TGIF

TGIF, one of the more annoying buzzwords/phrases out there. The CNBC crew have been banging on all day about wanting to hear viewers' opinions on which are the most annoying buzzwords. This surely must be one of the more ironic requests, given their penchant for green shoots, sugar highs and second derivatives. Perhaps they're just running out of ammo and looking for inspiration. Anyway, TGIF is one of my bugbears.

Well, as expected, yesterday’s market stumble proved to be short lived. After spending most of the session in the red, US stocks edged into the blue by the close. China was not so lucky however and posted another down day on worries of lower August lending. Fear not however, a government official has recently assured us that the Chinese market is over reacting and everything will be ok. Phew.

Despite China faltering, one asset which shows no sign of retracement is copper, making a new high today. Now we’ve heard that Chinese stockpiling is coming to an end, and industry overcapacity is being cut, you would think that would affect the copper price. Copper is seen very much as a leading indicator and China has certainly proved not too shabby a soothsayer either in recent years so it’s a bit confusing to see the two at odds with each other. Especially when you look at their performance this year…
You wonder, if it is speculative “loose” investors who are buying this stuff, what will happen when sentiment turns? Although, to be fair you would think a 17% fall in the index would already have tested sentiment’s resolve.

The negative news in the fertilizer sector continues this morning as ABB Grain in Australia cut its forecast on lower fertilizer prices. K+S, Yara and the usual suspects are proving resilient however and are up in this up market.

Currencies are fairly boring as the $ once again takes to it’s well trodden southward path, crude has been bid since last night when the $ move began and bonds are actually being sold today, something which you would ordinarily expect in a strong equity market but which hadn’t really been the case of late. Still, yields are well below previous levels of mid June when the equity market was c10% lower…and with yields at these levels, despite a trio of issuances this week and a better equity market, they certainly seems to be holding stocks back. We’ve had quite a few better data sets this week, today’s PI and PCE no exception as wages rose for the first time since Oct 08 and the savings rate decreased (surely a boon for Inflationistas, no?). We’ve also had strong releases from Tiffany and Intel, yet we’ve struggled all week to push on and aren’t exactly ripping the tape up today either. If bonds do manage to sell off in the coming days, this could well open the way to take equities higher; if not then I think we’ll continue to struggle on the upside.

Hope

Some more “better than expected” data has befallen the market today, and yet again, we have failed to break on through to the other side. Risk assets across the spectrum have gone south since the numbers were released as the bears manage to climb their way out of market’s trap and look to surround the increasingly weary looking bulls.

The news that problem banks rose to 416 in the second quarter came in ahead of the expected 377 and this has served to spook the market somewhat. So for the Nth time, we have a mid afternoon wobble which will no doubt stabilize and rebound straight in the face of anyone who tries to sell it here.

If you think this week was slow, next week promises to be tortoise like. The second quietest week of the year after Christmas week lies ahead for market participants as the UK bank holiday on Monday and the ensuing US Labour day weekend, conspire to make the week only marginally more interesting than watching paint dry.

Still, we live in hope, hope has propelled the market 55% from the lows and if it can do that, then surely it can bring some more activity than usual next week. Hopefully anyway.

Another Day, Another Flatline

Another day treading water as we wait for month end. Volumes are actually pretty reasonable today, trending from 100% down c85% but most across the street report of being quiet. Bonds have rallied again today, this in spite of today’s $39bn 5 year auction and the $ has taken a rare foray north.

Equities just can’t seem to make much progress in any direction however. Not even better mortgage apps, home sales and durables could really push us. Ok, the durables number wasn’t so great and the core came in light, but there was a big revision to last month from 1.1% to 2.5%. On another day, at another time, I’m sure it would’ve taken us higher.

So in the interest of something to talk about, I draw attention to two things. One is an article in the Guardian today informing that Toyota, the world’s largest automaker, is to suspend one of its production lines in Japan (220k vehicles). Now while it only last week announced an increase in its 2009 target by 150k to c6m, Reuters reported yesterday that Toyota are also due to cut global capacity by 1m. This is from 10m to 9m. So whether production is going up by 150k or down by 70k net is pretty paltry in the scheme of things…and demand of 6m, when it was more like 8m last year and you have capacity for 10m gives shows that why things may be stabilising in the economy, it’s far from back to the good times.

