Here’s my take on the markets today, August 5th, 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 +1.1% to -8.65 bps. The FRA-OIS Spread is down -2.9% to 20.4 bps. The TED Spread is down -2.6% to 22.99 bps. The European Investment Grade CDS Index is falling -1.9% to 94.16 bps. The UK sovereign cds is down -2.0% to 35.96 bps. The Spain sovereign cds is down -2.1% to 235.1 bps. The South Korea sovereign cds is down -4.9% to 80.4 bps. However, the North America Investment Grade CDS Index is rising +.8% to 73.28 bps. The Germany sovereign cds is up +1.2% to 26.65 bps. The France sovereign cds is up +.75% to 63.98 bps. The Emerging Markets CDS Index is up +2.0% to 302.0 bps. The China Development Bank Corp CDS is jumping +12.0% to 151.11 bps. The Brazil sovereign cds is up +1.4% to 183.8 bps.
Major Asian indices were mixed overnight as a +1.0% gain in China was offset by a -1.44% decline in Japan. Major European indices are lower today, led down by a -.43% decline in the UK. The Bloomberg European Bank/Financial Services Index is down -.69%. Brazil is down -.02% today and still trades poorly(-20.5% ytd).
The euro is down -.23% and continues to thrash around in an intermediate-term trading range despite the perception that the eurozone is healing. The yen is up +.3% and continues to base after recent losses. Oil is flat today and continues to trade well. Copper is falling -.17% and still trades poorly given the perceptions that China/Europe are stabilizing and the US is re-accelerating. The benchmark China Iron-Ore Spot Index is +.08%. Gold is falling -.4%, but is holding on to its recent bounce despite taper worries and better economic data. Lumber is falling -2.7% and continues to trade very poorly(-8.8% in 5 days) despite more economic optimism. The UBS-Bloomberg Ag Spot Index is falling another -.8% and still trades terribly(-21.0% over last 12 months), as well. The 10Y T-Note yield is rising +4 bps to 2.65% on rising tapering expectations and better economic data.
The major averages are pulling back slightly despite today’s better ISM Services report and more talk of China/Europe stabilization. However, the market remains technically extended as investor froth builds with the “market can only go higher” mentality taking further hold on investors’ psyches. There is a lot riding on investor perceptions that an earnings/gdp acceleration in the second half of the year will continue to boost stock prices despite any Fed tapering. I suspect that decelerating emerging markets‘ demand, rising mortgage rates and higher energy prices will prove larger headwinds for the US economy than currently perceived over the coming months.
Alt Energy, Telecom, Hospital, HMO, Education and Tobacco stocks are strong today, while Paper, Oil Service, Homebuilding, Road&Rail and Airline shares are weak. I added to my index trading hedges this morning and I am positioned 50% net long.
