Here’s my take on the markets today, July 9, 2012. If you’d like to read more of my articles, click here.
Credit gauges are deteriorating again today. The FRA-OIS Spread is rising +4.5% to 34.74 bps. The 2Y Swap Spread is gaining +3.2% to 26.0 bps. The European Investment Grade CDS Index is up +.7% to 172.93 bps(+6.8% in 5 days). The Germany sovereign cds is up +.8% to 99.83 bps. The Spain sovereign cds is up +1.2% to 585.34 bps(+15.3% in 5 days). The Italy sovereign cds is up +1.45% to 522.62 bps(+12.0% in 5 days). The Japan sovereign cds is up +2.9% to 96.13 bps. The Brazil sovereign cds is gaining +2.55% to 156.98 bps. The China sovereign cds is up +2.7% to 119.49 bps. The Spain 10Y Yld is gaining +1.3% to 7.04%(+10.0% in 5 days). The Italian/German 10Y Yld Spread is rising +2.2% to 480.4 bps(+12.7% in 5 days). The rises in Spanish/Italian yields to dangerous levels is especially worrisome given the recent perceived can-kicking and overall European CDS remain technically strong.
Major Asian indices fell around -1.25% overnight, led down by a -2.4% decline in Chinese shares. The Shanghai Composite is the worst-performing Asian index year-to-date, falling -1.3%. The index is also testing its early Jan. lows and is down -2.5% in 5 days despite rising stimulus hopes and some better economic data, which is a big red flag. It appears as though investors are more focused on whether or not the Chinese let their real estate bubble begin to further inflate rather than other forms of stimulus. Major European indices are mostly lower, led down by a -.7% decline in Spain. Spanish equities are down -6.0% in 5 days and down -21.9% ytd. The Bloomberg European Bank/Financial Services Index is falling -.33%. The Citi Latin America Economic Surprise Index is falling another -3.5 points today to -21.4, which is the lowest since early-Aug. of last year.
The UBS-Bloomberg Ag Spot Index is jumping another +2.6% today. This index has surged +21.8% in less than six weeks, which is a large negative for several key emerging market economies that still have inflation problems. Copper, oil and the euro are seeing mild bounces today on global central bank stimulus hopes and Iran saber-rattling. Despite the rise in the CRB Index today, commodity equities are weak. The 10Y T-Note remains technically strong, as the yield falls another -4 bps to 1.51%.
Cyclicals are underperforming today. Tech shares, ex-AAPL/FB, are heavy. Long AAPL. Despite perceptions that investor’s are overly pessimistic, the VIX is down -36.0% since last month’s peak and is -6.8% below the S&P 500′s 20-day historical volatility(as of July 6th), which is the lowest since October 2008. I added to my index trading hedges this morning and I am positioned 25% net long.
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