Here’s my take on the markets today, October 24th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mixed today. The Libor-OIS Spread is down -2.3% to 17.0 bps. The 3M EUR/USD Cross-Currency Basis Swap is rising +2.1% to -24.69 bps. The 2Y Swap Spread is falling -4.8% to 9.94 bps. The Germany sovereign cds is down -4.2% to 28.56 bps and the UK sovereign cds is down -3.5% to 29.87 bps. The German/Italian 10Y Yld Spread is falling -.9% to 326.62 bps. However, the Western Europe Sovereign CDS Index is gaining +1.3% to 109.75 bps. The France sovereign cds is up +1.4% to 68.75 bps. The Spain sovereign cds is up +.8% to 317.50 bps(+20.8% in 5 days). The Italy sovereign cds is gaining +2.3% to 263.5 bps(+17.1% in 5 days). The China Blended Corporate Spread Index is gaining +1.6% to 386.0 bps. The North America Investment Grade CDS Index is rising +.6% to 97.4 bps(+8.5% in 5 days). Some key gauges are deteriorating too much again and overall credit gauges remain at stressed levels.
Major Asian indices were mostly lower overnight, despite all the talk of China’s economy re-accelerating, led down by a -.81% decline in Australia. The Shanghai Comp rose just +.07% and is still down -3.8% ytd. Major European indices are mostly higher today, boosted by a +.8% gain in Italy. The Bloomberg European Bank/Financial Services Index is +.24%. Brazil is falling -.5%, is down -4.3% in 5 days and now trading below its 50/200 Day MAs.
The euro is -.24% and still doesn’t trade well given investor perceptions of another big euro debt crisis can-kicking. Oil(-1.4%) and Copper(-.4%) still trade very poorly given all the potential upside catalysts. Lumber(+1.9%) is trading better of late and is testing the upper end of its multi-month trading range. China’s benchmark Iron-Ore Spot Index is rising +1.0%, but is still -34.4% lower since 9/7/11. The UBS-Bloomberg Ag Spot Index is gaining +.2% today and is +20.0% higher since 6/1. The 10Y T-Note continues to trade too well, with the yield rising +2 bps to 1.78%.
The weekly MBA Home Purchase Apps Index dropped -8.3% this week and remains stuck in the middle of the same range it has been in since May 2010. The Citi Eurozone Economic Surprise Index is plunging -26.8 points today to -20.3. There remains a large disconnect between the deteriorating macro backdrop and rising stocks. As well, emerging markets corporate debt is significantly more risky than perceived right now, in my opinion.
Today’s morning stock bounce was lacking in quality. Key market-leading stocks continue to trade poorly. Tech(-8.2% since 9/14) and Transport(back below 50-day ma) shares are under pressure again today. Homebuilding, Biotech, HMO and Telecom stocks are relatively strong. I do not expect the FOMC to meaningfully change its language regarding its outlook today. I have not traded and I am still positioned 25% net long.