Here’s my take on the markets today, June 18, 2012. If you’d like to read more of my articles, click here.
Credit gauges are deteriorating today. The 3M Euribor-OIS Spread is surging +7.8% to 44.1 bps(+13.1% in 5 days). The 3M EUR/USD Cross-Currency Basis Swap is falling -5.0% to -52.75 bps. The 2Y Euro Swap Spread is rising +4.0% to 81.52 bps. The European Investment Grade CDS Index is rising +2.2% to 178.58 bps. The European Financial Sector CDS Index is gaining +3.0% to 287.54 bps. The France sovereign cds is gaining +1.7% to 200.65 bps. The Spain sovereign cds is jumping +4.0% to 623.65 bps(new all-time high). The Italy sovereign cds is gaining +1.8% to 553.62 bps. The UK sovereign cds is gaining +2.4% to 73.56 bps. The Italian/German 10Y Yld Spread is gaining +3.3% to 463.84 bps. The Spain 10Y Yld is surging another 4.1% to 7.16%(+10.2% in 5 days). Overall, credit gauge reaction to Europe’s weekend events is poor and gauges remain at stressed levels.
Major Asian indices were around +1.25% higher overnight, led by a +1.9% gain in Australia. However, India fell -1.44% as the RBI didn’t cut rates as expected, their CPI came in at 10.4% y/y and Fitch cut its credit outlook on the country to negative. I still don’t believe inflation in China is subsiding as much as investors seem to perceive and that a major new easing is likely there anytime soon. Major European indices are mostly lower, led down by a -3.0% decline in Spain. Spanish equities are now down -23.9% ytd, which remains a huge red flag. The Bloomberg European Bank/Financial Services Index is falling -1.94%.
The euro currency continues to trade poorly and stocks are also not reacting well to the Greek news. Oil remains technically weak. I suspect global central bank stimulus/European fiscal union hopes are preventing an otherwise more serious decline in stocks today given what is going on in Spain. As I cautioned last week, I still suspect investors will become more focused on Spain/Italy, the US fiscal cliff and the headwinds for the upcoming earnings season as this week progresses. (XLF) is heavy today, but (XLK) trades well. I covered some index trading hedges on the open and I am positioned 75% net long.