Secondly, and from the musings of Mr. Rosenberg, noting that while consumer confidence number in the US yesterday was better than expectations at 54.1. The average index level during recessions is actually 73 and post a 55% rally, you would expect it to be 100. So maybe consumers aren’t confident enough? Or maybe the market is getting ahead of itself. Food for thought on a quiet day.

Draining...

China lurched again today. The Baltic Dry is down c45% from its June peak. Bonds have rallied and are close to their 3 month highs. Yet US and European equity markets are close to their loftiest levels. Go figure! I can rationalize the bond move over recent months. Previously, we would have expected bonds to sell off with the equity rally. However, given the dovishness of Merv and Ben, it makes sense that they haven’t been sold even though equities have been parabolic (buzzword). The lack of attention to China though? Less so. China is up, rally, rally, rally. It’s the growth story. China is down, ah don’t worry about it, it’s not such a big deal, and look, the rest of Asia hung in ok. And anyway, China rallied to the close so no big deal.

It all leads to a confusing old Marché…as demonstrated today. Europe opens down, and then rallies. Bernanke’s going to stay in. That’s a positive, showing faith in the incumbents. Equally, getting rid of him probably would’ve been seen as a positive too, injecting some fresh blood into the hot seat, full of potential for what could be. Remember the Geithner appointment inspired rally back in November last year.

Amidst all the confusion (or perhaps it’s just mine?), some things stand out to me. Among them, the fertilizer names look like they continue to be good shorts and the utilities on the long side in the pursuit of yield. Barrons ran an article yesterday talking of how expensive potash is based on the historical relationship with corn and soyabean prices. In India, you have lack of monsoons leading to lower sugar production and fertilizer demand is down there as a result. According the a release from USDA last week, corn prices are expected to fall next year as supplies hit new highs. It doesn’t take a great leap of faith to believe this will lead to less being planted and hence lower fertilizer demand.

Utilities stand out to me for their yield, in what continues to look like a lower for longer environment as far as rates are concerned, and they should provide a defensive haven in the event of a market fall. Telcos too could be attractive on the yield side and indeed JPM are pushing an out of miners, into telcos trade today.

Whether it’s the market which is draining or simply late summer sloth, who knows, but things aren’t looking much easier to get a proper grip on. Here’s hoping September brings some more direction and volume.

Risk On Redux

Isn't it odd that talk of China tightening capital requirements (again) spooks everywhere except China? But that's what happened today. While we were busy scratching our heads about that one, the German and Eurozone PMIs came out well ahead, and this proved enough to stop the market questioning, and instead just jump on board the rally train. I think there may also have been some reasonable attention paid to a UBS strategy piece today which upped its Euro growth estimates and is upbeat on H2 revenue growth. We have seen a large "risk on" this morning as Europe rallies 2.5% from the lows. Volumes are strong today; c125% and I assume that is due to expiry later today because it's certainly not a result of news flow. The oil price starts with a 73 now and the dollar has taken another fall after recently failing to break out of its downtrend.

UBS has continued to rally like a bank possessed (or maybe exorcised is more apt) as the allocations/demand ratio was paltry. Whether its people scrambling to cover shorts or add to longs I don't know. It never looked a wise option to be short of this one given how well it held up in spite of an extremely well telegraphed placing.

While the market, as mentioned yesterday, has been range bound of late for sure, much to the chagrin of trend followers, I think it's interesting to note individual stories have caught traction and strong themes have developed. It's almost like it was back in the halcyon pre Crunch days. For example, the sugar names have continued to climb on the lack of monsoons in India. Along similar lines, the fertilizers have continued to underperform. We're starting to see the utils gain traction, one which makes sense to me as the central banks continue to be very dovish, Merv in particular of late and the yield plays become attractive, especially if you believe September & October could be tricky months for the markets. UBS is another one, I didn't speak to many yesterday who were going to flip their stock, the vast majority were holding on.

