Lack of Updates

We apologize for the recent lack of updates as we've been dealing with some data issues on our alerting and analysis site, www.pikefin.com. The issues were resolved today and we will return to our normal pattern of posting. We are also working on catching up on the days that we missed.

Today's Major Market Move: Venezuelan Stock Market Up 293% Since January 2011

In what has to be one of the most astounding performances by a stock market over a 16 month time frame, Venezuelan equities have shot up 293% since January of 2011. We've featured the Venezuelan stock market as the subject of our "Major Market Move" posts no less than seven times (make that eight now). Here's the line chart of the benchmark Venezuela Stock Market Index:

Click here to go to the live chart.

 As we've mentioned in many of those seven prior posts, the main driver for the run up in equities is the cancer afflicting Hugo Chavez and the prospect of his passing in the near future. Investors are hoping that the subsequent regime will provide for a more favorable business environment however we view this as a huge gambit on a regime that has neither A) taken power yet nor B) indicated what form it will take.

The latest news on the status of Chavez's health has indicated that he will require additional cancer treatments after having just returned from being treated in Cuba 2 days ago (here's a link to a few more details from the BBC).

Today's Major Market Move: Natural Gas Futures Down 35% Year to Date

Natural Gas front month futures dropped through the psychologically import $2 level a little over a week ago so we figured it was about time that we dedicated a post to the colorless, odorless substance. It's not like we've been ignoring the commodity; we've featured it as the topic of our "Major Market Move" post already five times this year. The 35% drop in price year-to-date makes it the biggest decliner in the commodity space. Here's the top 10:

Click here to go to the live table.

If the 35% decline isn't dramatic enough for some readers, all they need to do is look back to June 2011. Natgas reached a price of 4.82 per million BTUs, its high for 2011, and is currently down over 60% from that point.

Click here to go to the live chart.

Storage capacity continues to fill up with the EIA reporting 25 billion cubic feet of gas being stored last week, above the 23 bcf estimate. After the storage facilities are topped out, gas is then kept in the pipelines for storage. After the pipelines... it's either A) cap the well which is not a trivial process, B) flare the gas off providing a nice light show for nearby residents or C) sell the gas directly on the open market. If C) happens in any kind of reasonable volume, those attempting to catch the falling knife right now will most likely end up losing a few fingers or even a limb. In the near term, without temperatures rising significantly to increase energy demand, traders expect prices to grind lower. Here's some more color from the Dow Jones news wires via the WSJ:

Traders said prices now appear on target to test the $1.85/mmBtu level, last reached in September 2001.

Gene McGillian, broker and analyst at Tradition Energy, said the market looks likely to continue to "grind into new 10-year lows" and stay weak for the next six months, barring a summer demand spike or significant cutbacks in output.

The EIA data "does nothing to alleviate the glut of supply we have and there's no sign of producers letting up yet" on lofty output, he said.

In a three-month forecast for May through July, the National Oceanic and Atmospheric Administration said Thursday that above-normal temperatures are expected to stretch from the southwest across to much of the East Coast.

Today's Major Market Move: German Stock Market Climbs 2.7% in Tuesday's Session

The German stock market had a nice day today with a 2.7% gain however it was essentially rising with the tide as many equity markets around the world made strong gains. In Europe, France, Spain, the Netherlands and Finland were all up over 2% and Italy surged almost 4%. Here's the top 10 performing benchmark equity index from today's session:

Click to go to the live table.

The DAX has performed well so far in 2012 with a 15% gain since January 1st and is well on its way of recovering the losses from 2011. However there are some who have a lack of confidence in the sustainability of this current move and they have demonstrated their pessimism by moving their money into bonds. German bond yields have come in significantly over the past month. One of the more dramatic examples is the German 1 year Bund which has seen its yield drop to .07 from .18.

Click here to go to the live chart.

Today's gain notwithstanding, German equities have also shown weakness over the past 30 days which is probably an indicator that much of the money moving into Bunds is coming from stocks.

Click here to go to the live chart.

Today's Major Market Move: Argentina's 5 Year Credit Default Swap Gains 13.2% in April

We're a little over halfway through April but I'm sure there are many in the Argentines who wish that the month was already over. The last 2 weeks have not been kind to the Argentinian economy. Stocks are lower, credit default swaps are higher and the Peso continues to weaken. Let's look at the 5 year swap first.

Click here to go to the live chart.

The 5 year is up 13% this month and up over 35% from the swing low established in mid March. Next up is equities where we'll use the benchmark Merval index. It's down 8.4% since April 1st; tied for 4th worst benchmark equity index.

