China Slowdown Stirs Global Worries

The market is lower this morning after a weaker than expected leading economic indicators report in China (+0.3% vs. +1.7% consensus). China has been a big driver of global economic growth, so signs that it could be slowing are bound to have pronounced effects on markets.

There is also a concerning report out of Europe that the ECB has refused to extend liquidity measures to banks, and instead asked for billion in repayments from banks. I have commented recently that one of the reasons I remained concerned was that the credit indicators were flashing warning signs. This news seems to fit that bill.

Asian markets were lower overnight, led by Shanghai which tumbled -4.3%. European markets are also lower this morning, to the tune of -2% to -3%.

On a positive note, the CaseShiller home price composite rose 3.8% in April, above expectations. But it has done little to improve investor sentiment today.

Economic concerns can clearly be seen in the rise in Treasury prices, which today are pushing the yield on the 10-yr Note down below 3% (to 2.97%), the lowest yields we've seen in over a year.

For its part, the volatility index (VIX) is spiking higher by +16% this morning to 33.70; and the TRIN is very high at 4.19.

Oil is lower today, down to $75.80, and gold is off a bit as well. But the other 2 out of 3 flight to safety trades are higher, namely the dollar and US Treasuries.

Trading comment: I have recently warned to keep an eye on the rising VIX levels. Today we are seeing that big spike higher that often comes when the VIX hovers near that 30 level. We have been long the VIX etf (VXX), but will look to trim our positions a bit this morning.

The lowest close on the S&P 500 this year was 1050 on 6/7, so this is a very key level to watch.

long GLD, VXX