Today's Major Market Move: Venezuelan Stock Market is the Best Performer since January 2011

When we rolled over into the new year, we reported on the best performing stock market in 2011 which turned out to be Venezuela. A little over a month later, the Venezuelan market continues to move higher with an 8% gain and remains by a wide margin the top performing equity market globally since January 2011. Here's the top 10:

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We've been referring to this impressive performance by Venezuelan stocks as the "oncological boom". The market is rallying on the expectation that regime change initiated by Chavez's premature death from cancer will result in pro-business reforms. At the end of 2011 Chavez tried to give the impression that his health was improving and he was on his way towards a full recovery. This more recent report from CNN indicates otherwise:

Cancer has spread in Hugo Chavez's colon, spine and bones, and the Venezuelan president could have only nine months to live, Spain's ABC newspaper reported Monday, citing medical records provided by unidentified intelligence sources. 

"His health appears to be deteriorating at a more rapid pace. Clearly there has been metastasis in the bones and the spine," the ABC report says, citing what it said were doctors' observations after medical tests December 30.

Since mid 2011 Venezuela's equity market began outpacing GDP growth and is now well out in front. These are lofty expectations for a new regime that may or may not be taking power in the near future and the form of which won't be known until it actually does come to power.

Click here to go to the live chart.

Today's Major Market Move: Cypriot Equity Market Drops 7.2% During Friday's Session

As the discussions get closer and closer to the Sunday deadline, equity investors in Greece and Cyprus are exhibiting more nervousness. In Friday's trading session they were the #1 and #2 worst performing equity markets with 7.2% and 5.9% declines respectively. They were well ahead of the third worst performer, the Philippines, which came in at down 1.3%. Here's the list of the bottom 10 performing benchmark equity indexes from Friday:

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The equity markets from both countries had a nice little rebound into the new year as there was the expectation that both sides would be motivated to get a deal done quickly. However both markets are now moving in a downward direction indicating that some investors are bracing for the eventuality that the deadline will be missed. We commonly discuss both countries in tandem since their economies are very closely intertwined and this is particularly evident when comparing the performance of the two benchmark equity indexes (FTSE/ASE 20 Index for Greece and General Market Index CSE for Cyprus).

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Every status update seems to have the a similar message, something akin to "Good progress has been made but many tough decisions remain.". We present the latest status update courtesy of Reuters as a case in point:

Greece is still struggling to overcome "crucial" issues before it can secure a 130-billion-euro ($171 billion)bailout package needed to avert a messy bankruptcy, the country's finance minister said. After marathon negotiations on Friday to agree tough labor reforms that would appease both wary political leaders and irate lenders faced with a rising bill to save the country from bankruptcy, Athens said more work was needed to seal a deal. "After 12 hours of tough negotiations, we have solved many issues but other crucial issues are still open," Finance Minister Evangelos Venizelos told reporters.

Today's Major Market Move: Indian Rupee Strengthens 7.5% Against the US Dollar in 2012

The top three best performing currencies against the Dollar this year are the Hungarian Forint, the Mexican Peso and the Indian Rupee. We've already discussed the Forint as well as the Peso, so now its the Rupee's turn. The Rupee has had a remarkable run in 2012, especially when one considers how it finished in 2011.

Click here to go to the live chart.

The last time we discussed the Rupee was back on December 20, 2011 and in the post we talked about the National Export Initiative program in the U.S. which contained the stated objective of doubling U.S. imports during the period of 2010 to 2014. The most expeditious way to achieve that goal is to devalue one's currency, which appears to be the route that the U.S. is choosing. Two thirds of all global currencies have strengthened against the Dollar so far this year.

As for the effect that the strengthening currency has had on India's equities, it has been positive since India had been dealing with somewhat of an inflation problem during the latter half of 2011. The inverse correlation between the USDINR and the benchmark BSE Sensex 30 Index has been particularly tight in 2012.

Click here to go to the live chart.

Today's Major Market Move: RadioShack Corp (ticker: RSH) Down 26% for the Year

Overall, the S&P 500 is having a very good year with a 4.36% gain in January. According to this article on Seeking Alpha, this makes Jaunary 2012 the eleventh best performing first month of the year since 1957 (when the S&P took on its current form). With that being said, in this post we are going to discuss one of the stocks that has bucked that trend, RadioShack (ticker: RSH). About 1/3 of S&P stocks are in the red so far this year and RSH has the dubious honor of having had the biggest decline at -26%. Here's the top 10:

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The bulk of this year's decline is due to an earnings preview that was released on Tuesday where RSH warned that calendar 2011 Q4 earnings were going to come in lower than expected. Electronics retailers have bet big on wireless hardware and services but the trend is now for consumers to deal directly with service providers like Verizon and AT&T. Outside of just wireless, electronics retailers are suffering from "showroom syndrome" where consumers research their products at brick and mortar locations but end up making the actual purchase online.