Click here to go to the live table.

Lastly we have the currency which has not only weakened against the US Dollar in April, but has been on a slow but steady decline since the beginning of 2011. In fact, the next chart will show one of the most even slopes you'll ever see in the chart of a financial entity over a 15+ month time span.

Click here to go to the live chart.

Update: The dire straits that the Argentine economy finds itself in is causing the government to take desperate measures. On Tuesday it was announced that the Argentinian authorities had nationalized the Spanish oil company YPF. The following is from Reuters:

A surging fuel import bill has pushed production to the top of Fernandez's agenda at a time of worsening state finances in Latin America's No. 3 economy.

[YPF parent company] Repsol, whose shares fell 7.5 percent in Madrid on Tuesday, said the takeover was unjustified and vowed to defend its interests.

"This battle is not over," company Chairman Antonio Brufau said. "The expropriation is nothing more than a way of covering over the social and economic crisis facing Argentina right now."

Today's Major Market Move: Japanese Yen Strengthens 2.4% Against the US Dollar in April

It's starting to get interesting with the Japanese Yen again. After strengthening over 10% from February 1st to mid March, the USDJPY has given back about half that move and is on the verge of breaking below 80.

Click here to go to the live chart.

This article from Bloomberg stated that the strengthening of the Yen from the past week or so was due to the BOJ holding off on further easing. In our March 13th post we commented on how gasoline prices in Japan had risen to over $7/gallon. We wouldn't be surprised if this one of the factors that caused the BOJ to show some restraint. Japan has some of the highest gasoline prices in East Asia, second only to Hong Kong.

Click here to go to the live chart.

As has been the pattern over at least  the last 9 months, when the USDJPY falls the Nikkei comes with it. The magnitudes don't always match up, but in recent times they generally move in the same direction.

Click here to go to the live chart.

Today's Major Market Move: First Solar (ticker: FSLR) Down Over 40% Year to Date

Not that much time has passed since we last talked about First Solar (ticker: FSLR). It was the topic of our "Major Market Move" post on March 22nd after the stock price was down 27% for the month. The news about the company was bad then and unfortunately it continues to be so. FSLR is down 41.1% for the year making it the worst performer in the S&P 500.

Click here to go to the live table.

What we neglected to mention in that previous article was that FSLR had a disastrous calendar 2011 4th quarter. The company lost $4.78/share and revenues were down 35% QOQ. The losses for that one quarter wiped out all of the earnings for the previous three.

Click here to go to the live chart.

Not surprisingly, the company recently announced it was downsizing. Two thousand workers are being layed off (30% of its total workforce) along with a factory closing in Germany and production lines being idled in Malaysia. According to this article from the LA Times, the dismantling of subsidies in Europe, a direct effect of the European crisis and austerity measures, is putting a significant dampener on the solar business.

"After a period of robust growth, First Solar is scaled to operate at higher volumes than currently exist following the reduction of subsidies in key legacy markets," interim Chief Executive Mike Ahearn said in a statement.

Europe, formerly a clean-energy leader, is suffering from lapsed interest amid the region's financial crisis. Add an influx of cheap Chinese panels in recent years, and First Solar (along with many other makers of solar photovoltaics) found itself with a serious shortfall in demand.

"It is clear the European market has deteriorated to the extent that our operations there are no longer economically sustainable," Ahearn said.

Today's Major Market Move: 5 Year US Treasury Yield Declines 19 Basis Points Month to Date

The bond market is doing the equivalent of boarding up the windows and stockpiling bottled water and batteries. When investors start moving money into low risk sovereign bonds, US Treasuries and German Bunds in particular, someone out there thinks a storm is about to hit. Of the 73 different bonds we track from the U.S., the U.K, Brazil, Japan, Germany and Hong Kong, yields have declined in 64 of them and remained flat in another 4. Here's the top ten decliners in terms of % change in yield (we're working on modifying this table to show absolute change in yield):

Click here to go to the live table.

The top 6 positions in that table are all occupied by German Bunds but we used the 2 year Bund as our Major Market Move topic a little over a week ago on April 7. So today we're going to switch it up and talk about the 5 year U.S. Treasury instead. After climbing over 1% in mid-March, the U.S. 5 year yield has now dropped back down and is approaching the low going back to mid-February.

Click here to go to the live chart.

If we extend our view going back to 2007 (pre-crisis), we will see that the yield is also getting precariously close to the low over that longer time frame.

