Broad Market Tone: - Advance/Decline Line: Substantially Higher
- Sector Performance: Almost Every Sector Rising
- Volume: Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 17.87 -9.34%
- ISE Sentiment Index 126.0 +28.57%
- Total Put/Call .90 -7.22%
- NYSE Arms .96 -17.46%
Credit Investor Angst:- North American Investment Grade CDS Index 112.81 -4.5%
- European Financial Sector CDS Index 261.29 -9.65%
- Western Europe Sovereign Debt CDS Index 281.89 -5.05%
- Emerging Market CDS Index 285.20 -6.42%
- 2-Year Swap Spread 24.0 -1.5 basis points
- TED Spread 38.0 -.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -53.50 +5.5 basis points
Economic Gauges:- 3-Month T-Bill Yield .08% unch.
- Yield Curve 134.0 +6 basis points
- China Import Iron Ore Spot $134.0/Metric Tonne -.67%
- Citi US Economic Surprise Index -60.30 +.3 point
- 10-Year TIPS Spread 2.10 +3 basis points
Overseas Futures: - Nikkei Futures: Indicating +88 open in Japan
- DAX Futures: Indicating +9 open in Germany
Portfolio:
- Higher: On gains in my tech, retail, medical and biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges and (EEM) short
- Market Exposure: Moved to 75% Net Long
BOTTOM LINE: Today's overall market action is very bullish as the S&P 500 trades back above its 50-day moving average despite Eurozone debt angst, rising energy prices, Obamacare/US fiscal cliff worries, earnings concerns and rising global growth fears. On the positive side, Oil Tanker, Oil Service, Steel, Paper, Software, Computer, Semi, Disk Drive, Networking and Homebuilding shares are especially strong, rising more than +3.0%. Small-cap stocks are outperforming. Tech/Homebuilding shares have traded very well throughout the day. Copper is surging +5.1%. Major Asian indices rose around +1.5% overnight, led by a 2.6% gain in India. Shanghai rose +1.35%, but is still down -1.6% for the week. Major European indices are soaring around +4.5%, led by a +6.6% gain in Italy. The Bloomberg European Bank/Financial Services Index is jumping +4.4%(
still down -.2% this week).
Brazilian equities are rising +2.9% today, but are down -2.2% for the week and down -4.5% ytd. The France sovereign cds is down -4.7% to 188.83 bps, the Spain sovereign cds is down -9.91% to 531.29 bps, the Italy sovereign cds is falling -9.5% to 487.89 bps, the Ireland sovereign cds is down -9.6% to 553.31 bps, the Brazil sovereign cds is down -4.0% to 155.78 bps(
still up +3.4% in 5 days) and the Russia sovereign cds is down -7.4% to 230.56 bps. Moreover, the European Investment Grade CDS Index is down -6.7% to 165.90 bps, the Spain 10Y Yld is down -8.8% to 6.33%(
still up +1.25% in 5 days) and the Italian/German 10Y Yld Spread is down -9.9% to 421.57 bps(
still up +1.2% in 5 days). On the negative side, HMO, Utility, Restaurant and Airline shares are lower-to-flat on the day. The UBS-Bloomberg Ag Spot Index is rising another +2.0%, Lumber is flat, Oil is soaring +9.0% and Gold is up +2.8%. The Citi Latin America Economic Surprise Index is falling to -14.2 today, which is the lowest since mid-Oct. of last year.
The Germany sovereign cds is underperforming, falling just -.9% to 103.0 bps(
up +2.8% in 5 days) and the China Development Bank Corp CDS has risen +8.1% in 5 days to 212.6 bps.
US weekly retail sales have decelerated to a sluggish rate at +2.3%, which is the slowest since the week of April 5th of last year. US Rail/Trucking Traffic continues to soften.
The Philly Fed ADS Real-Time Business Conditions Index continues to trend lower from its late-December peak.
Moreover, the Citi US Economic Surprise Index has fallen back to late-Aug. levels. Lumber is -9.3% since its March 1st high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has been around the same level since May 2010 despite expectations for a strong spring home selling season. The Baltic Dry Index has plunged around -55.0% from its Oct. 14th high and is now down around -45.0% ytd. China Iron Ore Spot has plunged -25.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +130.0% ytd.
The CRB Commodities Index is now technically in a bear market, having declined -22.8% since May 2nd of last year. Overall, credit gauge improvement today is meaningful, but gauges still remain at stressed levels. As well, while Spanish yields are falling substantially, they are still in the danger zone. The euro currency, oil and copper are bouncing strongly today, but remain in intermediate-term downtrends. Lumber is not participating in the big commodity rally.
The FIBER US Scrap Steel Index is dropping -12.5% today, the biggest decline since 2008. As well, the 10Y continues to trade too well as the yield is rising just +7 bps today to 1.65%.
I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly
high. While Europe appears to have kicked-the-can again, I suspect investor euphoria will be fairly short-lived. The plans will do little to boost economic growth in the region.
Massive tax hikes and spending cuts are still yet to hit in several key countries that are already in recession. Lack of competitiveness has not been addressed.
It is unclear whether or not Germany has really agreed to anything that changes the situation substantially.
The Citi Eurozone Economic Surprise Index is at -89.10 points, which is the lowest since early-Sept. of last year.
Moreover, the “solutions” for the European debt crisis I still hear being bandied about are only bigger kick-the-cans that if implemented will eventually lead to an even bigger catastrophe as Germany is engulfed, in my opinion.
The European debt crisis is also really beginning to bite emerging market economies now, which will further pressure exports from the region and further raise the odds of more sovereign/bank downgrades.
Uncertainty surrounding the effects on business of Obamacare, the "US fiscal cliff " and election outcome uncertainty will likely become more and more of a focus for investors as the year progresses.
Finally, the upcoming earnings season could prove more challenging than usual for big multi-nationals given US dollar strength and the precipitous declines in some key parts of the global economy during the quarter. I still believe there is too much uncertainty on the horizon to conclude a durable stock market low is in place. For this year's equity advance to regain traction, I would expect to see a resumption in European credit gauge improvement, a subsiding of hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices, a US "fiscal cliff" solution and higher-quality stock market leadership. I expect US stocks to trade mixed-to-lower into the close from current levels on Obamacare/US fiscal cliff concerns, profit-taking, rising energy prices, earnings worries and more shorting.
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