Enis’s Macro Wrap – Stocks Catching Down

by Enis July 12, 2012 6:53 am • Commentary

Overnight price action was interesting to me because it was actually led by Asia, which is quite rare.  The Hang Seng ended down 2%, Australian jobs numbers were weak, and the South Korean central bank cut rates based on weaker than expected growth.  By the time Europe opened, SPX futures were already down more than 10 handles, commodities were lower and the dollar was higher vs. most crosses.  Europe’s open was actually a cause for a slight rally, until the Italian auction caused peripheral sovereign yields to spike back up.  Since then, the selloff has accelerated and it feels like there is the potential for a pretty big down day today.


I watched an old Seinfeld stand-up routine yesterday, stellar as usual.  In it, he mentions how kids are always talking in terms of Up (“Wait Up” “Stay Up” “Shut Up”) and parents are always talking in terms of Down (“Calm Down” “Slow Down”).  So I changed my title today from Stocks Catching Up to Stocks Catching Down.  Because stocks are acting like candy-hungry kids that need some parental guidance.


The U.S. dollar and Treasury Bonds are near 2 year highs, and many cyclical commodity prices are near 2 year lows.  As Bespoke outlined yesterday, of the first 16 companies to report in earnings season, 1 has beat, and 12 have missed.  The European stresses are evident as usual, with no planned summit in the immediate future.  And more importantly, the market is starting to ignore efforts by central banks to talk up markets.


Earnings season was the last hope for the bulls.  The macro picture is obviously weak, so add a poor micro picture, and the last crutch is potential policy action.  But in the past 3 weeks, we’ve had easing from the Federal Reserve (if you count Operation Twist, which remember, Bernanke called a “substantial step”), the ECB, the Chinese central bank, the Brazilian central bank, and the South Korean central bank today.  But markets are not reacting.  That last crutch does not feel strong to me.  Another 10% lower in stocks, and the crutch will probably have more significance.


Many signs indicating that stocks are set to “Catch Down”.