It's A Binary World Now: i.e., Risk On or Risk Off

• Centering on U.S. stocks, equity markets managed a good rally last week from temporarily oversold levels, but it is still too early for an "all clear" sign. Some brave souls in the U.S. were confident enough to state that lows in the S&P 500 have been seen for the year, but we are not ready to bet the farm on such a call, and neither are the hedge funds, it appears. Trading has become binary, i.e., its either all risk trades on (developed market stocks, emerging markets, commodities, high yield debt and commodity currencies) or tin hat trades, i.e., USD, L-T U.S. Treasuries and gold?with JPY and Japanese equities drawing incremental amounts of haven money as well?China in JGBs and European investors in equities because of the good performance seen YTD as far as Euro-based investors are concerned.
• While investors appeared more sanguine about Euro sovereign debt and disappointing US employment numbers last week, these and other issues such as the lack of demand in the U.S. housing market have not gone away. The IMF upgraded its global GDP outlook for 2010 GDP but downgraded their outlook for Euroland, emerging markets and Japan in the process while ironically upgrading the U.S. and China's outlook, two areas of more concern as regards the growth scare.
• The media polls in Japan are showed another roller coater ride regarding voter support for the Naoto Kan Cabinet and the DPJ on the eve of upper house elections on Sunday. By the time we go to press, the election results will show whether the DPJ retained or lost their majority in the upper house. The expectations were that the DPJ would lose their majority, but we see little impact on stock prices either way, as Japanese fiscal, monetary and economic policy should continue to muddle through in either case. 
  
• Foreigners over the past two weeks have again become slight net sellers, after a week of buying in the third week of June. Trading volumes for all investor types however are anemic and there is little conviction in either direction?implying that we could continue to waffle for the foreseeable future but not break down decisively below prior February lows, or in other words our "correction and a fairly narrow trading range thereafter" scenario.
  

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