Broad Market Tone: - Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst: - VIX 18.07 -1.69%
- ISE Sentiment Index 80.0 -17.53%
- Total Put/Call .91 -14.95%
- NYSE Arms 1.07 +9.18%
Credit Investor Angst:- North American Investment Grade CDS Index 114.99 -.37%
- European Financial Sector CDS Index 275.12 -1.12%
- Western Europe Sovereign Debt CDS Index 304.84 -2.07%
- Emerging Market CDS Index 284.47 -.05%
- 2-Year Swap Spread 24.0 -.75 basis point
- TED Spread 38.75 unch.
- 3-Month EUR/USD Cross-Currency Basis Swap -51.25 +.75 basis point
Economic Gauges:- 3-Month T-Bill Yield .08% unch.
- Yield Curve 133.0 +1 basis point
- China Import Iron Ore Spot $136.80/Metric Tonne +.15%
- Citi US Economic Surprise Index -59.30 +.4 point
- 10-Year TIPS Spread 2.14 -1 basis points
Overseas Futures: - Nikkei Futures: Indicating a +13 open in Japan
- DAX Futures: Indicating -25 open in Germany
Portfolio:
- Slightly Higher: On gains in my tech sector longs and index hedges
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges and to my (EEM) short, then covered some of them
- Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades near session lows on rising Eurozone debt angst, diminished global central bank stimulus hopes and rising global growth fears. On the positive side, Alt Energy, Oil Tanker and Airline shares are especially strong, rising more than +.75%. Tech shares have traded well throughout the day. Gold is falling -.8% and Oil is down -3.9%. Major Asian indices were mostly higher, led by a +1.1% gain in Japan. However, China fell -.34% and is down -1.1% over the last 5 days, while the rest of Asia has rallied. Major European indices are higher, led by a +1.9% gain in Italy. The Bloomberg European Bank/Financial Services Index is rising +1.2%. The Spain sovereign cds is falling -4.8% to 573.46 bps, the Italy sovereign cds is down -3.2% to 511.49 bps and the Portugal sovereign cds is down -6.7% to 931.52 bps. Moreover, the Italian/German 10Y Yld Spread is down -5.3% to 415.25 bps and the European Investment Grade CDS Index is down -1.97% to 168.68 bps. On the negative side, Utility, Energy, Oil Service, Paper, Construction, Restaurant and Road&Rail shares are under pressure, falling more than -.75%
. Copper is down -1.7%, Lumber is down -.75% and the UBS-Bloomberg Ag Spot Index is up +.4%. The Germany sovereign cds is up +1.0% to 99.83 bps, the China sovereign cds is up +3.4% to 117.89 bps, the Japan sovereign cds is up +2.6% to 93.87 bps, the Russia sovereign cds is up +2.4% to 220.51 bps and the UK sovereign cds is up +1.75% to 71.55 bps.
Weekly retail sales have decelerated to a sluggish rate at +2.5%. US Rail 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 -8.0% since its Dec. 29th 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 -60.0% from its Oct. 14th high and is now down around -50.0% ytd. China Iron Ore Spot has plunged -23.0% since Sept. 7th of last year. Shanghai Copper Inventories have risen +148.0% ytd.
The CRB Commodities Index is now technically in a bear market, having declined -26.0% since May 2nd of last year.
Overall, credit gauge deterioration remains a big worry as most key sovereign cds remain technically strong despite some recent improvements. The euro currency, oil, lumber and copper all trade poorly given global central bank stimulus hopes and recent stock gains. As well, the 10Y continues to trade too well as the yield rose just +3 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. The Citi Eurozone Economic Surprise Index is falling another -2.8 points to -68.3 points, which is the lowest since early Oct. of last year.
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. As well, some key economies in the region are likely accelerating their contractions right now. Moreover,
the European debt crisis is really beginning to bite emerging market economies now, which will also further pressure exports from the region and further raise the odds of more sovereign/bank downgrades.
The "US fiscal cliff "will 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. Global central bank stimulus hopes and hopes for a Eurozone fiscal unity "solution" have been propping up stocks, but 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 modestly lower into the close from current levels on eurozone debt angst, diminished global central bank stimulus hopes, rising global growth fears, profit-taking and more shorting.
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