Click here to go to the chart on Yahoo.

We continue to see bond investors refusing to join in on the party in equities. As we stated in the aforementioned German Bund post, Japanese equities have seen several sizable rallies during its 30+ year deflationary episode.

Click here to go to the chart of the Nikkei 224 on Yahoo.

This chart above is one of the main things that gives Bernanke indigestion. One of his prime objectives is to get investors to abandon their safety net and go chase higher returns in riskier asset classes. The idea is to get money moving through the economy (increase velocity) rather than having that money parked and stagnating in treasuries.

Today's Major Market Move: Brazil's Benchmark BOVESPA Index Climbs 2.9% in Thursday's Session

Stock markets investors around the world were singing a happy tune today when only 16 out of 92 (17%) of benchmark equity indexes closed in negative territory. 27 of the indexes finished with gains of 1% or more and the best performer of them all, the Brazilian BOVESPA index, surged 2.9%. Here's the top 10:

Click here to go to the live table.

This article from Reuters cites two primary reasons for the strong performance in global equity markets:
1) A better than expected Italian bond auction and 2) rumors of a beat in the upcoming Chinese first quarter GDP release. Even though neither of these events had anything to do with Brazil directly, Brazilian stocks most likely received a second boost as a result of a snap-back rally since the BOVESPA had decline 9 out of the previous 11 days. Even with today's 2.9% gain, the past 30 days have not been kind.

Click here to go to the live chart.

Update: Oops, the Chinese GDP number ended up missing (8.1% vs 8.4% expected vs 9.0% rumored). Funny thing about those rumors, they can't always be trusted. There's not much of a reaction in the markets; S&P 500 futures dropped about 6 points on the news and at the time of this post (22:37 -7:00) the Shanghai SE Composite is flat.

Today's Major Market Move: S&P TSX Venture Composite Index Down 8.4% in April

The Canadian economy is one that we haven't discussed very often in this blog, which indicates that it hasn't experienced very many wild swings over the past year and a half, in either the upward or downward direction. So when we saw a Canadian equity index on the bottom end of the spectrum of our global equity index table, it piqued our interest. The S&P TSX Venture Composite Index is down 8.4% in April making it the worst performer for the month so far.

Click here to go to the live table.

 Here's a description of the components of the index from the horse's mouth:

The S&P/TSX Venture Composite Index is a broad market indicator of Canadian micro cap securities in Canada. Its constituents are listed on the TSX Venture Exchange. The index is market capitalization weighted. The Toronto Stock Exchange (TSX) serves as the distributor of both real-time and historical data for this index.

The other thing that has caught our attention is that the index today is not all that far from the lows of 2011.
Canada has not seen the same surge over the past 6 months as the U.S. Many people have argued that the Canadian housing bubble still has a lot of deflating left to do. Here's our equity index/GDP growth comparison chart for Canada:

Click here to go to the live chart.

Compare that chart to the one for the United States:

Click here to go to the live chart.

U.S. Equities took a bigger hit during the crash and GDP growth has suffered more, but because the U.S. economy has already dealt with a higher % of it's bad debt relative to Canada (particularly in real estate), the U.S. economy is faring much better at the moment. Don't get us wrong, if there is a 2nd major global wave to this crisis, we think the U.S. still has more pain in store. However we believe Canada has many more cockroaches that weren't rooted out during the first wave and take a bigger hit subsequently.

Today's Major Market Move: Italian Stock Market Declines 9.5% Month to Date

Things are starting to get interesting in Europe again. The top 13 decliners today among the benchmark equity indexes were all in Europe:

Click here to go to the live table.

A 5% drop in one day is nothing to sneeze at. A 650 point drop in the DOW would certainly move the economy to an earlier spot in the news hour. The FTSE MIB Index is down 9.5% for April and just move into the red for the year. Spanish equities are also having a rough go of it and with today's move have dropped below the lows of 2011. Curiously enough, the equity markets of Greece and its satellite Cyprus were both up big today with Greece gaining 6.6% and Cyprus surging an astounding 10.6%. Let's pull up a C-PIIGS comparison chart of benchmark equity indexes going back to the beginning of 2011:

Click here to go to the live chart.

It's interesting to see that the Portuguese, Spanish and Italian equity markets have all converged on the same spot and are sitting at or just below the 2011 lows. Greece and Cyprus have already had their collapse and Ireland has managed to separate itself from the pack. As for the next shoe to drop, it is looking more and more like it will be Spain. As we mentioned earlier, the Spanish stock market is one of the few stock markets that has already dropped below its 2011 lows. Additionally, in the CDS space, Spain's 5 Year Swaps are up 22% while every other CDS we track is either flat or down.

