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Gary Smith’s Market Take

Here’s my take on the markets today, June 17th, 2013. If you’d like to read more of my articles, click here.

Credit gauges are mixed today. The 3M EUR/USD Cross-Currency Basis Swap is gaining +2.1% to -11.75 bps. The 2Y Swap Spread is falling -3.9% to 15.85 bps. The European Investment Grade CDS Index is falling -1.8% to 107.58 bps. The European Financial Sector CDS Index is falling -3.6% to 153.94 bps. The UK sovereign cds is falling -1.2% to 46.26 bps. The China sovereign cds is down -7.4% to 87.5 bps. The Russia sovereign cds is down -3.9% to 164.20 bps. However, the FRA-OIS Spread is gaining +3.9% to 20.25 bps. The Germany sovereign cds is gaining +1.6% to 28.17 bps. The Japan sovereign cds is up +.4% to 81.0 bps. The Emerging Markets CDS Index is jumping +3.2% to 307.28 bps. The China Development Bank Corp cds is rising +1.75% to 116.0 bps. The Brazil sovereign cds is rising +1.2% to 152.65 bps. The State Bank of India cds is unch. today, but is +11.7% over the last 5 days. Overall, credit gauges are not confirming today’s equity rally and remain at stressed levels after recent deterioration(especially in emerging markets)

MarketTakePicMajor Asian indices were higher overnight, led by a +2.7% gain in Japan(-3.6% last 5 days). However, China(-.3%) did not participate in last night’s rally and is now down -5.0% ytd(-5.0% in 5 days). Major European indices are higher, led by a +1.5% gain in France. The Bloomberg European Bank/Financial Services Index is up +.29% today. Brazil still trades very poorly, is flat today and is now down -19.2% ytd(-4.0% in 5 days).

The euro is falling -.1% today and is stuck in the middle of its recent range. The yen is falling -.2%, is at session highs and is maintaining most of its recent gains. Oil is flat at the upper-end of its recent range. Copper is falling -.4% and still trades poorly, despite today’s positive NAHB Housing Market Index report. The benchmark China Iron-Ore Spot Index is rising +1.2%. Gold is falling -.5% and still trades poorly. As well, Lumber(-.2%) still trades very poorly, falling -8.7% in 5 days. The UBS-Bloomberg Ag Spot Index is rising +.1%. The 10Y Yld is rising +4 bps to 2.17% after an article in the FT said the Fed would in fact indicate tapering is likely over the coming months.

The major averages are giving up a chunk of their early gains, as well, on this report. As has been the case of late, today’s equity bounce lacked conviction. Overall volume is poor, breadth is mediocre and there are few high-volume gainers. As well, weakness in copper, lumber and the Transports is noteworthy. In my opinion, given the serious and building headwinds in key emerging markets, any Fed tapering would be the result of their acknowledging the significant economic dislocations they are currently creating and the longer-term destabilizing effects of these dislocations rather than as a result of meaningful improvement in US economic activity.

Gaming, Oil Tanker, I-Banking, Homebuilding, HMO, Computer and Oil Service shares are strong today, while Coal, Ag, Steel, Telecom, Biotech, Hospital, REIT, Restaurant, Education and Transport stocks are lower on the day. I added to my index trading hedges today and I am positioned 25% net long.

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