Friday, January 13, 2012

Stocks Lower into Final Hour on Rising Eurozone Debt Angst, Rising Global Growth Fears, Earnings Jitters, Rising Energy Prices

Broad Market Tone:

  • Advance/Decline Line: Substantially Lower
  • Sector Performance: Almost Every Sector Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 21.78 +6.40%
  • ISE Sentiment Index 96.0 -29.41%
  • Total Put/Call .71 -14.46%
  • NYSE Arms 1.74 +65.06%
Credit Investor Angst:
  • North American Investment Grade CDS Index 116.31 +1.12%
  • European Financial Sector CDS Index 251.50 +1.80%
  • Western Europe Sovereign Debt CDS Index 374.02 +1.35%
  • Emerging Market CDS Index 311.65 +2.77%
  • 2-Year Swap Spread 36.0 +1 bp
  • TED Spread 55.0 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -86.0 -6 bps
Economic Gauges:
  • 3-Month T-Bill Yield .02% unch.
  • Yield Curve 164.0 -5 bps
  • China Import Iron Ore Spot $142.20/Metric Tonne unch.
  • Citi US Economic Surprise Index 72.40 -5.0 points
  • 10-Year TIPS Spread 2.02 -1 bp
Overseas Futures:
  • Nikkei Futures: Indicating -60 open in Japan
  • DAX Futures: Indicating -10 open in Germany
  • Slightly Lower: On losses in my Tech and Medical sector longs
  • Disclosed Trades: Added to my (IWM), (QQQ) hedges and added to my (EEM) short
  • Market Exposure: Moved to 50% Net Long
BOTTOM LINE: Today's overall market action is bearish, as the S&P 500 pulls back near its late-Oct. high on rising Eurozone debt angst, tech/financial sector pessimism, some earnings disappointments, rising global growth fears and rising energy prices. On the positive side, Ag, Gaming and Education shares are higher on the day. The UBS-Bloomberg Ag Spot Index is falling -.88%, Gold is down -.74% and Lumber is surging +4.2%. Major European indices were down around -.75%. However, Spanish equities, Europe’s worst-performers ytd rose +.28%. As well, the Bloomberg European Bank/Financial Services Index was +1.1% higher on the day. The Japan sovereign cds fell -5.93% to 143.25 bps and the Israel sovereign cds is down -1.54% to 208.44 bps. On the negative side, Coal, Alt Energy, Steel, Semi, Homebuilding, Road&Rail and Networking shares are under meaningful pressure, falling more than -1.5%. Oil is gaining +.3%. The 10Y T-Note Yield is falling -6 bps to 1.87%, which remains a concern. Major Asian indices were mostly higher overnight, led by a +1.4% catch-up move in the Nikkei. However, the Shanghai Composite fell -1.34% on diminished easing expectations and profit worries. Moreover, China’s ChiNext Index(China’s Nasdaq) plunged -6.1% last night and is now down -.44% ytd. The Germany sovereign cds is rising +3.4% to 104.17 bps, the France sovereign cds is gaining +4.64% to 219.33 bps, the Spain sovereign cds is gaining +3.51% to 408.33 bps, the Italy sovereign cds is gaining +2.02% to 504.17 bps, the UK sovereign cds is rising +2.2% to 93.50 bps and the Russia sovereign cds is rising +2.97% to 257.83 bps. The Italian/German 10Y Spread is rising +1.67% to 487.59 bps(still near highest since Dec. 1995). The Western Europe Sovereign CDS Index is still very near its Jan. 9th all-time high. The TED spread is near the highest since May 2009. The 2Y Euro Swap Spread is near the highest since Nov. 2008. The 3M Euribor-OIS spread is near the highest since February 2009. The 3M EUR/USD Cross-Currency Basis Swap is falling -6.8% to -85.87 bps, which is back to mid-Oct. levels. The Libor-OIS spread is still very near the widest since May 2009, which is also noteworthy considering the equity surge off the recent lows. Overall, while improving, European credit gauges are still at stressed levels despite the fact that the European debt crisis “can-kicking” solution is supposedly at hand. China Iron Ore Spot has plunged -21.4% since Sept. 7th of last year. Shanghai Copper Inventories are up +124.3% in 5 days to the highest level since April of last year. Some of today’s weakness is related to JPMorgan’s(JPM) disappointing report, China’s weakness and a breakdown in the Greece debt talks. However, news of imminent European sovereign downgrades is having a substantial impact, which is surprising given how well-telegraphed this has been. The reaction in the 10-year is especially concerning. The yield never broke out during the big equity rally off the lows/improving economic data and is now close to a technical breakdown. I think overall equity investor complacency regarding the health of the global economy is still fairly high. The total put/call hit a low .56 into this morning's weakness, which is also noteworthy. The market still has a "tired" feel, despite recent gains. For a sustainable equity advance from current levels, I would still expect to see further European credit gauge improvement, subsiding hard-landing fears in key emerging markets, a rising 10-year yield, better volume, stable-to-lower energy prices and higher-quality stock market leadership. However, a convincingly break above the late-Oct. S&P 500 high would likely lead to further short-term gains. I expect US stocks to trade mixed-to-lower into the close on rising Eurozone debt angst, rising global growth fears, more shorting, earnings jitters, technical resistance and profit-taking.


Anonymous said...

"..which is surprising given how well-telegraphed this has been.." Yes, the S&P news was all around the markets by noon, -what are your thoughts for Monday then based on the additional news after the close of Malta, Cyprus downgrades (EFSF implications) etc and then of course Germany was positive.. ? ty

Unknown said...

Stocks Rising into Final Hour on Less Tech Sector Pessimism, Short-Covering,earnings disappointments, rising global growth fears and rising energy prices.towards homebuilders, stock rally and decline in eurozone debt angst.debt angst, rising global growth fears, more shorting, earnings jitters.
Don Blankenship