Here’s my take on the markets today, September 14th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly improving again today. The 3M EUR/USD Cross Currency Basis Swap is rising +2.0% to 16.76 bps. The 2Y Swap Spread is falling -23.1% to 12.14 bps. The TED Spread is falling -1.2% to 28.9 bps. The European Investment Grade CDS Index is falling -6.9% to 118.53 bps. The European Financial Sector CDS Index is falling -8.9% to 185.33 bps. The Germany sovereign cds is falling -4.5% to 49.33 bps. The France sovereign cds is falling -11.8% to 98.93 bps. The Italy sovereign cds is falling -3.55% to 307.5 bps. The Spain sovereign cds is down -3.8% to 336.95 bps. The UK sovereign cds is down -7.5% to 43.0 bps. The Italian/German 10Y Yld Spread is falling -4.0% to 331.35 bps. However, the Spain 10Y Yld is jumping +3.1% to 5.8% and the Japan sovereign cds is rising +2.6% to 68.39 bps. Overall, credit gauges have improved meaningfully again this week, but remain at stressed levels.
Major Asian indices rose sharply overnight, led by a +2.9% gain in Hong Kong. However, the Shanghai Comp was only +.6% higher and its rally has stalled over the last week(-.2%) even as investors globally price in a major new stimulus from China. Major European indices are surging, led by a +2.8% gain in Spain. The Bloomberg European Bank/Financial Services Index is rising +2.7%. Brazil is rising +.7%.
The euro is jumping +1.1% and has broken convincingly above its 200-day. Copper is surging +3.1% and is trading much better over the last week. The benchmark China Iron-Ore Spot Index is surging +5.7% today, but is still -43.9% lower since 9/7/11. Oil is rising +.6%, but isn’t trading as well as expected given the catalysts. Lumber is bouncing +1.7% today, but continues to trade very poorly given the perceived catalysts. The UBS-Bloomberg Ag Spot Index is rising +1.4% and is up +28.5% since 6/1. This index is testing its high for the year and only -2.3% below its all-time high set on 8/31/11 that helped spark rioting in the Mid-east. The 10Y T-Note Yld is jumping +13 bps and is testing its mid-Aug levels and 200-day.
US industrial production is rolling over, falling by the most since March 2009 in August.
The Fed’s actions/statements yesterday will likely continue to boost stocks for awhile longer, as designed. However, over the intermediate-term their recklessness greatly increases the chances of hard-landings in key emerging markets and of a serious global stock swoon, in my opinion. While many argue that current stock valuations are still reasonable, I am increasingly concerned that valuations are masking a significant rise in risk given the major and growing disconnect with the macro backdrop. Moreover, it is just a matter of time before investors focus on the details of the recent ECB “bazooka can-kicking”, which leave much room for disappointment over the coming months. As well, as I have been warning for some time, the Mid-east is unraveling again at a rapid rate. Recent central bank actions will only intensify the situation over the intermediate-term.
The total put/call ratio is very low again today at .59. The market has become meaningfully overbought technically. I covered some of my index trading hedges on the open and have already put them back in place. I am positioned 50% net long.