Wednesday, June 12, 2013

Back On Yen Watch

Markets in the US opened on a higher note, but have since faded back into negative territory.  Lately, strength in the Japanese Yen has been associated with weakness in stocks.  Today the yen started out lower but has reversed higher.  So it appears for the time being we are back in that mode where we have to watch the yen (FXY) to gauge stock sentiment.

There hasn't been any economic news today.  In M&A, Cooper Tire (CTB) is up 40% after it agreed to be acquired by Apollo Tyres for $35 per share.

Asian markets were lower overnight.  China and Hong Kong markets were closed for the Dragon Boat Festival.  In a surprise move, the Bank of Indonesia hiked rates 25 basis points to 4.25%.  S. Korea's unemployment rate ticked up to 3.2%.  And Australia's consumer sentiment rose to 4.7% from -7.0% in the prior reading.

In Europe, markets are mostly lower.  The German high court continues its debate on the constitutionality of the ECB's Outright Monetary Transaction (OMT) program.  Also, Eurozone industrial production rose 0.4% last month, above expectations.

The dollar is roughly flat today but commodities are mostly higher.  Gold prices are up to $1385.  Oil prices are higher near $95.85.  And silver and copper prices are up as well.

The 10-year yield is barely higher at 2.20%.  And the recent selloff in stocks this morning has pushed the volatility index +2.5% higher to 17.50.  We have seen larger intraday swings in the stock market as long as the VIX has been above the 15 level.

Trading comment: The market looks like it needs to find its footing soon to keep this uptrend intact.  There are some red flags on the horizon in the form of a stronger Yen, rising bond yields, and deteriorating credit conditions in emerging markets.  Look at the emerging market bond etf (EMB) for an example of a plunge.  CDS prices on emerging markets have also been rising sharply lately.  So there are some emerging strains in the financial system.  While we are still looking for another push higher for stocks into quarter end, we are mindful of the potential for a summer correction as well.  As such, we are being less aggressive about buying the dips here.


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