Before we get too carried away with the return of the Prodigal Bull Market, let's sign off with some perspective giving thoughts from David Rosenberg…

WHAT THE MACRO LANDSCAPE LOOKS LIKE AT THE MAGICAL 49% RALLY IN THE S&P 500?Historically, let’s examine what the macro landscape usually looks like at that magical +49% point in the equity market rally:

• Real GDP had expanded on average by 4.5%
• Employment had rebounded an average of 850k
• The ISM had firmed to an average of 56.2 (the lowest print by this juncture was 53.9)
• Corporate profits had recovered 12%
• Bank lending rose an average of 5%

Compared to today, the market is way ahead of itself because as of the latest data points during this 49% rally:

• Real GDP is trying to make a cycle low
• Employment is trying to make a cycle low
• The ISM is off the low but still sub-50 at 48.9
• Corporate profits are still trying to make a cycle low
• Bank lending is still trying to make a cycle low
• The equity market right now is priced for 40% profit growth and 4.0% real GDP growth in the coming year

What Was All the Fuss About?

China rebounds 4.5% and reminds the market that everything is just fine. Denials from CBRC and PBOC that any meeting was called on Tuesday to tighten policy buoyed the markets. HK saw a BNP upgrade and Korea was up a couple of percent on the creation of a bad bank for all the smelly stuff.

Predictably the Spoos followed suit as has Europe and it’s all proved a very good day for the Swiss government to offload their stake. The chat was that hedgies had been actively buying in the last week or so as they were fearful they wouldn’t get enough in the deal and this seems to have panned out with the book multiple times covered in a matter of hours.

Sterling is sharply unch today despite a deficit number coming in way ahead of expectations at 8bn vs estimates of 0.6bn. The better retail sales data however offset the negative borrowing figures and have ensured that GBP didn’t move much.

And so yet again, just as a trend looks as if it’s developing,it quickly reverses and smacks you in the face with a wet fish. It’s becoming slightly tedious and if each time didn’t look like “the one” then perhaps it wouldn’t elicit such a groan of “here we go again.” Trend following is not the way to profit in this range bound market, that’s for sure. It may not cost you too much if you run tight stops but it will cost you pretty much every time, until the trend breaks, which of course, if Mistress Market has anything to do with it, will be the one time you decide not to put the trade on.

(More) Sino Led Sliding

Well the US didn’t do much of note, a 1% cyclical led rallyette on very light volume which the futures reversed once China rolled over 4+%. As mentioned yesterday, it really does look like China is leading the market at the moment. You can point to the credit indices and sure, they did start to widen last week and have continued to do so today, but China started falling first and it is the China moves which are the catalyst for rest.

This all makes things fairly uninteresting in Europe and the US, and this reticence to trade is understandable as you’re effectively placing bets and waiting to see what whim takes China overnight. You may have a long term view, but there's still something unnerving about not being awake for the events that move your names.

Not to be undone by lack of equity action, we’ll find something else to talk about. With this recent move downwards, we started to see the re-emergence of charts showing us where we are in the cycle versus previous bubbles. Check this chart on PragCap, lifted from DShort:
While not predictive, it is instructive, and just as we priced in the worst case back in March, I think we’ve been pricing in the best case during this recent rally. The latter seems very unlikely to materialise given the lack of sound underlyings, such as continued weakness in the consumer, revenues and inflation, and the former, well there’s still plenty of unknowns out there; what happens when all the ARMs reset etc. So we don’t know if the lows will continue to hold that dubious honour although it does seem unlikely anyway that quite the same level of fear will re-enter the market. Anyway, as the market reflects and the number of these charts being passed around increases, it only serves to make investors more cautious.

