Mr market and yield curve/ Japan

Yield curve out of sync with economic momentum
Gold/ silver rate, ISM and IFO are pointing to much flatter yield curves than we see at the moment. Quantitative easing is still pegging the short dated yields at lower levels than otherwise should have been the case, triggering very steep yield curves because of pricing in that central banks are behind the curve.

Japan
The earthquake will bring money back to Japan, but strength of the yen is uncertain because the Bank of Japan will have to step up quantitative easing. The problem for Japan to find profitable infrastructure investments is solved for the time being. Toyota will have to build more new cars (but import them from abroad). One should not overestimate the growth stimulus from the earthquake. Damage repair will take money away from investments that should have be done otherwise. But the damage repair could help to improve the confidence of Japan that it can do some things really good, as for the time being seems the case (the help from government is many times better than after the Kobe earthquake, the nuclear meltdown problems are way better treated than Harrisburg/ Chernobyl, the damage to buildings is incredibly low because of uge advances in earthquake proof building). The reaction of Wall Street Friday on the earthquake was as if it were a non event.

Maybe the influence is not that big on markets. It should cause a touch higher bond yields, lower prices for some Japanese stocks but also higher growth expectations for Japan that could translate into higher share prices.

Mr Market and oil, copper

quities are reacting negatively on higher oil prices, after a long period the opposite happened. This is caused by the market seeing higher risks when oil prices rise above certain levels (+50% in six months is often mentioned as trigger for bad times) and triggering lower growth. Until recently higher oil prices were seen as sign that economic growth was accelerating.

That view is confirmed by Dr. Copper. The copper prices were rising very closely in line with the oil prices until recently. The last weeks you see clearly falling copper prices and higher oil prices (see chart FT): the higher oil prices will cause lower economic growth, so demand for copper will go down as the market is now discounting in the oil prices.

Dr. Copper gives more attention to China and other Emerging Markets than to the US/Europe, so Dr. Copper is saying economic growth will be a bit lower in China/ Emerging Markets than previously thought (e.g. China not growing 10%+ but 8-9%)).

The market is not seeing the rise of the oil prices as permanent. Backwardation has returned in the oil prices, discounting somewhat lower prices after a short period from now.

The share prices of global energy are suddenly breaking down despite the high oil prices, meaning the oil price is not seen to go up from current levels because it will trigger lower economic growth.

The stock markets in the Middle East are in recovery mode, signalling that they fear a lot less potential contagion from the Jasmine Revolution to Saudi Arabia/ severe oil production disruptions.