US Stocks closed +0.3% to +0.7% higher yesterday. At the same time, all country and regional equity funds that we follow (most of them) entered negative trending conditions except the S&P500 and the Nasdaq. US equity markets were initially marked down in the overnight session on Sunday by fears D. Trump would want to leave the WTO (what a difference would that make if their rulebook is to be bended anyway?) and on news that the political crisis in Germany was deepening, that it could lead to the German CDU/CSU coalition falling apart and A. Merkel exiting as Chancellor. Also contributing to a weak US opening yesterday was a watershed decline in Chinese equities which after a one-day recovery dragged the CSI300 down 3% and this index some 15% and 20.9% below 50dMa and 200dMa, setting the tone for EM markets on Monday. EM stocks and bonds dropped by -1.1%. European markets also closed down -0.5%. Only US indices managed to deliver a little miracle turning from red to green on no apparent reason except lack of follow through selling in the face of international markets adversity amidst relatively small volumes ahead of July 4th. Although US stocks turned tail, closing higher on no particular reason, momentum (not yet trend) on Nasdaq remains broken. Although the news turned in circle that Tesla is now producing 5’000 vehicles a week (this milestone somehow has become the only way to evaluate the company), Tesla shares closed down 2%, which may suggest some bulls’ fatigue. 

For what it is worth this company has been turning metal for 15 years without turning a dime, therefore offers no PE and also no dividend, still boasting a market cap equal to that of Daimler (USD60bn) which offers a 7% yield and a PE of 6. This is without considering the fact that Daimler produces superior quality cars that people want to buy and will soon want to buy in the electrical space as well, if allowed to go on sale in the US which is becoming less certain by the day. 

At current valuation, Daimler and most other German car makers could write off the entire US market and still not find their current valuation justifiable. If they stay in the US, there will still be a contingent liability to account for that an electric Merc, Audi, VW goes into flame (a la Tesla) perhaps exposing them  to billions of dollars in penalty. German cars are also posing national security threats, it seems. Sometimes like in poker the most difficult and best move is to leave the table. That is what trade wars are all about and it seems that is where D. Trump wants to go (or perhaps only until the mid-term elections), assuming he can hold the markets together until then. His Director of the National Economic Council, L. Kudlow is trying to help. It has been a long time, the early 1990s, since a White House tried to influence Federal Reserve policy the way Trump economic advisor Larry Kudlow did on Friday. In an interview with Fox, Kudlow jawboned the Fed, saying: “My hope is that the Fed, under its new management, understands that more people working and faster economic growth do not cause inflation.” The last time this happened, “the sense that the Fed was being criticized by the administration undermined the market’s confidence in the Fed’s ability to anchor inflation expectations,” Nomura Chief economist said yesterday. This was reflected in higher interest rates. In light of this experience, Robert Rubin, Clinton’s Treasury secretary, instituted the practice that administration officials should not comment of Fed policy. That page of the rule book has just been thrown away by the current administration as well. Commodities were particularly weak yesterday with corn, coffee and crude dropping 3%. While EM markets and commodities were the top underperformers yesterday, on a risk adjusted basis as suggested by our Z-score, the worst performance came from High Yield with HYS (short term high yield) trading 4.9 STD below its 20dMA and HYG (longer term HY bonds) trading 3.4 STD below its 20dMa with Platinum not too far behind (3.4STD) and gold and silver trading both 2.2STD below their 20dMa.  U.K. companies are at “breaking point” over the lack of clarity on Brexit and are slowing down their investments as they await answers to key questions surrounding Britain’s departure from the European Union, one of the country’s main business lobby groups said, as reported by Bloomberg. Last month, first Airbus SE and then BMW AG warned they may pull U.K. investment, the first major companies to break cover to which B. Johnson responded “*** business”. The dollar rallied and traditional safe haven currencies benefited but gold and silver found no love just yet, shedding 0.8% and 1.4% respectively.

Things are looking better this morning with Europe trading higher as a political compromise was reached in Germany. 

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