Here’s my take on the markets today, February 28th, 2013. If you’d like to read more of my articles, click here.
Credit gauges are mixed today. The TED Spread is down -2.7% to 18.1 bps(+11.6% in 5 days). The Germany sovereign cds is down -1.4% to 39.68 bps. The UK sovereign cds is down -2.65% to 46.89 bps. The Spain Sovereign cds is down -5.0% to 269.51 bps. The Italy sovereign cds is down -4.1% to 278.0 bps(+11.0% in 5 days). The Italian/German 10Y Yld Spread is falling -2.4% to 327.94 bps(+13.2% in 5 days). The Ireland sovereign cds is down -2.5% to 169.33 bps. The Russia sovereign cds is down -2.6% to 146.91 bps. However, the Libor-OIS Spread is gaining +1.4% to 14.8 bps. The 3M EUR/USD Cross Currency Basis Swap is falling -2.4% to -19.92 bps(-10.3% in 5 days). The 2Y Euro Swap Spread is gaining +1.3% to 41.02 bps(+7.0% in 5 days). The US sovereign cds is gaining +3.2% to 42.51 bps. The Emerging Markets CDS Index is gaining +3.1% to 244.66 bps. The China Blended Corporate Spread Index is jumping +3.9% to 398.0 bps. The Brazil sovereign cds is gaining +2.3% to 132.54 bps. Overall, credit gauges are not confirming the recent move higher in equities and remain at stressed levels.
Major Asian indices were higher overnight, led by a +2.7% surge in Japan(+11.2% ytd). India shares fell -1.5%(-2.9% ytd) and are now trading almost as poorly as Brazil. Major European indices are higher, boosted by a +1.1% gain in Spain. The Bloomberg European/Bank Financial Services Index is rising +.8%. Brazil is flat(-.03%) and still trades very poorly(-6.1% ytd).
The euro is falling another -.49% and still trades poorly. Oil(-1.0%) and Copper(-.55%) continue to trade poorly, as well, despite investor perceptions of accelerating global growth and the strong equity rally. The benchmark China Iron-Ore Spot Index is -.13%. Gold is falling another -1.3% and is giving back mush of its recent bounce. Lumber is gaining +1.7% and is moving off its 50-day. The UBS-Bloomberg Ag Spot Index is gaining +.75%, but still trades poorly. The 10Y T-Note still trades too well with the yield flat at 1.89%.
The major averages remain very resilient with the DJIA closing in on a new record as the Fed’s reckless rhetoric and actions continue to trump any negatives in the short-run. However, breadth and volume are lacking on this latest surge. Overall, investor complacency remains at unhealthy levels given the magnitude of the still developing headwinds, in my opinion. The general perception that the global economy is accelerating is suspect. Stagnation at a sluggish level is more likely than acceleration.
Oil Tanker, steel, road & rail and biotech shares are strong, while education, homebuilding and gold/silver stocks are weak today. I expect worries over the worsening political climate in Europe or Chinese tightening to provide the catalyst for another pullback in the major averages over the coming weeks. I covered some of my index trading hedges this morning and put them back in place this afternoon. I am still positioned 50% net long.
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