Speaking of caution, one person who definitely seems cautious in his outlook is the MPC’s Mervyn King. With the release of the minutes today, we were served quite the surprise. Now the decision to extend QE to gbp50bn caught the market off guard, so the news that 3 of the 9 members (Merv included) actually wanted to bump it up to 75bn, was even more of a shock. He’s made it known the UK really can’t support a strong pound at the moment and he’s definitely worried about doing too little rather than too much. Given the news from the release today, I’m a bit surprised not to see GBP a touch weaker. Perhaps it wasn’t such a shock to some or perhaps we'll just have to wait and see what China made of it?

Missing: Market Mojo

A flaccid performance in the US has fed through to a fairly uninspiring day today in Europe. Although, it looks to me like it is Asia, and in particular China that is calling the tune at the moment. And a 1.5% bounce out East today, having been down a percent at one point has not been enough to provide Europe with much impetus. This, in spite of the ZEW providing a good excuse for a rally. The US really did very little yesterday, flatlining the whole session with the cyclicals down between 3-4% and the defensives between flat and -1%.

The Senior Loan Officer survey was largely ignored. Although it could have been perceived as positive in that the net percentage of banks tightening credit declined versus that of April, the demand for loans deteriorated across all major categories except prime residential mortgages. On a different day, that would have been fuel for a rally, especially that last part, but the market was in little mood for assuming risk yesterday. And looking at the outlook, the banks expect to maintain strict criteria on lending until at least H2 2010. For full details of the report, see here.

So equities aren’t doing much. Volumes are c65% say UBS. Others I’ve asked have described them as LOW (the capitals are key here). If stocks aren’t moving, is anything else? Well oil has rallied back 3% or so as the $ has weakened somewhat. Commodities and all things commodity related are better in general today. And GBP has rallied on the back of the CPI number. Although still below the BoE’s target rate of 2%, 1.8% was flat MoM and well ahead of expectations of a fall back to the 1.5% level. The main cause for the rise came from recreation and culture. Essentially it was toys, computer games and DVDs which held up the number as summer sale discounts were not as deep as expected. This is all interesting and especially so in light of Mervyn King’s comments last week in the inflation report which certainly suggested rates would be lower for longer as he saw the inflation risks to the downside.

We’ve got PPI data, Housing Starts and Building Permits from the US a bit later. Failing excitement in that, it looks like we may have to wait for more Chinese leadership for this market to rediscover its mojo, one way or the other.

Cruel Mistress Market

It seems to be that Mistress Market, in her infinite wisdom conspires to lose as many people as possible, as much money as possible…before ultimately turning around and saying “you know what? You were right, if only you’d held on…”

A case in point is Volkswagen, now the spread has been creeping in since the mid 90s wides of late October. Everyman and his dog had the trade on, and it was so compelling, but when, last Friday, VOW was down 15% (27% at one point) and the Prefs were only down 6%. Was anyone left in the trade to benefit? I doubt it. Perhaps there is a moral victory and a healthy dose of schadenfreude in the form of Porsche’s marked turn of fortunes but any such victory is surely hollow and has ultimately proved pyrrhic to many.
With this in mind, is there anyone left on the short side to benefit from this risk off we’ve seen? We noted the pick up in wariness across risk indicators over the last couple of weeks and in particular the fall in China (now down 17% in 2 weeks) and the Baltic Dry and at last this has followed through to developed markets. The VIX is up 15% today, we’re running out of earnings beats and cost cuts to keep us buoyed and there is a bearish element lurking in the market. Even Matt Nesto on CNBC declared “It would take a cure for cancer to get this market up today.” Abbey Joseph Cohen has called the end of the recession, the manufacturing report came in better (although it’s only c100 manufacturers in NY State) and neither could move the Marché.

Now we’ve been here before, remember mid July? But maybe this time is different. I don’t know. It would make sense to me that a multiple expansion based rally without sound underlying economics comes back to earth. It’s not that I’m a perma-bear I just don’t think you can extrapolate a couple of quarters of earnings beats into a rosy future, especially when the beats aren’t coming organically and the estimates have been hacked down so low to be knee high to a grasshopper. I’m more of the new normal, slower for longer frame of thought and in that regard, I can more easily rationalise the move downwards. So is this time different? Who knows but given the moves from our leading indicator, China, it gives me more conviction that this down move could be more prolonged. China did not move like this during the July headfake. However, Mistress Market is unyielding (no means yes to her) so this could all turn around in the blink of a macro number. How would I play it? MacroMan recommends puts and I’d have to agree, ok the VIX has rallied hard but it’s off a low base and you know your downside. And for sure, if you’re wrong, it will be far less painful that 40 lashes from Mistress Market for being short, especially if naked.