Click here to go to the live table.

Today's Major Market Move: FCOJ Futures Drop 3.7% in Monday's Session

The 2012 version of the screwdriver: replace the vodka with volatility. Frozen concentrate futures have been on quite the ride this year, spiking over 30% on the fears that Brazilian imports would be banned because of a fungicide, and then collapsing back down after the Brazilians indicated the fungicide would no longer be used. As is often the case, the post-spike reversal has had so much momentum that the price has now fallen below pre-spike levels.

Click here to go to the live chart.

According to this article from Reuters, FCOJ futures haven't been this low since Oct 2010 and indicators point to the price falling further:

Futures have plummeted 35 percent from a record $2.2695 a pound on Jan. 23. Groves in Florida, the world’s second-biggest citrus grower, avoided freezing weather in the first quarter, and concerns eased that supplies would be disrupted by a U.S. probe of imports containing a banned fungicide.

“This market has nothing bullish going for it,” Michael Smith, the president of T&K Futures & Options Inc. in Port St. Lucie, Florida, said in a telephone interview. “Demand is weak, and unless we get a huge weather event, this market could go down to $1 by the end of the year.”

For the year FCOJ is down 9.6%, well behind Natural Gas and Coffee futures which are both down over 20%. Here's the top ten worst performers in the commodities space for 2012:

Click here to go to the live table.

Today's Major Market Move: German 2 Year Bund Yield Declines 7 Basis Points in Past Week

Back in our March 20th post we discussed how sovereign bond rates in the major economies were starting to make a pronounced move higher. That post turned out to be anti-prophetic as since then yields have reversed themselves and some, like the 2 year German Bund, have hit new swing lows.

Click here to go to the live chart.

During the two and a half week time frame from March 20, 2012 to April 7, 2012, 65 out of 72 sovereign bonds we track (from Japan, the U.S., the U.K., Australia, Germany and Brazil) have seen their yields decline. This means there remains one sizable community of investors, namely the sovereign bond market, that is still not convinced of the sustainability of this current recovery. When the prospects for growth in equities and commodities outweigh the need for safety in the bond market, we will start to see bond investors moving their money out of bonds and into the other asset classes. With interest rates still far below their historic averages, the current environment seems more like "Japan Syndrome" from the past 20+ years. Remember that the Japanese experienced several rallies (see 1996, 1999 and 2006) during their prolonged and ongoing malaise that ended up generating false hope.

Today's Major Market Move: Russian Ruble Strengthens 8.6% Against US Dollar Year to Date

After weakening 16% against the US Dollar in the latter half of 2011, the Russian Ruble has reversed course in 2012 and has strengthened 8.6% year to date. This puts the Ruble in a tie with the Colombian Peso for the top spot in terms best performing currencies against the Dollar in 2012.

Click here to go to the live table.

Considering that Russia is the #1 oil exporting country, it is not surprising that there is a fairly tight inverse correlation between the USDRUB and the price of oil (in this case we're going to use the Brent front month futures contract).

Click here to go to the live chart.

In light of this recent strengthening, here's a timely article from Reuters with some quotes from the head of the Russian central bank. It's interesting to note that, unlike several other central banks (see China, Japan, Switzerland, Columbia) there were no references made about being prepared to intervene in the currency markets were it to become necessary. We think there are two reasons for this: 1) this current move, while worth noting, is not really that large in the grand scheme of things. The USDRUB has still not yet breached the lows of 2011. 2) Natural resources, such as oil, represent a large portion of Russia's exports. Countries whose primary exports are natural resources, as compared to those who primarily export manufactured goods, receive less of a benefit from currency devaluation.

Today's Major Market Move: Cotton Futures Decline 5.3% Week to Date

Commodities made the news earlier this week when precious metals and oil experienced sizable declines earlier this week. Silver dropped 3.5% on Tuesday and WTI crude came close to dropping below $100/barrel. But it turns out that the biggest decliner so far this week is neither a precious metal nor energy related; it's cotton.

Click here to go to the live table.

After falling precipitously in mid 2011 (we discussed this in 2011 end of year post), front month cotton futures have been trading in a relatively narrow channel for the past five months. With this weeks decline, cotton is approaching the bottom edge of that channel.

Click here to go to the live chart.

