Gary Smith’s Market Take for February 9, 2025

Credit gauges are mixed today. The 3M EUR/USD Cross-Currency Basis Swap is rising +4.1% to -67.50 bps(back to early-Aug. level). The Libor-OIS Spread is falling -1.2% to 39.5 bps(back to mid-Nov. level). The 2Y Swap Spread is falling -4.9% to 26.9 bps(back to mid-Aug. level). However, the 2Y Euro Swap Spread is rising +.55% to 91.43 bps(back to early-Sept. level). The European Investment Grade CDS Index is rising +1.95% to 117.68 bps and the European Financial Sector CDS Index is gaining +2.40% to 167.15 bps. The France sovereign cds is gaining +1.41% to 162.62 bps, the Belgium sovereign cds is gaining +3.3% to 216.67 bps and the Portugal sovereign cds is gaining +1.33% to 1,212.68 bps. Overall, credit gauges are still at stressed levels, but continue to improve.

Major Asian indices were mixed overnight despite a higher-than-expected inflation reading out of China. I still believe that inflation in many key emerging markets remains a larger problem than commonly perceived. Significant monetary easing in these markets with inflation around current levels will prove a large policy error, in my opinion. Major European indices rose around +.5% today with the Bloomberg European Bank/Financial Services Index rising +.73%. Despite the Greece debt resolution machinations, investors continue to price is a Eurozone debt crisis “can-kicking” and stabilizing economic growth in the region.

AAII % Bulls jumped to 51.64 this week, while the % Bears fell to 20.19. The 6-week moving average of % Bears is 20.36%, the lowest since July 2005. While most investor sentiment gauges continue to flash caution, hedge fund underperformance in January indicated a large group of investors did not have enough market exposure.

The +7 bp rise in the 10Y Yield to 2.06% is a positive. Tech sector shares continue to lead the market, however the financials have stalled and the Transports are lower over the last 5 days. As well, given market leader Apple’s(AAPL) accelerating gains over the last week, the broad market doesn’t trade as well as I would have expected. I am still positioned 75% net long.

Long AAPL