Here’s my take on the markets today, September 28th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mixed today. The 2Y Swap Spread is falling -10.5% to 21.7 bps. The TED Spread is down -2.5% to 26.72 bps. The 3M EUR/USD Cross-Currency Basis Swap is rising +1.0% to -25.83 bps. The Germany sovereign cds is down -1.0% to 54.5 bps(+14.9% in 5 days). The UK sovereign cds is down -.5% to 51.0 bps(+15.0% in 5 days). The France sovereign cds is down -2.2% to 114.5 bps(+8.6% in 5 days). The Spain sovereign cds is down -.8% to 388.0 bps(+5.8% in 5 days). The Brazil sovereign cds is down -.15% to 113.3 bps(+8.1% in 5 days). However, the Libor-OIS Spread is gaining +1.0% to 22.65 bps. The Western Europe Sovereign CDS Index is up +1.9% to 148.93 bps(+11.8% in 5 days). The European Financial Sector CDS Index is rising +.51% to 202.16 bps(+10.4% in 5 days). The Italian/German 10Y Yld Spread is rising +.9% to 369.11 bps(+6.8% in 5 days). The Ireland sovereign cds is gaining +1.4% to 323.56 bps(+15.1% in 5 days). The North America Investment Grade CDS Index is gaining +1.5% to 100.05 bps and the Emerging Markets CDS Index is rising +.9% to 227.39 bps(+6.5% in 5 days). Overall, credit gauges have deteriorated meaningfully this week and remain at stressed levels.
Major Asian indices were mostly higher overnight, led by a +1.45% gain in China. However, Japan closed near session lows, down -.9%, and is -2.6% lower this week(back below 50/200-day ma). Major European indices are lower, weighed down by a -1.7% decline in Italy. Italian and Spanish shares are down 5-6% on the week. The Bloomberg European Bank/Financial Services Index is falling -1.1% and is down -3.9% this week. Brazil is falling -1.6%, back below its 200-day, and is down -3.4% this week.
The euro is down another -.5% and is close to testing its 200-day again. Oil is falling -.1% and Copper is rising +.2%. Lumber is jumping +3.7% today, but is still -9.1% lower since 8/16. China’s benchmark Iron-Ore Spot Index is unch., but is -2.1% for the week and down -42.4% since 9/7. The UBS-Bloomberg Ag Spot Index is surging +1.7% today and is +22.2% since 6/1. The 10Y T-Note continues to trade too well with the yield falling another -4 bps to 1.61%.
The New Orders component of the Chicago PMI for September dropped to 47.4 from 54.8 in August. This is the lowest reading since July 2009. The Citi US Economic Surprise Index has broken down again, falling -71.8% this week to 5.8.
Last night, Market News Intl reported: China Premier Wen Jiabao isn’t inclined to ease policies “dramatically,” citing a person familiar with State Council discussions. Wen’s desire for stability towards the end of his term as Premier suggests that there won’t be aggressive moves on policies. Any room for future easing is “limited”, according to the person. Investors continue to anticipate a major easing from China, which I continue to believe is unlikely given their real estate bubble, rising food prices/labor costs, massive overcapacity in certain key parts of the economy and growing bad loans problem. Moreover, China/Japan tensions continue to escalate.
The euro and stocks are cutting losses on the results of the Spanish stress tests. The assumptions in these tests were far too optimistic, in my opinion. Moreover, stock investors seemingly remain fixated on the smoke-and-mirrors-kick-the-can antics of eurozone officials, even as the economies of the region continue to deteriorate meaningfully, which is creating a large disconnect. I suspect October could be a very challenging month for equities as US election outcome uncertainty increases, earnings jitters increase, global central bank stimulus hopes recede, Eurozone debt angst flares, big funds lock in profits and global growth continues to deteriorate. I added to my index trading hedges this morning and I am positioned 25% net long.