Here’s my take on the markets today, December 7th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mostly deteriorating today. The 3M EUR/USD Cross-Currency Basis Swap is falling -5.9% to -25.68 bps. The 3M Euribor-OIS Spread is gaining +5.8% to 14.5 bps(+16.7% in 5 days). The TED Spread is rising +1.9% to 22.3 bps. The US sovereign cds is rising +1.5% to 37.67 bps. The European Investment Grade CDS Index is gaining +1.2% to 118.64 bps. The European Financial Sector CDS Index is rising +1.95% to 153.31 bps. The Germany sovereign cds is gaining +3.6% to 32.25 bps(+6.3% in 5 days). The UK sovereign cds is rising +3.3% to 33.65 bps(+9.8% in 5 days). The France sovereign cds is jumping +4.7% to 84.58 bps. The Spain sovereign cds is rising +2.9% to 300.87 bps(+7.2% in 5 days). The Italy sovereign cds is gaining +3.6% to 258.0 bps(+6.1% in 5 days). The Ireland sovereign cds is surging +8.0% to 206.08 bps(+16.5% in 5 days).The Brazil sovereign cds is rising +1.5% to 108.76 bps and the Israel sovereign cds is gaining +1.6% to 141.56 bps. Overall gauges of credit have ceased improving and remain at stressed levels.
Major Asian indices were mixed overnight as a +1.6% gain in China was offset by a -.32% decline in India. Major European indices are mostly lower, weighed down by a -.9% decline in Italy. The European Bank Financial Services Index is falling -.34%. Brazil is gaining +1.1%.
The euro failed again at the upper end of the range its been in since early-Sept. and is testing its 50-day today. Oil(-.35%) continues to trade very poorly. Copper(+.5%) has traded better of late, but still trades poorly from a intermediate-term perspective given current perceived upside catalysts. The benchmark China Iron-Ore Spot Index is gaining +2.2% today to the upper end of its recent range, but is still -34.7% lower since 9/7/11. Gold is rising +.18% despite dollar strength today. Lumber continues to trade well and is gaining +.1%. The UBS-Bloomberg Ag Spot Index is falling -.7% and is having trouble breaking back above its 50-day. The 10Y T-Note continues to trade too well, with the yield rising just +3 bps to 1.62% despite a “better” jobs report.
The economic clouds of the eurozone continue to darken. However, investors seem to be mainly fixated on the short-term direction of sov yields in the region, which is dangerous considering how far global central banks are forcing institutions out on the risk spectrum, in my opinion.
While China’s economy has temporarily stabilized, I doubt it is improving as much as perceived and I expect China shares, which have outperformed of late, to resume their longer-term underperformance versus developed markets next year.
Despite an unstable feel to trading of late, US stocks remain very resilient in the face of significant and growing headwinds. This is mainly the result of seasonal strength, hedge fund year-end performance angst, optimism for China’s economy and fiscal cliff deal/can-kicking hopes. Bank and HMO shares are outperforming today, while Gaming, Biotech and Tech stocks are weak. Moreover, market leaders are underperforming meaningfully today. I suspect that the GOP will take a harder line on the Sunday morning talk shows as a large and growing percentage of the base is very unhappy with current negotiating tactics. I still think a complete breakdown in talks is on the horizon and markets are likely to become more jittery as we approach Christmas without signs of a deal. I added to my index trading hedges this morning and I am positioned 25% net long.
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