Good morning,

Markets are called lower this morning. This is what's moving the markets today:

  • China’s non-manufacturing purchasing managers’ index fell to 55.2 in May from 56.1 in April;
  • U.S. unemployment rose to 8.2% in May and payrolls increased less than the most-pessimistic forecast in a Bloomberg News survey of economists;
  • Labor Department figures showed June 1. European leaders remain divided on solutions for the region’s debt crisis;
  • Spain will auction E2.5bln worth of 10-year paper on Thursday;
  • ECB meeting will be held on Thursday;
  • Greek elections on June 17;
  • Brent is trading at $97.12/barrel;
  • 10-year Spanish debt is yielding 6.53%, 10-year Portuguese debt is yielding 11.965% and 10-year Italian debt is yielding 5.739%.

There’s a lot of psychological pressure among investors with the weak non-manufacturing data in China and global issues such as US data and the euro crisis dragging on stocks. Plus the E2.5b Spanish auction will give is further insight into whether Spain will ask for help from the EU. Markets have now erased their gains for the year with the CAC down 10.8%, the DAX down 2% and the FTSE down 6.7%. Most Asian markets are in negative territory for the year except for the Shanghai composite which is up 2.8% for the year. The NASDAQ is the best performing index so far which is up 5.5% for the year. The DOW is flat and the S&P is up 1.6%. The next milestone for the markets is the Greek election to be held on June 17. Until then expect more volatility.


China’s non-manufacturing industries expanded at the slowest pace in more than a year, as export orders declined and weakness in real estate countered strength in retailing and leasing, an official survey indicated. The purchasing managers’ index fell to 55.2 in May from 56.1 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. That’s the lowest reading since March 2011 when the federation started seasonally adjusting the data.

The report adds to evidence that the world’s second-biggest economy is weakening as Europe’s debt crisis crimps demand and government curbs on the property market feed through to more industries. JPMorgan Chase & Co. has cut its full-year economic growth forecast for China twice in a month and now estimates an expansion of 7.7% down from 9.2% in 2011.


Stocks plunged on Friday on news that American employers last month added the fewest workers to their payrolls in a year while the jobless rate rose. Treasuries gained, sending yields to record lows, as investors sought refuge from rising financial strains in Europe and slowing growth in the U.S. and China.

Following the jobs report, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, lowered his forecast for third-quarter economic growth to 2% from 3%. He sees the economy expanding 2.5% this quarter. Allen Sinai, chief executive officer of Decision Economics in New York, bumped up his odds of a recession next year to 15% from 10%.


Greece had its highest possible credit rating lowered by Moody’s Investors Service, which said there’s an increasing risk the country may exit the euro region.

Greece’s country ceiling, the highest rating that can be assigned to a domestic debt issuer, was cut to Caa2, Moody’s said in a statement late yesterday in New York. The best rating on any Greek security is currently B1, four levels higher, Moody’s said.

A Greek exit from the euro may exhaust official funding sources and rack up direct costs of 360 billion euros ($444 billion), or 3.8% of euro-area gross domestic product, Societe Generale SA said yesterday. Greek parliamentary elections on June 17 may drive the risk of an exit higher, according to Moody’s.


Spain’s benchmark IBEX 35 has slumped below Germany’s DAX Index for the first time as investors flee a crisis in the Iberian nation’s government finances and banks.

Spanish shares have fallen and the government’s borrowing costs have surged as investors weigh the costs of bailing out Bankia group. Spain’s third-biggest lender is being nationalized and has asked for 19 billion euros ($23.6 billion) in state support to clean up its books. Spanish Prime Minister Mariano Rajoy has repeatedly said the government won’t seek a bailout for its banks.

The Spanish gauge is trading at 8.7 times the estimated earnings of its companies, 18% less than the five-year average of 10.6, according to data compiled by Bloomberg. The DAX is trading at 9.1 times projected profits, compared with a five-year mean of 11.8.


  • USD’s strength was capped by disappointing US data. It retreated against 6 G10s but haven demand kept losses minimal. A poor 2-day run in data has dented

recovery hopes and sparked more thoughts on QE3, and despite continual safety flights from the troubles of Europe, we expect but limited gains this week.

  • EUR defied the region’s worries to advance against most majors on rumours that ECB may return to pressure the bond yields of Spain and Italy. It rose to 1.2434

against the dollar. We expect EUR’s advance to be brief and maintain a bearish view given unresolved issues over Spanish banks’ recapitalization, ECB’s decision on SMP and Germany’s defiance on Eurobonds.

  • GBP fell against 8 G10s and closed 0.27% lower against the dollar at 20-week low of 1.5363 amid a worsened growth outlook that could spur BOE to inject additional stimulus. As such, we are changing our neutral call to a bear on sterling in the run up to BOE’s MPC meeting. Haven demand as shelter from Eurozone’s fallout is likely be capped now that contagion fears have risen.
  • JPY remained supported by haven demand to strengthen against 7 peers, beating the dollar 0.38% to 78.02, strongest in 16 weeks. Yen will continue to stay strong in our view.
  • AUD pared some losses after dismal US data stoked talks of QE3, but the plunge from concerns over global growth were too steep as AUD closed 9 down against the G10s. Losses were narrowed to 0.34% against the dollar at 0.9701. Despite QE3 speculation, we see little strength as RBA’s meeting, which market has set sights on

a rate cut, approaches.

Stock to watch: Bayer (Price E48.82, Price Target E61)

Bayer now generates over 80% of its profits from non-cyclical life sciences (Healthcare and Agrochemicals). Strong medium and long term growth within these businesses is clear but also MaterialScience is now offering strong potential in emerging markets. The Healthcare business also now benefits from a diversified late-stage pharmaceutical pipeline that offers upside potential to forecasts. Longer term, we continue to believe that further portfolio expansion will occur, with the focus remaining on increasing investments in the higher-value Healthcare business. If needed for financing in a large acquisition, we believe management might be willing to dispose of the MaterialScience business. These positives also combine with an ongoing strong focus on cost cutting and cashflow generation. With the company offering life sciences structural growth prospects on chemical sector multiples, we believe the stock remains highly attractive-Buy.

For further information on Bayer or other stocks and bonds we follow, contact our offices on 25688688.

Good day and happy trading!

Kristian Camenzuli