Broad Market Tone: - Advance/Decline Line: Lower
- Sector Performance: Mixed
- Volume: Slightly Below Average
- Market Leading Stocks: Performing In Line
Equity Investor Angst: - VIX 15.64 -2.19%
- ISE Sentiment Index 141.0 +8.46%
- Total Put/Call .78 -3.7%
- NYSE Arms .73 -8.29%
Credit Investor Angst:- North American Investment Grade CDS Index 102.96 bps -.28%
- European Financial Sector CDS Index 246.09 bps +.32%
- Western Europe Sovereign Debt CDS Index 246.52 +.95%
- Emerging Market CDS Index 245.50 +1.02%
- 2-Year Swap Spread 19.5 +.25 basis point
- TED Spread 33.0 -1.0 basis point
- 3-Month EUR/USD Cross-Currency Basis Swap -37.0 +.75 basis point
Economic Gauges:- 3-Month T-Bill Yield .11% +1 basis point
- Yield Curve 137.0 unch.
- China Import Iron Ore Spot $114.90/Metric Tonne -1.12%
- Citi US Economic Surprise Index -33.50 +.3 point
- 10-Year TIPS Spread 2.19 -2 basis points
Overseas Futures: - Nikkei Futures: Indicating +3 open in Japan
- DAX Futures: Indicating -15 open in Germany
Portfolio:
- Slightly Lower: On losses in my Biotech and Tech sector longs
- Disclosed Trades: Took profits in a consumer discretionary long, added to a tech sector long
- Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bullish as the S&P 500 hugs the flatline despite rising eurozone debt angst, high food/energy prices, US "fiscal cliff" worries, earnings concerns and rising global growth fears. On the positive side, Steel, Hospital, Homebuilding, Education and Airline shares are especially strong, rising more than +1.0%. Lumber is gaining +1.1%. The 10Y Yld is gaining +2 bps to 1.64%. Major Asian indices were mostly higher overnight, led by a +.8% gain in Japan. The Bloomberg European Bank/Financial Services Index is gaining +.97%. Brazilian shares are gaining +2.0%. The Italian 10y Yld is falling -1.2% to 5.9%. On the negative side, Coal, Internet, Disk Drive, Networking, Biotech, REIT, Restaurant and Road & Rail shares are relatively weak, falling more than -1.0%. The Transports continue to trade poorly as they sit out the recent broad market rally.
Copper is falling -.77% and the UBS-Bloomberg Ag Spot Index is gaining +.5%. Major European indices are lower today, led down by a -.84% decline in Spain. The Spain sovereign cds is gaining +2.0% to 516.85 bps, the Italy sovereign cds is rising +1.3% to 457.33 bps, the Russia sovereign cds is jumping +3.9% to 162.46 bps and the Israel sovereign cds is surging +3.8% to 140.77 bps. Moreover, the Emerging Markets Sovereign CDS Index is gaining +2.1% to 232.04 bps.
The UBS/Bloomberg Ag Spot Index is up +25.0% in about 9 weeks.
The benchmark China Iron/Ore Spot Index is down -36.5% since 9/7/11.
Moreover, the
China Hot Rolled Steel Sheet Spot Index is also picking up downside steam. As well, despite their recent bounces off the lows, the euro, copper and lumber all continue to trade poorly given equity investor perceptions that global central bank stimuli will boost economic growth in the near future.
US weekly retail sales have decelerated to a sluggish rate at +2.0%. US Trucking Traffic continues to soften.
Moreover, the Citi US Economic Surprise Index, while showing some improvement recently, is still back to Sept. 2011 levels. Lumber is -12.3% since its Sept. 9th high despite improving sentiment towards homebuilders and the broad equity rally ytd. Moreover, the weekly MBA Home Purchase Applications Index has declined for 4 straight weeks and has been around the same level since May 2010 despite investor perceptions of a big improvement in the nationwide housing market. The Baltic Dry Index has plunged around -60.0% from its Oct. 14th high and is now down around -50.0% ytd. Shanghai Copper Inventories have risen +74.0% ytd.
Oil tanker rates have plunged recently, with the benchmark Middle East-to-US voyage down to 22.50 industry-standard worldscale points, which is the lowest since May, 2009.
The CRB Commodities Index is now down -17.3% since May 2nd of last year despite the recent surge in food/energy prices.
The 10Y T-Note continues to trade too well.
There still appears to be a fairly high level of complacency among US investors regarding the deteriorating macro backdrop. It remains unclear to me whether or not Germany will destroy its own balance sheet to save the euro even as investors have been pricing this outcome into stocks.
The Citi Eurozone Economic Surprise Index is at -68.0 points, which is near the lowest since mid-Sept. of last year.
Massive tax hikes and spending cuts are still yet to hit in several key eurozone countries that are already in recession. A lack of competitiveness remains unaddressed.
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 the election outcome uncertainty will likely become more and more of a focus for investors as the year progresses.
Little if anything being discussed by global central bankers will actually boost global economic growth in any meaningful way over the intermediate-term, in my opinion. Thus, recent market p/e multiple expansion on global central bank stimulus hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon. 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 food/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 rising eurozone debt angst, profit-taking, more shorting, technical selling, high food/energy prices, earnings worries, US "fiscal cliff" concerns and rising global growth fears.
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