Broad Market Tone: - Advance/Decline Line: Higher
- Sector Performance: Most Sectors Rising
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst: - VIX 19.90 +.91%
- ISE Sentiment Index 75.0 -15.73%
- Total Put/Call .94 -6.0%
- NYSE Arms .94 +.98%
Credit Investor Angst:- North American Investment Grade CDS Index 118.05 -.88%
- European Financial Sector CDS Index 287.10 -1.61%
- Western Europe Sovereign Debt CDS Index 297.02 -1.03%
- Emerging Market CDS Index 296.95 -.50%
- 2-Year Swap Spread 23.50 +.25 basis point
- TED Spread 38.5 +.5 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -57.75 +.25 basis point
Economic Gauges:- 3-Month T-Bill Yield .08% -1 basis point
- Yield Curve 131.0 -2 basis points
- China Import Iron Ore Spot $135.40/Metric Tonne unch.
- Citi US Economic Surprise Index -60.90 +1.3 points
- 10-Year TIPS Spread 2.08 unch.
Overseas Futures: - Nikkei Futures: Indicating +55 open in Japan
- DAX Futures: Indicating -1 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech, medical and biotech sector longs
- Disclosed Trades: Covered some of my (IWM)/(QQQ) hedges, then added them back
- Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bullish as the S&P 500 trades near session highs despite Eurozone debt angst, rising energy prices, consumer discretionary sector weakness and rising global growth fears. On the positive side, Coal, Oil Tanker, Oil Service, Ag, I-Banking, Hospital, Construction and Homebuilding shares are especially strong, rising more than +1.25%. Small-cap stocks are outperforming. Copper is gaining +.8%. Major Asian indices were mostly higher overnight, led by a +1.03% gain in Hong Kong. However, Shanghai fell another -.23% and is down -3.64% in 5 days despite more talk of rate cuts and stimulus. Major European indices are rising about +1.25%, led by a +2.4% gain in Italy. The Bloomberg European Bank/Financial Services Index is gaining +2.48%. The France sovereign cds is down -1.3% to 198.0 bps, the Spain sovereign cds is down -1.5% to 587.33 bps, the UK sovereign cds is down -2.2% to 70.99 bps and the Japan sovereign cds is down -5.11% to 88.74 bps. Moreover, the European Investment Grade CDS Index is down -1.3% to 177.06 bps. On the negative side, Steel, Disk Drive, Telecom, HMO, REIT, Retail and Restaurant shares are lower-to-flat on the day. The UBS-Bloomberg Ag Spot Index is rising another +1.1%, Lumber is down -.3%, Oil is up +1.3% and Gold is up +.2%. The Citi Latin America Economic Surprise Index is falling to -12.9 today, which is the lowest since mid-Oct. of last year.
Brazil is down another -1.0% today, is now down -6.8% in 5 days and is down -6.2% ytd, which is another red flag for the global economy.
The Germany sovereign cds is gaining +.9% to 102.75 bps and the China sovereign cds is gaining another +.28% to 125.17 bps(+7.1% in 5 days). Moreover, the Spain 10Y Yld is rising +.8% to 6.93% and the Italian 10Y Yld is gaining +.4% to 6.2%. 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 -12.0% 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 -25.2% since May 2nd of last year.
Overall, credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong. The euro currency, oil, lumber and copper all continue to trade poorly given global central bank stimulus hopes, some better US economic data and recent stock gains. As well, the 10Y continues to trade too well as the yield is unch. today at 1.62%.
I still believe the level of complacency among US investors regarding the rapidly deteriorating situation in Europe is fairly
high. Equity investors appear to be pricing in another big kick-the-can “solution” to the European debt crisis, which is surprising given how many disappointments we have seen out of these summits and the rapid deterioration in some key economies in the region.
The Citi Eurozone Economic Surprise Index is at -90.50 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 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.
The "US fiscal cliff "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. The declines in retail/restaurant shares today are noteworthy. 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-higher into the close from current levels on quarter-end window-dressing, short-covering, bargain-hunting and financial/homebuilding sector strength.
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