Here’s my take on the markets today, October 10th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The TED Spread is down -1.7% to 24.61 bps. However, the 3M EUR/USD Cross-Currency Basis Swap is falling -4.4% to -25.31 bps. The Libor-OIS Spread is rising +1.0% to 20.67 bps. The European Investment Grade CDS Index is gaining +1.5% to 133.25 bps. The Germany sovereign cds is gaining +2.7% to 51.5 bps. The France sovereign cds is rising +2.3% to 103.83 bps. The Spain sovereign cds is rising +2.4% to 366.66 bps. The Portugal sovereign cds is gaining +3.2% to 477.27 bps. The Ireland sovereign cds is jumping +4.1% to 291.60 bps. The US sovereign cds is gaining +.5% to 41.37 bps(+53.0% since 9/19). The Emerging Markets CDS Index is gaining +.75% to 226.97 bps(+5.6% in 5 days). Overall, gauges have stopped improving and remain at stressed levels.
Major Asian indices were lower overnight, led down by a -2.0% decline in Japan. Major European indices are lower, led down by a -1.0% decline in Spain. The Bloomberg European Bank/Financial Services Index is falling -.6%. Brazil is down -.8%.
The euro is bouncing slightly again off its 200-day, but still doesn’t trade well overall. Oil/Copper are flat and also don’t trade well given perceived upside catalysts. Lumber is bouncing +2.2% today, but is -10.0% since 8/16. Gold is flat and continues to consolidate recent gains in a healthy fashion. The 10Y T-Note still trades too well with the yld flat at 1.72%.
Weekly retail sales, reported yesterday, rose +1.6%. This ties the slowest increase since the week of Feb. 2, 2010 at time when the economy is supposedly firming. The weekly MBA Home Purchase Apps Index rose +2.4% this week, but is still stuck in the same range it has been in since May 2010.
Even if the ECB eventually uses its perceived bazooka, I don’t think it will offset the many drags on economic growth in the region, which remains a huge problem for the global economy. Investor’s growing bullish sentiment remains a worry, in my opinion, given the magnitude of the still developing headwinds. Many investors currently perceive the equity market as being addicted to dovish Fed actions/rhetoric. A further gain in the polls by Mitt Romney, while perceived as a longer-term positive by most investors, could further pressure equities in the short-term in anticipation of major FOMC changes, less support for Europe’s kick-the-can approach and a stronger US dollar.
Technology stocks are very weak again today as the MS Tech Index(-6.5% since 9/14) is breaking below its 200-day. Commodity-related stocks are also under meaningful pressure again. Restaurants and Homebuilders are relatively strong. I have not traded today and I am positioned 25% net long.