written @ 5pm

Today, non-farm payrolls were weaker than expected and led market participants to rethink their view on interest rate hikes. Currencies moved heavily. The USD immediately shot up from 1.2750 to 1.2850 and the $/Yen hit through 114 (traded above 115 in the morning). Bond prices rose as the market thought of a rather dovish Fed after the economic release. The stock markets went also up on interest rate expectations but not for long as crude oil hit a new high which negatively affects corporate earnings.
Copper prices were puzzling me. On the one hand there were a lot of news about speculative fund buying and on the other hand some market participants commented on the deteriorating fundamentals for the copper price. Copper and crude have moved in tandem the last two years as both markets suffer from supply/demand imbalances. However, on a historical perspective, a high correlation (100d) between the two always preceded a downturn in prices. Political fears are were not on the rise as gold didn't rise much today.
While the story unfolds over time, my view is confirmed by today's events. Growth is slowing and the inflationary impact on the market is increasing which will lead central bankers to push rates beyond a level that ensures maximum growth. Otherwise, the oil bill could become be extremely high (look at copper and check out what happens to a market that suffers extreme shortage) and nobody wants that to happen.
Referring to my prior comment, I am not sure about the amplitude, that a positive surprise would have on the market. After today, I think the market seems more vulnerable to me than assumed.

On a technical side, we are trading at the moment at the peak before the second sell-off in June. I couldn't find many stocks breaking through that resistance level. The stock market trades undecided at the moment and waits for new input to decide on the further direction.

written @ 8am CET

Yesterday, the reading of the ISM Non-Manufacturing index was weaker than expected @ 57. Generally, this year’s readings are below the readings of 2004 and 2005 (ex. Hurricane data) and are in concordance with a slowdown in growth. So, there was the confirmation of a slowdown and markets rallied. Why? Some buyers saw the end of the Fed rate increase which will stimulate growth and concluded to buy.



There have been many underestimations about future rate hikes in the US and Eurozone around for quite some time causing the whipsaw like currency fluctuations in major FX markets. Eurozone rate hike expectations rose yesterday again after Trichet used the word “vigilance” in his speech. Hence, I am a bit reluctant to forecast a bull market even though valuations are cheap (is the stock market already pricing in a slowdown in growth?) and M&A activity is at records. The 2Y-10Y Treasury Spread is negative and the Fed target rate is approaching 6% slowly but steadily. Both are harbingers of recessions! Current data points to strong growth today but sentiment points to a slowdown. What shall one say when companies are cheap but prospects are perceived to be dim? Since sentiment is already negative, I would put my chips mid-term on the bull case as positive surprises might push markets higher than negative surprises which would push them down but not by so much.



Tobacco



Florida’s higher court ruled that Altria’s Philip Morris USA and other cigarette makers don’t have to pay $145bn to smokers. With a smarket cap of the biggest five companies at $290bn that translates into a pretty convincing trigger for a rally in tobacco stocks.