Here’s my take on the markets today, July 16, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The Libor-OIS Spread is falling -1.4% to 30.5 bps(still up 4.6% in 5 days). The TED Spread is falling -1.4% to 36.9 bps. The Germany sovereign cds is down -6.2% to 78.17 bps(-21.6% in 5 days). The France sovereign cds is falling -4.6% to 163.16 bps. However, the 2Y Swap Spread is rising +3.5% to 23.8 bps. The 3M EUR/USD Cross-Currency Basis Swap is falling -.84% to -49.98 bps. The European Investment Grade CDS Index is rising +1.9% to 169.3 bps. The European Financial Sector CDS Index is rising +3.0% to 281.35 bps. The Spain sovereign cds is rising +1.7% to 564.50 bps. The Italy sovereign cds is gaining +2.3% to 507.5 bps. The Spain 10Y Yld is rising +2.3% to 6.82%. The Italian/German 10Y Yld Spread is up +2.6% to 492.19 bps. The China sovereign cds is gaining +1.5% to 115.55 bps. I continue to believe the recent plunge in the German cds relative to the rest of Europe is related to traders’ rapidly shifting perceptions with regards to whether or not Germany is really going to puts its balance sheet on the line to “save” the euro. This is a large red flag for the entire situation, in my opinion.
Major Asian indices were mixed overnight as a +.6% gain in Australia was offset by a -1.74% decline in China. The Shanghai Comp is down -2.3% ytd and is testing its early Jan. lows. China’s ChiNext Index(Chinese Nasdaq) plunged -4.7% overnight and looks to be rolling over again technically. The benchmark China Iron/Ore Spot Index is dropping another -2.0% today and is down -4.0% in 5 days. Major European are mostly lower, led down by a -2.0% decline in Spain. Spanish equities are now down -2.3% in 5 days and -23.7% ytd, which remains another red flag for the still deteriorating situation in the region. The Bloomberg European Bank/Financial Services Index is dropping -.5%. Brazilian equities are down -1.7% today and are losing -5.9% ytd as they test their early June lows.
The euro is bouncing a bit today, which is helping to boost oil and lift copper off its morning lows, however they all remain technically weak intermediate-term. The UBS-Bloomerg Ag Spot Index is surging another +1.6% today and is up +24.6% in about 6 weeks, which is rapidly becoming a problem for the hopes of further meaningful central bank stimulus in emerging markets. Rice is on the verge of a technical breakout, as well. While US equities have rebounded off their morning lows, the 10Y Yld is at session lows, -4 bps to 1.45%. There is a growing disconnect between US equity action and the deteriorating macro environment that is eerily similar to last July, in my opinion. The macro likely must begin improving very soon for equities to avoid a similar fate into the fall. I added to my index trading hedges this morning and I am positioned 25% net long.
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