Here’s my take on the markets today, July 11, 2012. 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 +9.5% to -52.0 bps. The TED Spread is falling -1.8% to 36.5 bps. The European Investment Grade CDS Index is falling -1.0% to 166.23 bps. The Germany sovereign cds is down -2.3% to 94.74 bps. The Spain sovereign cds is down -2.2% to 558.68 bps(still up +10.3% in 5 days). The Spain 10Y Yld is falling -3.4% to 6.58%. The Italian/German 10Y Yld Spread is falling -1.9% to 454.75 bps. However, the Libor-OIS Spread is rising +.9% to 29.3 bps. The 2Y Euro Swap Spread is rising +1.5% to 76.3 bps. The European Financial Sector CDS Index is rising +.8% to 280.05 bps(+9.8% in 5 days). The France sovereign cds is rising 1.0% to 179.33 bps. The Ireland sovereign cds is gaining +1.2% to 542.75 bps. Overall, gauges continue to flash warning signals and remain at stressed levels.
Major Asian indices were mixed overnight as a +.5% gain in China was offset by a -.7% loss in India. Major European indices are mixed as a +.8% gain in Spain(still down -5.4% in 5 days) is being offset by a -.5% loss in France. The Bloomberg European Bank/Financial Services Index is rising +.4%. Brazil is flat on the day. The Citi Latin America Economic Surprise Index is falling another -12.5 points today to -33.7, which is the lowest since early-Aug. of last year.
The weekly MBA Home Purchase Applications Index rose +3.3% this week, but remains in the same range it has been in since May 2010. The 10Y T-Notes continues to trade very well. The euro currency still trades poorly as it has already given up morning gains. Copper, Gold and Oil are bouncing this morning, likely on QE3/China stimulus hopes. While the FOMC minutes will likely continue to give the QE crowd hope, I still believe the real bar for more QE is higher than perceived. As well, so many large investors have been anticipating imminent QE for so long that any positive equity impact would likely proved muted and short-lived.
Financial and energy shares are outperforming today, while real-estate and tech shares are underperforming. High-end consumer discretionary stocks are also under meaningful pressure on the Burberry report. Stocks continue to respond very poorly to negative earnings guidance, which remains a red flag for the upcoming earnings season. Despite a mild pullback in Spanish yields today, the situation on the ground there continues to deteriorate. I suspect any investor optimism over Spain’s austerity measures won’t last too long as the economy further contracts, as a result. I added to my index trading hedges this morning and I am positioned 25% net long.
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