Here’s my take on the markets today, September 10th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The 2Y Swap Spread is falling -3.2% today to 15.1 bps. The TED Spread is falling -1.1% to 30.3 bps. However, the FRA/OIS Spread is rising +.5% to 23.2 bps. The European Investment Grade CDS Index is rising +2.2% to 128.91 bps. The European Financial Sector CDS Index is rising +4.4% to 213.72 bps. The Germany sovereign cds is gaining +.57% to 53.2 bps. The France sovereign cds is rising +1.0% to 119.53 bps. The Spain sovereign cds is jumping +6.5% to 369.33 bps. The Italy sovereign cds is surging +10.0% to 344.33 bps. The Spain 10Y Yld is gaining +1.5% to 5.72% and the Italian/German 10Y Yld Spread is rising +2.4% to 362.26 bps. Overall, credit gauges have improved meaningfully over the last week, but remain at stressed levels.
Major Asian indices were mostly higher overnight, led by a +.34% gain in China. The Shanghai Comp is up +3.7% in 5 days, but still down -2.93% ytd. Major European indices are mostly lower, led down by a -.3% decline in Spain. The Bloomberg European Bank/Financial Services Index is +.17%. Brazil is up +1.1% today.
The euro is slightly lower today and hovering right below its 200-day ma. Copper is up +.9% and has broken above its 200-day for the first time since April. Oil is slightly lower and has stalled right below its 200-day. The UBS-Bloomberg Ag Spot Index is slightly higher and continues to consolidate recent sharp gains(+26.2% since 6/1) in a healthy fashion. Lumber continues to trade very poorly(-11.0% in 3 weeks) and is down another -.7% today. The benchmark China Iron-Ore Spot Index is jumping +6.7% today, but is still down -47.5% over the last year. The 10-Yr T-Note continues to trade too well and is flat today at 1.67%.
I think investors are overly optimistic regarding China’s new efforts to build more subways and roads in an attempt to stabilize overall economic activity. I continue to believe that China’s problems are much larger than commonly perceived and cannot be solved with another massive stimulus package given their real estate bubble, soaring food prices, massive overcapacity in certain key parts of the economy and growing bad loans problem. The China Securities Journal said in a front-page commentary today that the likelihood of the Chinese central bank cutting interest rates again this year has greatly dropped as inflation rebounds.
The ECB’s apparent can-kicking could last for a few months, but the debt crisis will likely resurface next year in an even more intense fashion as the economies of the region continue to weaken and the public becomes increasingly disillusioned with the euro project.
While the odds of some sort of imminent fed action are pretty high, I still believe that any additional QE is a mistake given the recent surge in stock prices, rising inflation expectations, rising gas prices, worrisome food crisis headlines and less pessimistic US economic data.
Little being discussed by global central bankers will actually boost global economic growth to an extent that overcomes the growing macro headwinds over the intermediate-term, in my opinion. I still believe recent market p/e multiple expansion on central bank hopes is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes. Tech shares and some key market leaders are a bit heavy today. I added to my index trading hedges and I am positioned 50% net long.