Here's a chart comparison of actual earnings, estimated earnings and share price:

Click here to go to the live chart.

RSH missed earnings badly in (calendar) quarters 2011 Q2 and Q3 which understandably caused the stock price to drop. The stock decline has continued after the negative preview on Tuesday. It is a particularly bad omen for a retailer to have calendar Q4 earnings to be projected lower than Q3 earnings.

Today's Major Market Move: Natural Gas Futures Drop 10.3% in Tuesday's Session

We last talked about Natural Gas a little over a week ago when there was a 13% jump in one day. That move was precipitated by an announcement from Chesapeak (ticker: CHK) that they were cutting production in response to depressed prices. After dropping 5.7% yesterday and over 10% today, the price is getting very close to where it was at the time of the announcement.

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In that previous blog post we made the following comment:

The market surges 13% because CHK announces cuts and who benefits the most? CHK's competitors, that's who (e.g. EQT and RRC). Will EQT, RRC and the others follow suit? I think at the very least they will wait for if/when the current run fizzles out and the price starts tanking again.

The price has started tanking again so we're about to see if EQT, RRC and the other Natgas competitors are going to follow in CHK's path. The Wall Street Journal had an analyst quote regarding the issue of additional cuts:

"We did get a couple producer-shutdown announcements, but we haven't seen any further ones," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn. "We need to see additional producers shut [down], and signs that drilling activity's going to be cut back."

"Until we see either that or really cold weather," Mr. McGillian added, "the market's going to [be] mired in the low-price environment we're in."

With Chicago in the 50s yesterday, NYC hitting 59 less than a week ago and spring continuing to creep closer, the hope for colder weather to drive up prices must be fading fast.

Today's Major Market Move: Japanese 5 Year CDS Climb Over 40% Since Oct, 2011

We started tracking sovereign credit default swaps back at the end of October of last year. The worst performer (higher prices = higher default risk) since then has been Portugal, who many expect to be the next target after Greece finally figures out how much flesh to extract from its bond holders. A hair's width behind Portugal sits Japan.

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The situation in Japan is quite precarious. They've been experiencing various degrees of deflation for over the past 20 years, their stock market sits at 25% of its all time high, and the USDJPY cross is again approaching the record level of 75.31. Here's the chart of the currency:

Click here to go to the live chart.

There were two major events recently that could lead to things getting substantially worse in Japan:

1. Japan reported its first trade deficit since 1981. This occurrence is in no small part due to the aforementioned strengthening currency. Here's more from CNN:
   

   For the first time in 31 years, Japan has recorded a trade deficit. In simple terms, that means Japan imported more than it exported last year. Now this is not that unusual for some rich countries: the U.S. has had a trade deficit since 1975, and yet we've grown. But the U.S. economy is not built on exports. Japan's economic rise on the other hand, has been almost entirely powered by exports.

2. Japan's largest pension fund, which is one the largest holders of Japanese government bonds, recently became a net seller of JGBs. More from the Telegraph:
   

   The median age is already the world's highest at 44.5 years and is rising relentlessly, with growing numbers of elderly people drawing down life savings. The household savings rate has dropped to 2pc from 16pc at the end of Nikkei boom 20 years ago. The country's largest pension fund has become a net seller of Japanese bonds to meet payout demands.

With Japan's Debt-to-GDP sitting at over 200%, Japanese officials don't need anything putting upward pressure on interest rates, such as oh... let's see... the selling of bonds. What's interesting and quite the conundrum is that even with CDS prices rising, interest rates are flat to slightly down. Here's the chart of the sovereign 5 year bond rate courtesy of Bloomberg:

Today's Major Market Move: Hungarian Forint Strengthens 9% Against the Dollar in 2012

When we last discussed Hungary's economy on Jan 19, 2012, it had just been announced that Hungary had agreed to the demands that the EU and IMF had been making regarding central bank independence and taxation (click here to see a list of posts for a more detailed history). At that time, Hungarian equities were up close to 12% for the year and the Forint had strengthened over 3% against the US Dollar. Fast forward almost two weeks to today. The positive trend has strengthened with the Hungarian stock market now up over 23% and the Forint up over 9% vs the Dollar, making it the best performing currency so far this year.

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The USDHUF cross has been on a wild ride since the beginning of 2011 with a 45% change from the lowest point to the highest point. Planning any kind of budget or coming up with a revenue forecast in Hungary must be quite the challenge.

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The primary motivation for the perceived continued improvement, as far as we can tell, is an expected positive response to the request for IMF funds. We're also seeing this same IMF plot line with Egypt. The IMF is a very popular organization these days so hopefully they get the extra money they've been asking for. From the Financial Times:

The International Monetary Fund has asked its member countries for an extra $500bn in firepower to combat the world’s spreading fiscal emergencies, which it estimates will generate demand for bail-out loans totalling $1tn over the next two years.