Catching Up and Looking Forward

As the week draws to an end, indices are not much moved from their starting levels. We’ve had the excitement of a potential sell off post China weakness and others risk indicators looking shaky. As has so often been the case during this rally, any sell off is fleeting and so it was again. The Fed’s somewhat sanguine outlook, Paulson’s bank purchases and better Euro GDP figures all combined to send the bears fleeing (to LA it seems) and produce an impressive rally.

Lest anyone get complacent however, yesterday’s jobless claims and retail sales threw a spanner in the works and despite the rest of Asia being in the blue, China was heavily in the red overnght. Rumours have abounded recently in China; between reining in lending and insurance companies selling equities in the face of redemptions. Few markets are as prone to big moves on rumours/press articles etc as China and recent weeks’ moves have showed just that. Given the leading indicator nature of the Chinese market, if this continues, is it only a matter of time before Western markets follow suit?

A couple of weeks ago Pimco’s El-Arian coined the phrase “sugar high” in relation to the equity market. In a piece of writing so contrived as to be worthy of the Daily Sport at best, I’m going to link this in to the fact that the sugar market itself has recently seen a new high. This has been garnering much interest of late amidst talk of lower Indian cane output as a result of not enough rain. Meanwhile, across the globe in Brazil, too much rainfall is disrupting things out there. UBS placed c$500m of the erstwhile little known Tongaat Hulett the other day and that was well received. Meanwhile US food producers have been calling for an increase in the amount of tariff free sugar they can import. The WSJ ran the story yesterday. Looking at the chart for sugar and you think, I’ve missed this one for sure…

but then if you had a dollar for everytime you thought something couldn’t go up or down anymore in the last couple of years…and it did just that, you’d probably be on a beach somewhere, sipping margaritas and putting extra cubes of really expensive sugar in your tea…just because you can.

Away from all that, we got some good news from NZ where Q2 retail sales rose for the first time since Q4 2007 and the house price index rose in annual terms for the first time since March 08. The RBA Governor Stevens continued to fan the fire of a rate hike being the next move but would not be drawn to comment on a timeframe. As to be expected both currencies are better today.

The excitement later this afternoon comes in the form of the CPI which is expected to show further deflationary pressures, the Cap utilization rate and Industrial production numbers. The latter of which is expected to be positive for the first time since Oct 08. We could probably do with a bit of excitement too as volumes are light today at 75%. Until 13.30 anyway, and very possibly after, it feels like we'll be drifting sideways.

Storm A-Brewing?

If you came in this morning and felt like you hadn’t missed much. That is the case, well in price action terms anyway. So far this week, the market has traded in a 1% range with the vast majority of the time being spent flatlining around the 1005 level. Volumes are tracking c60% of average and in general, equities are not where the excitement is at this week…so far anyway. This surprises me a little. While earnings may not be quite so plentiful as the last two weeks, there is hardly a dearth (although the big names haven’t been reporting to be fair). This aside however, there’s plenty of other news out there: Chinese CPI, industrial production and new bank lending all came in light. PPI was slightly better than expectations but down on last month, ditto the trade data (despite stimulus). In Japan, we had the monetary policy statement and an earthquake while Taiwan is suffering from a Typhoon. So all this happened yet Asia couldn’t muster much excitement at all.

And what about Europe? Well, we had a better RICS survey, the best since April 2007. The property names are taking a dirtnap however. The German wholesale price index exhibited further deflationary trends although the CPI came in slightly better but still at -0.5. Lithuania was placed on negative creditwatch by S&P following on from the downgrade of Estonia and Latvia yesterday. So lots of news but not much movement yet in the market.

