Here’s my take on the markets today, December 10th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are deteriorating today. The Libor-OIS Spread is gaining +3.0% to 16.95 bps. The TED Spread is gaining +2.7% to 23.4 bps. The 2Y Swap Spread is rising +5.6% to 11.75 bps. The European Investment Grade CDS is gaining +1.78% to 120.66 bps. The European Financial Sector CDS Index is rising +3.9% to 159.25 bps. The Germany sovereign cds is up +9.1% to 34.49 bps(+15.6% in 5 days). The France sovereign cds is gaining +2.88% to 86.33 bps(+10.0% in 5 days). The UK sovereign cds is rising +5.0% to 34.32 bps(+16.5% in 5 days). The Spain sovereign cds is gaining +4.9% to 312.66 bps(+14.6% in 5 days). The Italy sovereign cds is jumping +14.6% to 290.91 bps(+26.3% in 5 days). The Ireland sovereign cds is surging +9.4% to 216.04 bps(+22.6% in 5 days). The Italian/German 10Y Yld Spread is gaining +9.0% to 351.79 bps(+15.7% in 5 days). The Italian 10Y Yld is surging +6.4% to 4.82%. The China sovereign cds is gaining +2.2% to 59.52 bps. Overall, credit gauges are starting to give back too much of their recent improvements and remain at stressed levels.
Major Asian indices were mostly higher overnight, led by a +1.1% gain in China. The Shanghai Comp is now slightly above its downward-sloping 50-day. Major European indices are mostly lower, led down by a -2.2% decline in Italy. The Bloomberg European Bank/Financial Services Index is down -.85%. Brazil is rising +.9%.
The euro is slightly higher despite the surge in european credit angst today. Oil still trades very poorly and is down -.2% despite the perceived positive data out of China over the weekend. Copper is gaining +1.2% and is nearing technical resistance. The benchmark China Iron-Ore Spot Index is jumping +2.0% and is approaching its downward-sloping 200-day. Lumber is down -.1%. Gold is gaining +.5%. The UBS-Bloomberg Ag Spot Index is falling -1.2%. The 10Y T-Note continues to trade too well, with the yield unch. at 1.62%.
China’s trade data makes most of the other reports released over the weekend a bit suspect. However, it makes more sense considering another massive surge in state infrastructure projects, which will only exacerbate their overcapacity problems in many industries and raise the odds of a hard-landing over the intermediate-term.
Global central bank actions have pushed sovereign yields lower, however the odds of the European debt crisis intensifying significantly again next year have increased of late, in my opinion. Italy likely faces political gridlock at an inopportune time and Spain continues to move further away from the full bailout that investors seem to want.
While US Fiscal Cliff negotiations are currently still cordial, a “solution” is still nowhere in sight.
Investors are again ignoring mounting negatives as stocks remain very resilient. Mining/Metal and Biotech shares are strong today, while Homebuilding, I-Banking and Internet stocks are relatively weak. A number of market-leading stocks are underperforming, as well. I am still positioned 25% net long.
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