Broad Market Tone: - Advance/Decline Line: Lower
- Sector Performance: Most Sectors Declining
- Volume: Below Average
- Market Leading Stocks: Underperforming
Equity Investor Angst: - VIX 15.18 +8.20%
- ISE Sentiment Index 108.0 +12.50%
- Total Put/Call .85 -14.14%
- NYSE Arms .91 +5.21%
Credit Investor Angst:- North American Investment Grade CDS Index 98.71 bps +.26%
- European Financial Sector CDS Index 227.30 bps -3.1%
- Western Europe Sovereign Debt CDS Index 229.66 -.11%
- Emerging Market CDS Index 244.94 -.25%
- 2-Year Swap Spread 21.0 unch.
- TED Spread 33.25 -1.5 basis points
- 3-Month EUR/USD Cross-Currency Basis Swap -33.75 +1.5 basis points
Economic Gauges:- 3-Month T-Bill Yield .10% +1 basis point
- Yield Curve 151.0 -2 basis points
- China Import Iron Ore Spot $106.40/Metric Tonne -2.65%
- Citi US Economic Surprise Index -15.30 +.8 point
- 10-Year TIPS Spread 2.26 +1 basis point
Overseas Futures: - Nikkei Futures: Indicating -11 open in Japan
- DAX Futures: Indicating -35 open in Germany
Portfolio:
- Slightly Lower: On losses in my Retail and Tech sector longs
- Disclosed Trades: Added to my (IWM)/(QQQ) hedges, added to my (EEM) short
- Market Exposure: Moved to 25% Net Long
BOTTOM LINE: Today's overall market action is bearish as the S&P 500 reverses morning gains and trades near session lows on eurozone debt angst, rising food/energy prices, US "fiscal cliff" worries, profit-taking, technical selling, more shorting and rising global growth fears. On the positive side, Coal shares are especially strong, rising more than +1.0%. Copper is gaining +1.8%. Major Asian indices were mostly higher overnight, boosted by a +1.1% gain in India. Major European indices were higher today, boosted by a +2.4% gain in Italy. The Bloomberg European Bank/Financial Services Index rose +1.8%. The Germany sovereign cds is down -1.1% to 54.92 bps, the France sovereign cds is down -2.66% to 122.50 bps, the Italy sovereign cds is down -5.1% to 396.65 bps, the Spain sovereign cds is down -4.3% to 447.97 bps and the UK sovereign cds is down -6.6% to 50.61 bps. Moreover, the Spain 10Y Yld is falling -1.1% to 6.21%. On the negative side, Homebuilding, Oil Tanker, Computer, Computer Services and Retail shares are especially weak, falling more than -1.0%. Homebuilding and tech shares have traded heavy throughout the day again. Lumber is falling -1.4%, Gold is rising +1.0%, Oil is rising +.5% and the UBS-Bloomberg Ag Spot Index is gaining +1.0%. Brazilian shares are -1.0% on the day.
The UBS/Bloomberg Ag Spot Index is up +27.1% since 6/1.
The benchmark China Iron/Ore Spot Index is down -41.2% 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 the Eurozone has successfully kicked-the-can and global central bank stimuli will boost economic growth in the near future.
US weekly retail sales have decelerated to a sluggish rate at +1.9%. US Trucking Traffic continues to soften.
Moreover, the weekly MBA Home Purchase Applications Index has declined for 5 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 -65.0% from its Oct. 14th high and is now down around -55.0% ytd. Shanghai Copper Inventories have risen +210.0% 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 10Y T-Note continues to trade too well, despite recent mild weakness. There still appears to be a
fairly high level of complacency among US investors regarding the deteriorating macro backdrop.
It still remains unclear to me whether or not Germany will destroy its own balance sheet or allow the ECB to monetize debt in an attempt to "save" the euro even as investors have been pricing this outcome into stocks. Focus Magazine reported recently that a poll by TNS Emnid found that
52% of Germans don’t want European countries to share debt even if the EU takes control over budgets of individual countries, while 31% were in favor of this.
The Citi Eurozone Economic Surprise Index is at -54.70 points.
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.
The odds of imminent QE3, which were already lower than perceived in my opinion, are likely plummeting with the recent surge in stock prices, inflation expectations, rising gas prices, worrisome food crisis headlines and less pessimistic US economic data. As well, I continue to believe a new massive China stimulus round isn’t as likely as perceived as worries over their real estate bubble and soaring food prices intensify.
The quality of the recent stock rally remains poor as breadth, volume, leadership, lack of big volume/gainers and copper/transports divergences all continue to be concerns. Thus, recent market p/e multiple expansion on global central bank stimulus/action hopes, is creating an unstable situation for equities, which could become a big problem this fall unless a significant macro catalyst materializes soon.
The explosion higher in the Israel sovereign cds(+31 bps in about 2 weeks to 165.0 bps) is another big red flag. The Mid-east appears to be unraveling again at an alarming rate. For this year's equity advance to regain traction, I would expect to see further 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, a calming in Mid-east tensions and higher-quality stock market leadership. I expect US stocks to trade modestly lower into the close from current levels on eurozone debt angst, profit-taking, more shorting, rising food/energy prices, US "fiscal cliff" concerns, growing Mid-east unrest, technical selling and rising global growth fears.