That said, things are starting to lurch downward as I type…so I better hurry! The BDIY prints down another 2% and is now down 9 days in a row. Govvies have had a bid today with the 10yr now back at pre NFP levels and this is in spite of $37bn of 3 years coming today and $23bn of 10yrs and $15bn of 30yrs later in the week. Is this a flight to quality in aniticipation of a market correction? The VIX has been trading up too and risk currencies are finally moving down. All these things have been making these moves during the day and my point was going to be that this could well precipitate a sell off in equities. The market’s beaten me too it however, which is a bit frustrating. Who knows if this continues today and if it does, for how long, but the risk indicators are looking a bit more wary.

Dazed and Confused

Well it’s a quiet old Monday today. Volumes sub 60% of average and paltry number of companies reporting in Europe; I counted 3 but only actually saw figures come out from one, Gagfah. If you care about Gagfah figures, a) they were worse and b) you’re in the minority. Perhaps some investors are observing a day’s trading inactivity to mark the 2nd anniversary of BNP suspending 3 funds due to subprime exposure. Or perhaps not.

In any case, there’s a slightly muddled feeling to the market today as we emerge from last week’s earnings induced stupor, the euphoria of the jobless figure settles down and the market looks beyond its glossy veneer. For sure, the number was better, but it was flattered by seasonally adjusting for the auto industry which is redundant this year, and also a bump from the federal census workers. Together this added about 100k to the jobs number which puts the “real” number at about -350k, which is still worse than the nadir of the 01/02 recession when the low print came in at -325k. And while the unemployment rate came in lower on Friday, that’s because the participation rate fell.

In Asia, while HK and Japan were up, the Shanghai composite fell for the 4th session and the Baltic Dry, was down 17% last week, its worse fall since October. On top of that, some of the old favourite correlations have not gone to plan over the last couple of days. The market rallied and the $ rallied. Even if you forget about what the equity market did, the $ rallied!! It’s feels like a long time since we’ve seen that. I can see the rational but it’s not what we’re used to. Commodities are down and yet AUD and NZD are still up. Do these things ever go down? So perhaps, putting all this seemingly conflicting price action together it’s no surprise that markets are a little dazed and confused today. I know I am.

When Inspiration for a Title Deserts Me...

...I have to do something like this.

Another week draws to a close. More earnings beats and of late some macro misses. It’s all been leading up to 13.30 today when the Non Farms are released. The ADP, while it came in slightly worse on Wednesday, did show a marked improvement on the previous month. As a result, we’ve seen economists revise their forecasts down for the number of job losses today and I’ve heard whisper numbers around the -250k level.

Ahead of this, things are relatively muted in the market place. Volumes are tracking at c85% and yet again the cricket is providing most of the excitement. Sterling continues to struggle post yesterdays QE extension and today’s mixed PPI has done little to aid it.

The market began to move sharply lower yesterday afternoon although I’m not really sure what catalyzed that. There was the speculation that Whitney was recommending taking profits in the banks but the market had started moving before this. Also, if she was going to make a call like that, surely she would be afforded the time on CNBC et al to put forth her views…just as she was when calling the buy on GS. Right?? The sell off stabilised somewhat although Asia in general was weaker and this has followed on to Europe today. Asia was in general weaker, China down for the third day in a row. Korea however steadfastly refuses to go down. To be fair the data have been better of late, GDP printing higher at 2.3% a couple of weeks ago, business surveys ticking up, exports better than expected and industrial production far better. Still, the Kospi 200 is up 17 in the last 19 sessions! And the two down days have been to the tune of 15 and 45bps. Now that is parabolic! Or in normal speak, geez that’s a big move!

