Here’s my take on the markets today, October 22nd, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The 3M EUR/USD Cross-Currency Basis Swap is rising +2.9% to -24.6 bps. The TED Spread is falling -.6% to 22.4 bps. The Germany sovereign cds is plunging -8.4% to 30.75 bps. However, the Libor-OIS Spread is rising +1.2% to 17.9 bps. The 2Y Euro Swap Spread is rising +1.05% to 40.22 bps. The European Investment Grade CDS Index is rising +1.7% to 122.99 bps. The France sovereign cds is gaining +.8% to 71.27 bps. The Spain sovereign cds is jumping +7.7% to 295.5 bps. The Italy sovereign cds is rising +2.7% to 244.87 bps. The Spain 10Y Yld is gaining +2.3% to 5.5%. The Portugal sovereign cds is gaining +4.9% to 426.99 bps. The Emerging Markets Sovereign CDS Index is rising +2.5% to 182.43 bps. The Russia sovereign cds is surging +7.5% to 146.08 bps. The Germany sovereign cds has plummeted -72.3% since June 12th and traded below the US sovereign cds for the first time in a number of years this morning, which doesn’t correspond with investor perceptions that Germany will put its balance sheet on the line to “save” the euro, in my opinion.
Major Asian indices were mixed overnight as a +.68% gain in Hong Kong was offset by a -.63% decline in Australia. Major European indices are lower today, led down by a -.71% decline in Germany. The Bloomberg European Bank/Financial Services Index is rising +.07%. Brazil is down -.5%.
The euro is rising +.2%. Copper(-.7%), Lumber(-.2%) and Oil(-1.2%) still trade poorly given their perceived upside catalysts. The China benchmark Iron-Ore Spot Index is gaining +1.9% today, but is still -35.1% lower since 9/7/11. The UBS-Bloomberg Ag Spot Index is gaining +.25% and is up +20.8% since 6/1.
China/Japan island tensions continue to weigh on growth in the region and show no signs of easing. The mid-East continues to unravel at an alarming pace, which will likely be even more of a headwind for equities after the US election into next year. The Spanish elections over the weekend make an imminent Spain bailout less likely, in my opinion. Over the weekend, Welt reported that Spain is seeking concrete yield targets below current levels, which the ECB rejects. I still think Spain is hoping to wait until the next big surge in euro debt angst before agreeing to more favorable bailout terms, which remains a dangerous game.
Energy, Real Estate and Transport shares are under pressure today. Healthcare, Steel and Coal stocks are relatively strong. The Transports fell back below their 200-day on Friday and are now back below there 50-day, as well. The MS Tech Index is building on recent losses and is down -7.4% in 5 weeks. I have not traded today and I am positioned 25% net long.