Monday Morning Musings

Markets are trading lower in early trade, following weakness on Friday's session.  There isn't a whole lot of market moving news, although the banking sector is leading the downside after the Financial Times reported that Citi suffered a large decline last quarter in trading revenue.

Apple shares are nicely higher after the company reaffirmed that revenues will be at the high end of estimates due to strong demand for new iPhones.

Asian markets were mixed overnight.  Japan was closed for a holiday, but China was higher after the HSBC manuf. PMI rose to 51.2 from 50.1.  This marks the highest reading since April.  This may have also helped push short-term rates higher in China, with SHIBOR rates spiking.

Europe's markets are lower today.  Eurozone manuf. PMI slipped to 51.1 from 51.4, but the services PMI rose to 52.1 from 50.7.  The same dynamic was seen in Germany and France.

Bond yields continue to drift lower with the 10-year yield fading back to 2.70% this morning.  Fed gov Dudley said that the labor market and economy didn't meet their criteria for tapering as of the last FOMC meeting.  It almost seems as if the Fed was surprised by the sharp rise in yields and has since been jawboning yields back down.

Commodities are also most lower today, with gold prices down a bit near $1328 and oil prices sliding back to $103.60.

The volatility index got down to very low levels Friday below the 13 mark, but today they are spiking higher and up more than 10% to back above the 14.50 level.

Trading comment: Markets had reached overbought levels again last week after being up many days in a row.  So the multi-day pullback we have seen should be construed as healthy.  We suspect that this pullback will again be of the mild variety like many of the last ones.  The patter of higher lows and higher highs remains intact.  Right now the S&P 500 is hitting the 1700 level, and the 50-day average comes into play around 1680.  We said last week we wanted to use weakness to put some extra cash back to work in stocks so that is what we will be looking to do around these levels.