Here’s my take on the markets today, December 12th, 2012. If you’d like to read more of my articles, click here.
Credit gauges are mixed today. The 3M EUR/USD Cross Currency Basis Swap is rising +4.2% to -22.15 bps. The Spain sovereign cds is down -3.4% to 290.0 bps. The Italy sovereign cds is down -4.4% to 275.0 bps(+16.5% in 5 days). The Portugal sovereign cds is down -2.9% to 470.0 bps. The Spain 10Y Yld is falling -1.3% to 5.39%. The Italian/German 10Y Yld Spread is falling -1.9% to 333.5 bps(+7.5% in 5 days). However, the FRA-OIS Spread is gaining +3.3% to 18.0 bps. The 2Y Swap Spread is rising +1.1% to 11.4 bps. The European Financial Sector CDS Index is rising +1.0% to 152.81 bps. The Germany sovereign cds is gaining +1.7% to 34.0 bps(+11.3% in 5 days). The France sovereign cds is rising +.9% to 86.0 bps(+7.9% in 5 days). The US sovereign cds is gaining +1.0% to 37.7 bps.
Major Asian indices were mostly higher overnight, led by a +1.0% gain in Taiwan. Major European indices are mostly higher, led by a +1.1% gain in Italy. The Bloomberg European Bank/Financial Services Index is rising +.4%. Brazil is rising +.2%.
The euro is rising +.6% to the upper end of the range it has been in since early-Sept. Oil is gaining +1.1% and Copper is gaining +.7%. Lumber is rising +.3%. China’s benchmark Iron-Ore Spot Index is rising +.08%. Gold is gaining +.3%. The Baltic Dry Index plunged overnight and is down about -19.0% in two weeks. Moreover, the UBS-Bloomberg Ag Spot Index is not trading well lately despite investor perceptions that China is rebounding, euro strength and droughts. The index is falling another -.5% today, and is back below its 200-day. The 10Y T-Note yield is gaining +4 bps to 1.69%.
The Weekly MBA Home Purchase Apps Index rose +.7% this week and is at the upper end of the range it has been stuck in since May 2010.
Stocks are surging as short-term traders cheer even more dovish Fed actions than expected. I continue to believe the Fed’s actions since the crisis ended are very reckless, counterproductive and extremely destabilizing for the longer-term health of the global economy, which will become very apparent during the next recession.
Gaming, homebuilding, alt energy, coal and metals/mining stocks are strong today, while tech, biotech, reit and oil tanker shares are relatively weak. I suspect traders have increased their net long market exposure of late in anticipation of a santa/fiscal cliff deal/fed rally. Thus, a pullback in the technically extended major averages is likely over the coming days as the holidays approach, the Fed is out of the way and fiscal cliff negotiations appear to be deteriorating. As well, I am sensing that more investors are becoming concerned over any actual “solution” to the fiscal cliff, which is what I have been worried about for some time. I am still positioned 50% net long.
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