Emerging Markets Index Fund (EEM US EQUITY).

Stock to watch: Apple and Priceline.

Apple report results for Q212 on 20/04/2012 and Priceline report results of Q112 on 04/05/2012. These are our top picks in the equity universe. We are very confident that both companies will beat the streets expectations and will be reflected in the share price. Both stocks are trading at a bargain price in our view and portfolios which do not hold the names should get exposure. Apple's price target is $700/share whereas Priceline's is $850/share

Stay hungry, stay foolish.

Good day and happy trading!

Kristian Camenzuli