Here’s my take on the markets today, July 17th, 2013. If you’d like to read more of my articles, click here.
Credit gauges are mixed today. The 3M EUR/USD Cross-Currency Basis Swap is rising +3.6% to -9.88 bps. The FRA-OIS Spread is falling -2.1% to 21.25 bps. The US sovereign cds is falling -3.8% to 25.33 bps. The North America Investment Grade CDS Index is falling -2.4% to 76.05 bps. The European Investment Grade CDS Index is falling -1.2% to 105.18 bps. The UK sovereign cds is down -3.2% to 41.56 bps. The Emerging Markets CDS Index is falling -4.6% to 286.08 bps. However, the 3M Euribor-OIS Spread is rising +2.1% to 12.0 bps. The Portugal sovereign cds is rising +1.6% to 534.98 bps(+11.1% in 5 days). The Spain 10Y Yld is rising +.94% to 4.73%. The Italian/German 10Y Yld Spread is rising +1.4% to 295.25 bps(+5.7% in 5 days). The Asia-Pacific Sovereign CDS Index is gaining +,4% to 106.69 bps. The China Blended Corporate Spread Index is gaining +1.8% to 388.0 bps. The Egypt sovereign cds is soaring +11.1% to 750.0 bps.
Major Asian indices were mixed overnight as a +1.1% gain in S. Korea was offset by a -1.0% decline in China. Major European indices were higher today, led by a +1.1% gain in Italy. The Bloomberg European Bank Financial Services Index is up +.98%. Brazil is rebounding another +1.3% today, but still trades very poorly(-22.1% ytd).
The euro is pulling back -.23% today and remains stuck in an intermediate-term range. The yen is weakening -.46% and still trades poorly. Oil is +.8% and still trades well on an ongoing unraveling of Mid-East stability. Copper is falling -1.8% and still trades poorly. The benchmark China Iron-Ore Spot Index is rising +1.1% and trades better of late. Gold is falling -1.1% as it continues to attempt to form a base. Lumber is rising +3.1% despite today’s poor housing starts report. The UBS-Bloomberg Ag Spot Index is falling -.3% and still trades poorly. The 10Y T-Note is trading much better of late, with the yield down -5 bps to 2.48%. I still believe rates have likely peaked for the year as economic data will likely remain sluggish and the beginning of Fed tapering is already priced in.
The major averages are slightly higher on the day, but trading near session lows. In my opinion, Bernanke’s speech indicated that tapering will begin in Sept. unless the economy materially weakens from its current sluggish path into the fall. I suspect there will be another period of market turbulence over the coming months as investors again worry about the taper occurring with an ongoing slowdown in global growth. I remain very concerned about key emerging market economies despite the recent rebound in equity prices and a subsiding of China cash crunch fears. Surging energy prices pose another large threat to these economies that are already dealing with a significant slowdown in growth and high inflation. Slowing global growth and currency headwinds remain concerns for the upcoming earnings season with stocks technically extended at record highs.
Coal, Steel, Networking, Homebuilding, Airline and Tobacco shares are strong today, while Precious Metal, Software, Hospital, Restaurant and Education stocks are weak. I added to my index trading hedges today and I am positioned 25% net long.
