Here’s my take on the markets today, June 21st, 2013. If you’d like to read more of my articles, click here.
Credit gauges are deteriorating again today. The 3M EUR/USD Cross Currency Basis Swap is falling -5.0% to -13.13 bps. The FRA-OIS Spread is gaining +6.6% to 24.25 bps(+25.0% in 5 days). The 2Y Swap Spread is jumping +9.5% to 20.0 bps(+27.7% in 5 days). The North America Investment Grade CDS Index is gaining +.6% to 93.58 bps(+11.3% in 5 days). The US Muni CDS Index is jumping +9.4% to 149.12 bps(+17.0% in 5 days). The European Investment Grade CDS Index is gaining +3.7% to 124.08 bps(+13.2% in 5 days). The European Financial Sector CDS Index is gaining +4.0% to 180.56 bps(+13.1% in 5 days). The Germany sovereign cds is gaining +4.1% to 32.25 bps(+16.3% in 5 days). The France sovereign cds is gaining +1.6% to 78.21 bps(+10.7% in 5 days). The Spain sovereign cds is rising +.5% to 283.98 bps(+12.9% in 5 days). The Italian 10Y Yld is rising +1.6% to 4.62%(+7.9% in 5 days). The Slovenia sovereign cds is rising +3.9% to 351.45 bps(+11.2% in 5 days). The Emerging Markets CDS Index is gaining another +1.9% to 379.11 bps(+27.4% in 5 days). The China Development Bank Corp cds is gaining +3.7% to 181.41 bps(+59.1% in 5 days). The State Bank of India cds is gaining +3.3% to 268.48 bps(+16.7% in 5 days). The Russia sovereign cds is gaining +1.4% to 219.28 bps(+28.3% in 5 days). The Brazil sovereign cds is jumping another +5.0% to 212.12 bps(+40.9% in 5 days). Overall, credit gauges are deteriorating rapidly, especially emerging markets, and remain at stressed levels.
Major Asian indices were mostly lower overnight, led down by a -1.5% decline in South Korea. Indonesian stocks fell another -2.5% and are down -5.2% this week. Major European indices are lower, weighed down by a -1.9% decline in Italy(-5.6% in 5 days). The Bloomberg European Bank/Financial Services Index is falling -1.4% and is down -5.4% in 5 days. Brazil is plunging another -2.5% and is now down -22.9% ytd.
The euro is falling -.55% and is approaching its 50/200-day mas. The yen is down -.3% and has given up almost half its recent gains. Oil is falling -1.06% and remains stuck in the middle of the range it has been trapped in for awhile. Copper is rebounding +1.3%, but still trades poorly. The benchmark China Iron Ore Spot Index is falling -1.7%. Gold is bouncing +1.3%, but still trades very poorly. Lumber is rising +1.0% and is stabilizing after recent losses. The UBS-Bloomberg Ag Spot Index is -.06% and still trades poorly, as well. The 10Y T-Note is trading too poorly now, with the yield rising another +10 bps to 2.51%.
The major averages are reversing higher this afternoon, however the reversal isn’t convincing so far. A number of sectors are lower on the day, there are few big-volume gainers and the rally is being led by beaten-up defensive stocks. Two of the main catalysts behind recent equity weakness are still problematic. The 10Y T-Note can’t even bounce despite plunging inflation expectations, equity weakness and deteriorating global economic prospects. While China’s cash crunch has lost a bit of its recent intensity over the last 24 hours, it is still a big problem. 3M SHIBOR is only down -1 bp today to 5.79%, which is a +190 bp move higher in 16 days. Moreover, Oracle’s(ORCL) earnings report is a red flag for the upcoming earnings season. Emerging markets demand weakness and currency losses will likely be an ongoing issue for large-cap multinationals for some time.
Utility, Precious Metal, Medical Equipment, REIT, Tobacco and Food shares are strong today, while Software, Computer, Disk Drive, Hospital, Homebuilding, Gaming, Education and Airline stocks are weak. While the major averages could bounce further early next week on more calming actions from China or more dovish Fed rhetoric over the weekend, I doubt recent stock weakness has already run its course. I covered some of my index trading hedges this morning and put them back in place this afternoon. I am still positioned 25% net long.
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