According to this article from Reuters, this recent sell off was due to a combination of a lower probability of QE3 signaled by the fed with reduced cotton demand in China.

With decreased chances of continued easy money over the next two years, some investors exited so-called risky assets. "We are still suffering from the risk-off trade after the Fed said there is little likelihood of a QE3 (third round of easing)," said Ron Lawson, managing director of logicadvisors.com in California.

I'm not so sure I agree with the "Fed pulling the plug on QE3" line of reasoning. If true, one would've expected a more broad based sell off in commodities this week, which we didn't get. For the week, 14 out of the 29 commodity futures we track are up and even WTI and Brent, which saw heavy selling on Monday and Tuesday, are now back in the green.

Today's Major Market Move: Finland's Stock Market Declines 3.9% in Wednesday's Session

The last time we talked about Finnish equities was back on August 5th, 2011 after the benchmark OMX Helsinki 25 Index dropped over 20% in the previous 30 days. Finland's stock market continues to struggle and remains solidly in the red going back to 2007. Today brought more bad news as the OMX Helsinki 25 Index dropped 3.9%, making it the worst performing equity index globally.

Click here to go to the live chart.

It wasn't a good day for equities in general around the planet with 294 out of the 320 equity indexes we track either in the red or flat. The sell off was driven by pessimistic statements from the European and U.S. central banks related to growth prospects and continued stimulus. Yes that sounds contradictory but it's the game that the central bankers play in order to keep a lid on oil prices. Unambiguous talk of QE 3 or ESFS 2 cannot take place with WTI Crude still in the triple digits.

Going back to Finland, their economy continues to struggle under the dual yokes of the global economic crisis and the diminishing fortunes of Nokia. As we mentioned in the Aug 5th post, for a single company, Nokia represents a massive portion of the Finnish economy. Its been true for a while now that if you're in the mobile space and you're not Apple, Google or a pure hardware play like Samsung, you're most likely getting your head handed to you.

The IMF is calling for muted GDP growth over the next four years and equities have not been able to climb out of the red since the 2008 crash (although they came close at the end of 2010).

Click here to go to the live chart.

Today's Major Market Move: Venezuela's Stock Market Up Over 200% Since January 2011

In what has to be one of the more remarkable performances for a benchmark equity index over a 15 month span, the Venezuelan Stock Market Index is now up over 200% since the beginning of 2011. The index was at 65.79K on January 1 2011 and just recently it crossed the 200K mark. To add some perspective, we'll put the Venezuelan Stock Market index up alongside Apple's stock price.

Click here to go to the live chart.

As we've mentioned several times before, the main impetus for the gains in Venezuela's equity market is Chavez's cancer. In what we've come to call the "oncological boom", investors in Venezuela have a morbid hope that Chavez's passing will make way for a more business friendly and free market oriented regime. This expectation has resulted in equity performance completely outpacing gdp growth. Of course, the IMF is unlikely to have factored a premature death by Chavez into their estimates.

Click here to go to the live chart.

Today's Major Market Move: ChiNext Price Equity Index Declines 8% in Past Week

Chinese equity indexes in general have been showing significant weakness lately with several of them approaching 5 year lows. The most volatile of the bunch that we track and thus not surprisingly also the worst performer of the bunch is the ChiNext Price Index. The ChiNext has dropped 8% in the past week making it the third worst performer behind the usual suspects of Greece and Cyprus:

Click here to go to the live table.

Here's the chart showing the performance of seven Chinese equity indexes compared to GDP growth going back to 2007. Several of the indexes are in the red over that time period, including the ChiNext (be aware that the ChiNext Price Index wasn't established until June 2010).

Click here to go to the live chart.

The GDP growth line in the previous chart is about 6 months stale. The data comes from the IMF and is released biannually with the next release due in a couple of weeks. This means that the last couple of downward revisions to 2012 GDP growth haven't been factored in (and most likely there will be downward revisions to years beyond 2012 as well).

While we're talking about China, let's check in on the USDCNY cross. There doesn't seem to be as much chatter lately about Chinese currency manipulation, very surprising considering that the Republican primaries are still dragging on. Maybe the fact that the Chinese economy is slowing (as measured by GDP) and maybe also the fact that Chinese stocks are weakening have caused some U.S. officials to back off some. Anyway... here's that chart:

Click here to go to the live chart.

The Yuan has pretty much hovered around the 6.30 level for all of 2012. If the Chinese are planning to try to give their economy a boost through devaluation, we wouldn't be surprised if they waited until after the election in November to put that plan into action.