Here’s my take on the markets today, October 5th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly improving today. The 3M EUR/USD Cross-Currency Basis Swap is rising +1.5% to -22.25 bps. The European Investment Grade CDS Index is falling -2.4% to 126.33 bps. The European Financial Sector CDS Index is falling -3.7% to 178.88 bps. The Germany sovereign cds is falling -7.4% to 49.62 bps. The France sovereign cds is falling -6.4% to 102.75 bps. The Spain sovereign cds is falling -6.3% to 347.90 bps. The Italy sovereign cds is down -5.0% to 313.62 bps. The Spain 10Y Yld is falling -3.7% to 5.68%. The Italian/German 10Y Yld Spread is falling -4.4% to 352.40 bps. However, the FRA-OIS Spread is gaining +.4% to 23.18 bps. The TED Spread is rising +1.62% to 25.49 bps. The US sovereign cds is rising another +2.9% to 41.87 bps(+55.0% in 12 days). The huge move higher in the US sov cds, with other sovereigns showing improvement of late, is odd and bares monitoring.
Major Asian indices were mostly higher overnight, led by a +.9% gain in Australia. India was notably weak after it experienced a mini-flash crash, falling -.63%. The Nikkei rose +.44% despite reports of plunging auto exports to China on rising tensions over the island dispute. The odds that Japan is falling back into recession are likely higher than perceived. Major European indices are higher today, led by a +2.1% gain in Italy. The Bloomberg European Bank/Financial Services Index is rising +1.7%. Brazil is gaining +1.4%.
The euro is building on yesterday’s surge, rising +.2%, but still doesn’t trade well given investor perceptions of a euro debt crisis bazooka can-kicking. Lumber and Copper are flat and continue to trade poorly given perceptions of a major housing bottom. As well, Oil is falling another -2.5% today and trades poorly given potential upside catalysts. The UBS-Bloomberg Ag Spot Index is down -.75% today, but is +21.6% higher since 6/1. The 10Y T-Note yield is just +4 bps higher to 1.71% despite today’s economic data and stock rally.
Despite the large drop in September’s Unemployment Rate, most gauges of employment activity I follow have been showing a stagnant-to-mildly deteriorating jobs market for a couple of months.
Some key market-leading stocks have been trading poorly recently, which is a red flag for the broad market. As well, individual stocks that miss earnings estimates are being punished harshly despite the fact that a weak upcoming earnings season is supposedly priced into the major averages. Tech and commodity shares are underperforming today. Homebuilding and Transportation shares are outperforming. I added to my index trading hedges this morning and I am positioned 25% net long.