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Gary Smith’s Market Take

Here’s my take on the markets today, June 27, 2012. If you’d like to read more of my articles, click here.

Credit gauges are mixed today. The TED Spread is falling -2.7% to 36.42 bps. The European Investment Grade CDS Index is down -1.1% to 177.46 bps. The European Financial Sector CDS Index is down -1.53% to 287.34 bps. The France sovereign cds is down -.95% to 198.62 bps. The Spain sovereign cds is down -1.27% to 588.50 bps. The Italian/German 10Y Yld Spread is down -1.47% to 460.79 bps. The Japan sovereign cds is down -5.0% to 88.83 bps. However, the FRA/OIS Spread is gaining +3.75% to 33.71 bps. The Germany sovereign cds is gaining +.9% to 102.75 bps. The Spain 10Y Yld is rising +.78% to 6.92% and the Italian 10Y Yld is up +.3% to 6.20%.

Major Asian indices were mostly higher overnight, led by a +1.03% gain in Hong Kong. However, Shanghai fell another -.23% and is down -3.64% in 5 days despite more talk of rate cuts and stimulus. Major European indices are rising about +1.25%, led by a +2.4% gain in Italy. The Bloomberg European Bank/Financial Services Index is gaining +2.48%. The Citi Latin America Economic Surprise Index is falling to -12.9 today, which is the lowest since mid-Oct. of last year. Brazil is down another -.41% today, is now down -6.5% in 5 days and is down -5.8% ytd, which is another red flag for the global economy.

The 10Y T-Note is maintaining recent gains and the euro currency continues to trade poorly despite today’s equity rally. Given recent losses and the positive Pending Home Sales report for May, copper(+.8%) and lumber’s(+.3%) bounces are fairly weak. Moreover, the weekly MBA Home Purchase Apps Index fell -1.4% and remains trapped in the same range it has been in since May 2010.

Homebuilder, Healthcare and Energy shares are leading today’s advance, while Steel, Restaurant and Retail stocks are under mild pressure. Small-caps are relatively strong. Equity investors appear to be pricing in another big kick-the-can “solution” to the European debt crisis, which is surprising given how many disappointments we have seen out of these summits and the rapid deterioration in some key economies in the region. Quarter-end window-dressing is also likely playing a sizable role in the recent stock bounce. I covered some of my index trading hedges this morning and I am positioned 75% net long.

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