Afternoon T: Strong Start to the Quarter
A little pre-open jitters, a bit shaky on the open and then into the Construction Spending and ISM data, and then off to the races.
Nearly everything is up or better today, in fact you know it is a strong day when market even natural gas can manage a gain. So the rally today is across all asset classes. It is hard to point to anything that made investors particularly excited. The ISM release seems to have started the rally, but it wasn’t that great of a report, this just feels like it was pre-ordained to be strong today. Not surprising as the first day of the quarter has been strong for awhile.
The economic data in China was actually weak. The HSBC number, which I find more believable was low, but even the official data, which surprised to the upside, was low by March standards. The official data always has a spike in March, but this number was the weakest March PMI since at least 2005, except for March 2009. We get some more Chinese data overnight, so we will continue to watch, but the idea that a soft landing has been achieved seems very premature.
The data in Europe was weak, there are no new signs of easing, and if anything, it looks like the effects of LTRO are wearing off in the bond market at least. Car sales in Italy were down a shocking 27%. This is probably not all due to demand drop, but was likely influenced by credit tightening. Credit conditions are getting worse, not better in Europe. Spain broke the 50% youth unemployment rate, so more “youths” are unemployed and in theory looking for work, than are employed? Scary. Stocks were strong, particularly as the session grew to a close, but whether that was on some real hope, or just prepping for the “inevitable” afternoon strength here is anybody’s guess. We get a lot of data out of Europe tomorrow, with Retail Sales and PMI manufacturing being the big numbers. I think expectations are reasonably low, but the data will be bad enough that today’s closing strength won’t be upheld tomorrow.
The credit markets are strong, cash bonds are decently bid, credit ETF’s are up on the day, and the CDS indices are showing some strength. Credit doesn’t have the almost euphoric feeling that equities seem to have, but there is certainly no selling pressure today. Even treasuries are managing to hold on to gains today, which is a bit surprising given the strength in equities and no new QE promises today.
Volumes in equities are higher, but only marginally. RSI is looking like S&P is overbought, which has been a decent sign that the rally will need to consolidate a bit before another big leg up is really possible.