A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
Global markets are showing increasing signs of risk aversion and investors need to pay close attention to assess whether it's a geopolitics-related correction or something more dangerous.
Technical analyst J.C. Parets of All-Star Charts notes that the relative performance of small and large cap stocks clearly displays investor skittishness. After a protracted rally, the Russell 2000 U.S. small cap index is showing distinct weakness relative to the Dow Jones Industrial Average.
Bond investors are also getting nervous. The iShares iBoxx High Yield Corporate Bond ETF is continuing a slide that began in late June as investors shift from high yield corporates back to U.S. Treasuries. Bloomberg reports that a growing number of hedge funds are now looking for short opportunities in the corporate bond market.
"Small caps act poorly on a relative basis" – All-Start Charts
"Ex-Jefferies bond trader anticipates junk swoon" – Bloomberg
"Checking out the junk in the trunk" – Chessnwine
Reuters reports that Credit Suisse is the latest global investment bank looking to get out of the commodities trading business. This has been a trend of late – JPMorgan agreed to sell its commodity operations in March to Switzerland-based Mercuria Energy Group Ltd for $3.5-billion. Morgan Stanley and Deutsche Bank are also leaving the playing field.
"Credit Suisse looks to wind down commodities trading" – Reuters
"JPMorgan to Sell Commodities Business for $3.5-billion" – Wall Street Journal
The Financial Times attempted to put China's growing indebtedness into context in a report by Jamil Aberlini. The story notes that the speed at which debt is growing is the main issue: "Such a rapid build-up is far more of a concern than the absolute level of debt, since increases of that magnitude in such a short period have almost always been followed by financial turmoil in other economies."
"China debt tops 250 per cent of national income" – Financial Times
In other China news, an expanding (and disgusting) food quality crisis is reviving memories of the Chicago meatpacking scandal of 1906. The news is decidedly negative for shareholders in global fast food companies which have benefitted from expanding China revenue.
"China food scandal spreads, drags in Starbucks, Burger King and McNuggets" – Reuters
Diversion: Behavioural economics guru Dan Ariely reports on experiments that appear to show declining ethical standards in socialist countries. George Mason University Economics professor Tyler Cowen, however, takes issue with the methodology.
"Moral Effects of Socialism" – Marginal Revolution
Follow Scott Barlow on Twitter @SBarlow_ROB