Another asset exhibiting outstanding resilience is the NZD. The resources are selling off today but the Kiwi is maintaining its recent flight (for recent, read 5 months, which is pretty impressive for a supposedly flightless bird). The Aussie is off despite RBA comments about potentially raising rates and CAD was falling this morn and has lurched further post a very poor unemployment number, -44.5k vs expectations of -15k. The Kiwi however remains firm and is up about 40bps. Ok it’s a consensus short, but for a reason! And with the Land of the Long White Cloud’s unemployment situation not getting any better, clocking in at 6% earlier in the week vs estimates of 5.7%, one wonders if or when, the Kiwi and it’s 35% appreciation, comes back to earth.

The market has had quite a few moves to the downside to deal with this week. Certainly it has proved pretty resilient, with stubbornness akin to that of the Black Night . Just when you think it’s about to roll over, “I’m not quite dead yet” it bleats and up we go again. Today looks more interesting on this front with the market taking a dose of reality from RBS and Hester’s less than sanguine comments and of course the imminent main event, the NFPs. While the market seems to be prepared for a good number, I’m not sure it’s fully priced for it and if we do come in with a -250k, it would be hard to see us going any other direction than upward. That said, in line to low and I would think we fade so it’s going to have to be a big beat to move us up. We’ll find out inside the hour. Eager trigger fingers await.

Punxsutawney Phil

Just when it looked like Punxsutawney Phil was about to forecast another day in the blue for equity markets, out comes the ISM. In quite a turn up for the books, a bad number has not been spun into a good one by the market. Well not yet anyway. Only a handful of hours after being published, the Hitchhiker’s Guide to the Market may be consigned to the dustbin of history. But let’s hold off for the time being on such rash statements, we’ve been here before only to witness a miraculous 180 turn.

Looking at the ISM and it wasn’t good. With the exception of supplier deliveries and inventory change, everything was down on the June number. And weren't we hoping for inventory drawdowns to kickstart GDP growth in H2? In particular, the prices paid took a particular fall, coming in at 41.3 vs 53.7 previously. Perhaps exhibiting prescience ahead of the NFPs on Friday, the employment component fell too. All of this has conspired to send the erstwhile parabolic (new buzzword du jour) market lower and asks the question of whether all this has been one big sugar high (another new buzzword. Still, at least green shoots seems to have disappeared from the market vernacular).

Speaking of parabolic trajectories, I saw a chart yesterday showing how the S&P was testing the recent uptrend range. It was about 8 points off its highs at the time! It seems crazy but it does show how quickly we have risen over the last few weeks.
We have now broken that line for whatever that is worth.

For the Risk Off we’ve seen in equities since the ISM, it has only really followed through in bonds. Ok oil is off but there was a big build in crude. DXY, while up is far from rallying hard and commodity currencies have only given a little back of their recent gains. China is going to maintain moderately loose monetary policy the PBOC reaffirmed again today, just in case you didn’t catch it last week and there is talk of Australia being the first to look at raising rates. Nothing new but it seems to be stemming a puke in the resource sector.

We’ll have to wait and see if this is another market headfake or is Groundhogday finally coming to an end? If the latter, wintry days in the market lie ahead.

The Hitchhiker's Guide to the Market

In keeping with Monday’s “Risk On, Risk Off” piece (still only risk on), I found this guide, which may help navigate these tricky markets. It comes from the most cynical of the Cynics, Zerohedge and makes for funny if slightly (but only slightly) facetious reading…

