Wednesday, May 02, 2012

Stocks Slightly Lower into Final Hour on Rising Eurozone Debt Angst, Less US Economic Optimism, Less Financial Sector Optimism, Global Growth Fears


Broad Market Tone:

  • Advance/Decline Line: Slightly Lower
  • Sector Performance: Most Sectors Declining
  • Volume: Below Average
  • Market Leading Stocks: Performing In Line
Equity Investor Angst:
  • VIX 16.98 +2.29%
  • ISE Sentiment Index 127.0 +14.41%
  • Total Put/Call 1.02 +13.33%
  • NYSE Arms 1.38 +95.45%
Credit Investor Angst:
  • North American Investment Grade CDS Index 94.35 +.54%
  • European Financial Sector CDS Index 238.16 +1.96%
  • Western Europe Sovereign Debt CDS Index 275.25 unch.
  • Emerging Market CDS Index 244.32 -1.14%
  • 2-Year Swap Spread 28.5 +.75 basis point
  • TED Spread 38.5 unch.
  • 3-Month EUR/USD Cross-Currency Basis Swap -43.50 +1.5 basis points
Economic Gauges:
  • 3-Month T-Bill Yield .08% unch.
  • Yield Curve 165.0 -4 basis points
  • China Import Iron Ore Spot $144.60/Metric Tonne -.55%
  • Citi US Economic Surprise Index -20.40 -7.6 points
  • 10-Year TIPS Spread 2.27 -1 basis point
Overseas Futures:
  • Nikkei Futures: Indicating a -40 open in Japan
  • DAX Futures: Indicating +27 open in Germany
Portfolio:
  • Slightly Higher: On gains in my Tech, Biotech and Retail sector longs
  • Disclosed Trades: None
  • Market Exposure: 50% Net Long
BOTTOM LINE: Today's overall market action is mildly bearish as the S&P 500 trades just slightly lower despite rising Eurozone debt angst, less financial sector optimism, high energy prices, rising global growth fears and less US economic optimism. On the positive side, HMO and Homebuilding shares are especially strong, rising more than +1.0%. Oil is falling -.82%, Gold is down -.5% and the UBS-Bloomberg Ag Spot Index is down -1.7%. Major Asian indices rose around +1.0% overnight, led by a +1.8% gain in China. The Russia sovereign cds is down -1.75% to 188.50 bps. On the negative side, Utility, Coal, Alt Energy, Energy, Oil Service, Computer, Disk Drive, Networking, I-Banking, Bank and Education shares are under pressure, falling more than -.75%. Financial shares have lagged throughout the day. As well, cyclical shares are relatively weak. Copper is falling -1.5%. Major European indices are falling around -1.5%, led lower by a -2.6% decline in Spain. Spanish equities are now down -20.2% ytd and are very close to their March 09 lows. The Bloomberg European Bank/Financial Services Index is falling -1.9%(-16.0% in less than 6 weeks). The Spain sovereign cds is gaining +1.6% to 482.02 bps, the Germany sovereign cds is gaining +.54% to 86.61 bps and the US sovereign cds is gaining +3.5% to 39.43 bps(+42.0% in less than 2 weeks). Moreover, the European Investment Grade CDS Index is gaining +2.3% to 139.86 bps and the Italian/German 10Y Yld Spread is rising +1.6% to 393.68 bps. 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 early-Oct. levels. Lumber is -4.0% 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 -50.0% from its Oct. 14th high and is now down around -35.0% ytd. China Iron Ore Spot has plunged -20.0% since Sept. 7th of last year. Shanghai Copper Inventories are still near their recent all-time high and have risen +625.0% ytd. China's March refined-copper imports fell -8.0% on the month. Singapore Electronics exports decelerated to a gain of +2.8% in March from a +23.3% gain in February. The 10Y T-Note continues to trade too well, despite the big surge in the US sovereign credit default swap and the euro currency still can't sustain a bounce. The Citi Eurozone Economic Surprise Index is dropping -18.6 points today to -27.9, which is the worst since mid-November of last year. US stocks remain extraordinarily resilient, however breadth and volume remain lackluster. I continue to believe there is a fairly high level of complacency among US investors regarding the rapidly deteriorating situation in Europe. For the recent equity advance to regain traction, I would expect to see further European credit gauge improvement, a further subsiding of 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. I expect US stocks to trade mixed-to-lower into the close from current levels on rising Eurozone debt angst, less US economic optimism, high energy prices, rising global growth fears, more shorting, profit-taking and less financial sector optimism.

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