Here’s my take on the markets today, July 13, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mixed today. The European Investment Grade CDS Index is falling -1.46% to 166.23 bps. The European Financial Sector CDS Index is falling -1.67% to 273.58 bps. The Germany sovereign cds is falling -7.0% to 83.62 bps. The France sovereign cds is falling -2.7% to 171.98 bps. The Spain sovereign cds is falling -2.2% to 556.44 bps. The UK sovereign cds is down -3.0% to 64.66 bps. However, the FRA/OIS Spread is jumping +4.4% to 30.3 bps. The 2Y Swap Spread is surging +5.7% to 23.25 bps. The Portugal sovereign cds is gaining +1.0% to 834.56 bps. The China sovereign cds is gaining +.7% to 114.95 bps. The Italian 10Y Yld is rising +2.4% to 6.05%. The Spanish 10Y Yld is gaining +.44% to 6.66%. The Italian/German 10Y Yld Spread is gaining +2.8% to 479.52 bps. Equity investors seem convinced that Germany will put its balance sheet on the line to “save” Europe. However, over the last week the Germany sovereign cds has plunged -14.4%, while other key eurozone sovereign cds(Spain -2.4%, Italy -2.4%) have just seen mild improvements. Overall, credit gauges remain at stressed levels.
Major Asian indices were mostly higher overnight, led by a +1.5% gain in South Korea. However, Hong Kong and China were basically flat and are down -3.6% and -1.7%, respectively, for the week despite US investor cheer over the Chinese data and hopes for more stimulus. Major European indices are higher, boosted by a +1.9% gain in Germany. The Bloomberg European Bank/Financial Services Index is rising just +.3%. Brazil is rebounding +1.2% today, but is down -3.8% for the week.
Copper, oil and the euro are seeing mild bounces, but remain technically weak intermediate-term. The 10Y T-Note Yld is just +1 bp higher, despite today’s equity rally. Moreover, the quality of today’s equity advance is lacking. A number of market-leaders are meaningfully underperforming, there are few big volume/gainers and the tech sector is lagging again. The computer hardware and disk drive sub-sectors of tech are actually lower on the day. The MS Cyclical Index is bouncing +1.3% today, but is -2.6% lower on the week. I do not believe this is the beginning of a significant rally and I suspect stock weakness will resurface next week. I covered some of my index trading hedges on the open and I am positioned 75% net long.
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