Here’s my take on the markets today, November 28th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The TED Spread is down -4.8% to 21.9 bps. The Italy sovereign cds is down -2.9% to 247.5 bps. The Spain 10Y Yld is down -3.5% to 5.33%. However, the 3M Euribor-OIS Spread is up +8.8% to 12.4 bps. The European Investment Grade CDS Index is rising +1.4% to 124.81 bps. The European Financial Sector CDS Index is gaining +1.1% to 164.34 bps. The Ireland sovereign cds is gaining +2.8% to 186.68 bps. The Japan sovereign cds is gaining +1.8% to 69.49 bps. The China sovereign cds is rising +2.2% to 58.34 bps. The Brazil sovereign cds is gaining +1.8% to 108.88 bps. The Russia sovereign cds is up +2.2% to 146.58 bps.
Major Asian indices were mostly lower overnight, led down by a -1.2% decline in Japan. There was more hawkish commentary from Chinese officials overnight. The Shanghai Comp fell another -.9% and is now down -17.3% since 2/27. This index broke the key 2,000 technical level the day before and is at the lowest since Jan. 2009 despite much optimism over a potential rebound in economic activity. Major European indices are mixed as a +.35% gain in France is being offset by a -.3% decline in Spain. The Bloomberg European Bank/Financial Services Index is falling -.4%. Brazil is +.4%, but continues to trade very poorly(-17.2% since 3/14).
The euro(-.04%) is pulling back slightly to just above its 50-day and remains in the middle of the same range it has been in since early-Sept. Oil(-1.2%) and Copper(-.6%) continue to trade poorly. China’s benchmark Iron-Ore Spot Index is unch. today. Global steel overcapacity is set to worsen meaningfully next year, in my opinion. Lumber is rising +2.4%, continues to trade well and is testing its 11/7 high. The UBS-Bloomberg Ag Spot Index is up +.1%. Gold(-1.4%) gapped down this morning below its 50-day, but is cutting losses. The 10Y T-Note continues to trade too well, with the yield falling -2 bps to 1.61%.
The weekly MBA Home Purchase Apps Index rose +2.6% this week and is near the upper end of the range it has been trapped in since May 2010. Greatly curtailing the mortgage interest tax deduction for high-income earners, which would likely be part of any “grand fiscal cliff deal”, would put a larger dent in high-end housing than perceived.
Worries over the direction France is heading continue to intensify.
US stocks are rebounding strongly again off morning lows on more US fiscal cliff deal optimism. Comments that the White House made on its flexibility on the level of tax rates and Speaker Boehner made that the GOP is willing to put revenues on the table, if accompanied by spending cuts, are the positive catalysts. These comments appear to just be more posturing. Neither side wants to appear to be digging in even as they remain far apart, in my opinion. Speaker Boehner discussed “revenues” as he has numerous times, but did not say anything about rate hikes. I am skeptical that the GOP would agree to any hike in tax rates. However, if they did agree to raise rates it would only be as a result of the White House putting serious spending cuts on the table and there has been little talk by Dems of specific spending cuts at this time. I still believe the most likely outcome is a can-kicking or small deal that leaves significant uncertainty over the intermediate-term. Moreover, I continue to believe any “grand deal” would pressure the economy to such an extent that it would more than offset an alleviating of uncertainty.
Consumer discretionary shares are relatively strong today, while metal/mining, homebuilding and road/rail shares are weak. I covered some of my index trading hedges this morning and I am positioned 50% net long.
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