Here’s my take on the markets today, May 9, 2012. If you’d like to read more of my articles, click here.
Credit gauges are deteriorating meaningfully today. The FRA-OIS Spread is surging +10.0% to 42.82 bps. The 2Y Swap Spread is rising +7.6% to 33.4 bps. The TED Spread is rising +1.6% to 38.0 bps. The 3M EUR/USD Cross-Currency Basis Swap is falling -2.6% to -48.2 bps. The European Investment Grade CDS Index is rising +3.9% to 156.50 bps. The European Financial Sector CDS Index is rising +4.2% to 266.83 bps. The Germany sovereign cds is gaining +5.4% to 90.12 bps. The France sovereign cds is rising +4.3% to 211.75 bps. The Spain sovereign cds is gaining +4.0% to 518.50 bps(testing all-time high). The Portugal sovereign cds is rising +4.9% to 1,110.10 bps. The Russia sovereign cds is gaining +5.8% to 209.19 bps. The Italian/German 10Y Yld Spread is rising +4.5% to 408.78 bps. Overall, recent credit gauge deterioration is a big worry with a number of key sovereign cds breaking out technically.
Major Asian indices fell around -1.25% overnight, led lower by a -1.7% decline in China. The Nikkei fell another -1.5% and is down -11.0% in about 6 weeks, closing slightly below its 200-day ma. Major European indices are falling around -.75%, led lower by a -2.8% decline in Spain. Spain is now just 109 points away from its March 9th, 2009 low and down -20.5% ytd. The Bloomberg European Bank/Financial Services Index is down -2.0% today and down -19.0% since March 19th.
The weekly MBA Home Purchase Apps Index rose +3.4% this week, but remains stuck in the same range it has been in since May 2010 despite an improving labor market and record low mortgage rates. The 10Y T-Note continues to trade too well, copper trades poorly and the euro currency is breaking down technically. Oil is testing its 200-day ma again. While it will likely bounce off this level short-term, I expect it to move still lower over the coming months.
US stocks remain extraordinarily resilient with aggressive buyers appearing once again into a morning swoon. Tech/Retail are leading the rally off the morning lows with financials lagging. I continue to believe overall US investor complacency regarding the rapidly deteriorating situation in Europe is fairly high. However, the total put/call is a high 1.20 today. I am watching (XLF) closely to gauge whether or not this morning’s rally gains traction into the afternoon. I covered some of my index trading hedges into the morning swoon and I am positioned 75% net long.