Tuesday, January 17, 2012

Markets Cheer Chinese GDP Growth

Global markets were higher overnight and higher this morning after China's GDP came in slightly above expectations at +8.9% in Q4. This is one of the slower readings since 2009, but I guess folks are happy it wasn't worse. There is also chatter that Chinese officials don't want it to slow more, and will be looking to take the foot off the brake that has recently been applied to cool inflation.

In earnings news, Citi (C) is down 5% right now after disappointing earnings. Wells Fargo (WFC) was in-line, but the stock is higher. And Check Point Software (CHKP) is nicely higher after beating earnings and revenue estimates.

The euro is also higher today, despite a wave of sovereign downgrades from Standard & Poors. The biggest was to France, which got downgraded from AAA to AA+. Italy, Spain, and Portugal also got downgraded a notch. For now it looks like these downgrades were priced in and bonds are not being sold off as a reaction.

The lower dollar here is helping commodities. Gold prices are up to $1658, and silver and copper prices are higher as well. Oil prices are also higher, but not able to stay above the $100 level.

The 10-year yield is flat at the low level of 1.85%. I find this somewhat perplexing, as most other markets are rallying on good economic news, but the bond market here is pricing things as if the economy is going to slow more.

As for the VIX, I would have expected it to be down on today's rally but it is actually slightly higher to 21.0. It is still early, but the fact that the VIX hasn't budged would make me a little nervous about chasing this early market strength.

Trading comment: The market continues this stair-step higher pattern that we have seen before. I think we saw something similar in the early part of 2011. Pullbacks are brief affairs and have to be bought quickly if you want to continue to participate in the rally. The October high for the SPX was 1292. This area has been providing some resistance for the last 4 days, but today looks to be convincingly broken to the upside. A close above 1292 would be another bullish datapoint for the market. Earnings season really heats up this week, so get ready.

KAM Advisors and/or clients are long CHKP, GLD


Post a Comment

<< Home