The New Wall Street Reality
· GM chapter 11 = PRICED IN
· 125K+ jobs lost from GM chapter 11 = PRICED IN
· unemployment @ 9% = BETTER THAN EXPECTED
· unemployment @ 10% = DOW SOARS
· unemployment @ 11% = GREEN SHOOT RALLY
· unemployment @ 12% = ALREADY FACTORED IN
· unemployment = 35% = DOW DROPS 100 POINTS
· housing price =1% = RECESSION ENDING
· housing collapses = GREEN SHOOT
· Housing falls 20% = STABILIZATION
· Government spends 1 trillion of OUR dollars = STIMULUS
· North Korea fires nuke = RALLY
· Israel bombs Iran = 30 MINUTE END OF DAY RALLY
· world explodes = ASIA RALLIES
· PMI crashes = HUGE RALLY
· No jobs are created = RECESSION ALMOST OVER
· U.S. debt overwhelming = TOO BUSY RALLYING TO CARE
· Consumer stops spending = RETAIL RALLY
· Banks are insolvent = SIGNS OF STABILIZATION
· American auto industry BK = GOOD THING
· Banks pass scam stress tests = HUUUUUUUUGE RALLY
· Banks "only need 75 billion = OUT OF THE WOODS
· Banks pass a real stress test = NEVER WOULD HAPPEN
· Banks pay back tarp = LATE DAY SURGE
· Banks can't pay back TARP = EARLY MORNING SURGE
· 12% mortgage delinquency = GOOD FOR STOCKS
· Hundreds of thousands of mortgages underwater = HOUSING BOTTOMED
· Dollar rises = RALLY
· Dollar crashes = RALLY
· Inflation = BULL MARKET
· Deflation = BULL MARKET CONTINUES
· REFLATION = MASSIVE SHORT COVERING RALLY
· Gold rises = STOCKS RALLY
· Gold falls STOCKS RALLY BIG
· Banks' fake earnings = SIGNS OF STABILIZATION
· CRE stabilizing= 1000 POINT RALLY
· CRE CRASHING = STOCKS SHAKE IT OFF TO RALLY
· CONSUMER INSOVENT = CONSUMER IS SPENDING
· OIL @ 50 = BULL RALLY
· OIL @ 60 = GREEN SHOOT
· OIL @ 100 = IMPORTANT RECOVERY SIGN
· OIL @ 20 = TAX BREAK

And the one we should all interpret correctly:
· NO ONE IS BUYING STOCKS = BILLIONS ON THE SIDELINES

Risk On, Risk Off

If Mr Miyagi, in his self appointed role as pedagogue, moved on from karate and instead guided Daniel Son through the wiles of investing, Risk on, Risk off would surely be a lesson it would behoove the young Larusso to absorb. Ordinarily anyway. In this market, however, he could ace the exam falling asleep half way through. It’s all about Risk On these days, Risk Off leads only to exasperation, disbelief and a P&L hit.

And in that vein, markets bounded from their starting blocks this morning. Ok, there was an initial false start with an opening dip but on the second offing, they did not hold back. Asia was higher on the back of the stronger Chinese PMI and The Sage of Stern, Nouriel Roubini, added his two pence and predicted we will see further rises in commodity prices as the recession abates. All this has seen the resource currencies hit multi month (in the teens) highs. And remember crude, that thing which was heading back to $55 a few weeks ago and to $60 just last Thursday? Well it’s over $70 now. And resource stocks? Just buy them, they keep going up.

Barclays numbers came in light of expectations but Bob Diamond, in the way only he can, assured investors that the underlying business is strong. Listening to him on CNBC, it went something like this…well credit books are always going to fluctuate quite a lot and ours has too and we expect it to continue to do so but if you strip that out, things really are very strong. Anyone remember that (bad) joke from Econ101 about 3 men stranded on a desert island with only tinned food to eat? Alas they have no tin opener. “Never fear…” says one of the men, an economist by trade, “I have the answer. It is easy. Now, assuming a tin opener…”

HSBC numbers were stronger however and markets have liked that. No doubt this will buoy Asian markets too when they open up.

We had some very poor German retail sales numbers, -1.8 MoM vs +0.5% expected and a worse revision too. The YoY numbers were equally ugly. The UK on the other hand has clocked in with a better than expected PMI manufacturing number…50.8 vs 47.8 expected. 50.8! That is above 50, and hence…expansionary. Ok not much, but still, it’s the first time we’ve seen an expansionary number in these data since April 2008. As a result, Cable is rallying hard, hitting levels last seen in Oct 08. EURGBP is being hit too, as the weakness of the German data and strength of the UK double team the cross and with the exception of the mid June fall, we haven’t seen this level since early December 08.

So there certainly has been a flurry of info, activity and price action this morning. Risk On, is on again it seems (having taken a momentary lapse into the US close on Friday). Who knows how long it lasts but who dares stand in its way?