Wednesday, February 15, 2012

Will China Support Europe?

The markets are nicely higher this morning after a big rally late in the day yesterday reversed the earlier losses from the session.

Asian markets were higher overnight after comments from a China official that hinted at the country looking to increase its investment in the eurozone. This also appears to be helping European markets this morning, even as the euro is lagging. A couple of GDP reports out of Europe showed that Q4 GDP declined -0.2% in Germany but rose +0.2% in France. Both were a little better than expected.

In the past Chinese officials have said they are not looking to increase their investment in the troubled eurozone. So this would be a bit of a change, although we would still have to see what any involvement looked like. My guess would be they are more inclined to invest directly in companies over there, especially natural resource companies, as opposed to simply lending to over-indebted governments.

In earnings news, positive reactions to earnings reports continue to trump negative ones. The list of stocks rallying after earnings includes: CMCSA, TEVA, MET, WCG, ANF, DF, DVN, and VMI. The only major stock trading down after earnings is Deere (DE).

In economic news, the Empire Manufacturing index for Feb. rose to 19.5 from 13.5 the prior month. The Housing Market index also improved in Feb. to 29 from 25 in January. These are small datapoints that continue to line up on the side of the ledger that supports a continued improving economic outlook in the U.S.

Commodities are mostly higher today. Oil prices are higher again near $101.70; gold prices are higher to $1733; silver prices are also higher, while copper prices are lower so far.

The 10-year yield is up just slightly to 1.94%; and the VIX is up +5% right now to 20.56. The higher VIX today is a bit odd given the gains in the market, and could be related to positioning ahead of this Friday's options expiration.

Trading comment: The action in stocks continues to be very positive. The list of those looking for a correction continues to grow. I even had a client call me yesterday and ask if we should be looking for a correction. Alas, it's never that easy, is it? AAPL just crossed the $500 mark on Monday and its already testing $525 today. The list of market leading growth stocks also continues to broaden, which is a marked change from 2011 when defensive stocks like utilities and consumer staples fared the best.

KAM Advisors has long positions in AAPL and DE


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