Here’s my take on the markets today, October 19th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The Germany sovereign cds is falling -5.4% to 33.25 bps and the France sovereign cds is dropping -2.3% to 72.0 bps. However, the FRA/OIS Spread is jumping +10.4% to 20.14 bps. The TED Spread is gaining +1.6% to 22.6 bps. The 2Y Swap Spread is rising +6.5% to 10.7 bps. The N. America Investment Grade CDS Index is rising +2.6% to 93.25 bps. The European Investment Grade CDS Index is up +3.0% to 121.96 bps. The European Financial Sector CDS Index is gaining +3.2% to 163.41 bps. The Spain sovereign cds is rising +4.6% to 288.04 bps. The Italy sovereign cds is gaining +5.6% to 248.89 bps. The Emerging Markets Sovereign CDS Index is rising +1.5% to 177.60 bps. The China sovereign cds is rising +2.1% to 71.25 bps. The Russia sovereign cds is rising +3.5% to 136.0 bps. Overall, gauges have improved this week, but remain at stressed levels.
Major Asian indices were mostly lower overnight, led down by a -.78% decline in South Korean shares. Major European indices are lower today, led down by a -2.3% decline in Spain. The Bloomberg European Bank/Financial Services Index is falling -2.2%. Brazil is down -1.3% on the day.
The euro(-.35%) is getting turned away at its mid-Sept. high and still isn’t trading well considering the large european cds declines of late. Oil(-1.8%), Lumber(-1.4%) and Copper(-2.8%) are weak again today. Copper is down -5.0% since 9/14 despite US housing optimism and investor perceptions that global growth will rebound on central bank stimulus/actions. As well, Lumber is slightly lower since 8/15, which is a red flag. The benchmark China Iron-Ore Spot Index is falling -.17% and is down -36.3% since 9/7/11. The UBS-Bloomberg Ag Spot Index is trading better this week, rising another +.18% today, and is up +20.4% since 6/1. The 10Y Yld is rolling over again at its 200-day, falling -7 bps to 1.76%.
I warned recently that even as conventional wisdom held that a weak earnings season had already been priced into stocks, individual companies reporting that missed estimates were getting punished severely in the market. As well, China worries continue to persist despite some investor optimism for an acceleration in growth. There was more hawkish rhetoric from Chinese researchers overnight. US Fiscal cliff concerns are becoming more pronounced. Unless one of the candidates receives a clear mandate, the upcoming budget battle will likely be quite disruptive for stocks over the coming months. Finally, the on-again-off-again european debt crisis can-kicking is also weighing on stocks today.
Market-leading equities remain very weak technically, which is another red flag. The MS Tech Index is breaking convincingly below its 200-day today and is down -6.8% in just over a month. Commodity, Financial, Biotech, Construction and Restaurant shares are also under meaningful pressure today. Homebuilding and Gold & Silver stocks are relatively strong. I have not traded today and I am still positioned 25% net long.