Here’s my take on the markets today, July 6, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The TED Spread is down -.5% to 38.7 bps. The 3M EUR/USD Cross-Currency Basis Swap is rising +14.6% to -59.12 bps. However, the Libor-OIS Spread is up +1.4% to 29.1 bps. The 2Y Swap Spread is rising +3.1% to 24.75 bps. The European Investment Grade CDS Index is rising +3.5% to 170.81 bps. The European Financial Sector CDS Index is gaining +4.5% to 280.58 bps(+7.5% in 5 days). The Germany sovereign cds is up +1.6% to 99.12 bps. The Spain sovereign cds is rising +4.6% to 577.77 bps(+8.1% in 5 days). The Italy sovereign cds is up +4.1% to 515.76 bps. The Portugal sovereign cds is jumping +5.3% to 853.42 bps. The Spain 10Y Yld is rising +2.6% to 6.95%(+9.8% in 5 days). The Italian/German 10Y Yld Spread is rising +2.0% to 469.05 bps(+10.6% in 5 days). Several key gauges of credit angst are breaking out technically again, which is especially concerning given the recent perceived Eurozone debt crisis can-kicking.
Major Asian indices were mostly lower overnight, led down by a -.92% loss in South Korea. Major European indices are falling around -1.75%, led lower by a -3.1% decline in Spain(-5.2% in 5 days and down -21.4% ytd). The Bloomberg European Bank/Financial Services Index is falling -2.3%. Brazil is falling -1.75% today. The Citi Latin America Economic Surprise Index is falling to -17.9 ,which is close to the lowest since Oct. of last year.
The 10Y T-Note continues to trade very well, with the yield falling another -5 bps to 1.55%, which remains a large red flag. As well, the euro currency continues to trade very poorly and is testing its June 1st low. I expect the currency to break meaningfully below this level over the coming weeks and head substantially lower over the intermediate-term. Oil(turned away at downward-sloping 50-day) and Copper(turned away at downward-sloping 200-day) also continue to trade poorly, despite recent bounces. Oil tanker rates are plunging this week, with the benchmark Middle East-to-US voyage falling -16.7% to 25.0 industry-standard worldscale points, which is the lowest since Oct. 2009.
The Citi US Economic Surprise Index is falling to -62.5, which is right near the lowest since late-Aug. of last year. While today’s labor report was disappointing, it was probably not bad enough to prompt QE3. The bar for additional QE is likely higher than the Fed is letting on. I continue to believe QE was a huge mistake as it played a large role in the current global slowdown by helping to jack up commodity prices, thus creating significant inflation problems in key emerging market economies. Officials in these economies slammed on the brakes, which cut demand for goods and services from the Eurozone right when they needed that demand the most.
Cyclicals are especially weak today with the MS Cyclical Index falling -1.8%. As well, tech shares are very heavy with the MS Tech Index dropping -3.1%. While a rising dollar and slowing global growth should have been mostly priced in by now, stocks that miss earnings estimates are still being severely punished, which bodes poorly for the upcoming earnings season. I added to my index trading hedges on the open and I am positioned 25% net long.
Related posts:
