2015/11/20 TrendView VIDEO: Concise Highlights (early)
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TrendView VIDEO ANALYSIS & OUTLOOK: Friday, November 20, 2015 (early)
Concise Highlights
The FOMC October meeting minutes yielded the sentiment we (and many others) expected. There was the expression the US economy is strengthening enough to warrant a December meeting hike. Yet it was most interesting that there was also almost as much rate hike dissent in the form of reliance on “continued improvement in conditions” at the October meeting as we saw in September. This was reinforced by Cleveland Fed President Mester’s appearance on CNBC Thursday morning. When asked whether she was ‘dove’ or ‘hawk’, she responded that she was an ‘owl’. In other words, there are likely others like her on the FOMC who remain more ‘data dependent’ than the hawks would like to believe.
And as we have noted for some time in the wake of the much weaker economic data since the last, quite strong US Employment report, there is good reason to question if December will indeed be the right window for the Fed to put through that first rate hike in nine years. Noted repeatedly of late is last Monday morning’s OECD Semi-annual Outlook. The bottom line is that much of the world including the US is less constructive than recent Fed views, still led by China and emerging economies. Yet that includes the prescient indication Japan was weakening again, and the UK remaining weak as well. The idea Europe is strengthening is only in the context of how weak it was. And the recent data and expressions of concern belie any expectations of real strength.
And the real influence back into the markets was going to be whether they believe the US economy is indeed still getting stronger in the wake of economic data that has softened again since the Employment report into weaker than expected US Retail Sales last Friday. On current form, the strength of equities doesn’t feel like it is driven by strong data, and the other asset classes are conforming to that weaker view (more below.)
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Video Timeline: It begins with macro (i.e. fundamental influences) mention of the factors noted above, with recent signs Q4 will not be the anticipated recovery. In addition to other factors, Monday’s GDP showed Japan back in recession, this morning’s Chinese Leading Indicators and Canadian Retail Sales (mimicking the US) were also still quite weak.
It moves on to S&P 500 FUTURE short-term view at 03:00 and intermediate term at 05:45 with OTHER EQUITIES from 08:00 and only mention of GOVVIES from 09:15 including discussion of the BUND at 11:00, and SHORT MONEY FORWARDS from 11:45. Foreign exchange is also only mentioned, with US DOLLAR INDEX at 12:30, Europe at 13:30, ASIA at 14:45 and CROSS RATES that are mostly steady yet with a weak euro at 16:15 prior to returning to the S&P 500 FUTURE short term view at 16:45.
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Authorized Gold and Platinum Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion and TrendView Video Analysis and General Update. Silver and Sterling Subscribers click ‘Read more…’ (below) to access the balance of the opening discussion.
▪ What is striking about the Fed’s desire to finally put through that long-delayed rate rise in December is how the hawks are willing to continue to assert key aspects of the economy are strengthening when the data does not indicate it. Richmond Fed President Lacker was on CNBC Squawk Box this morning talking about how the US consumer activity is strengthening. That is in spite of the weaker than expected US Retail Sales last Friday.
And last month’s figures were the first ‘good’ figures in a while, which were revised lower on Friday. There was also Tuesday’s weaker than expected Real Earnings, and Wednesday morning’s significant US Housing Starts miss. So where the Fed hawks are getting this sense that the economy is actually strengthening at present is a mystery.
Of note, the bid over the past couple of sessions is occurring in spite of further hawkish pronouncements both yesterday and again today from various prominent Fed minions. Yet some still note that this is going to be possible as the economic data continues to improve. However, a good bit of the data is in fact deteriorating in spite of their characterization of it in quasi-delusory references to how strong it is.
The combined activity of equities and other asset classes (govvies up and the US dollar weakening) does not reinforce the idea the FOMC will indeed hike in December. This does not feel like the equities are up on Fed ‘confidence’, which will override any rate increase. It appears to be more of an assumption by equities that the ‘bad news is good news’ psychology remains in place in spite of the Fed minions’ contrary protestations.
▪ While there is much to discuss on the macro background factors, we are developing a more major Extended Perspective macro background view that will be posted soon. That will go beyond the OECD assertions to other important anecdotal and statistical perspectives. In the meantime we are going to provide a brief, purely technical discussion this morning.
▪ In the event the December S&P 500 future held the more major lower support in the 2,020-10 area that was hit by Friday’s Close and temporarily violated in electronic trading overnight into Monday morning. And the market’s ability to push back up so strongly was not that much of a surprise, with the previously more prominent 2,035-40 major weekly chart (March & July) congestion looking more like an ‘over-under’ area (i.e. not able to stop the renewed rally.)
This fit right in with Monday’s Brief Current Commentary view that in the intermediate term human occasional tragedies do not tend to be economic or equity market tragedies as well. There is an assumption that the rebuilding process will require expenditures that will support the economy.
The December S&P 500 future ability to overrun the 2,058-60 area Tolerance at 2,063 in the wake of the FOMC minutes release was a trigger for the quick move to the higher resistance back into the 2,075-80 area. In spite of the stagnancy of the trend on Thursday topping out at no better than 2,083 area, the lack of any selloff back below 2,080-75 kept the upside momentum intact. Gapping higher to the 2,087-88 area this morning (i.e. above Thursday’s 2,083) reinforces our expectation that the next resistance above 2,075-80 is not until the 2,100 area, with 2,120 above that.
▪ The govvies all broke DOWN below interesting supports in the wake of the last US Employment report. Those include the December T-note future 127-00/126-24, with next interim support at 126-00 and especially telling major support into the 125-16 area. Yet holding into that area also saw it back up to retest 127-00/126-24 into the FOMC minutes release. That it is keeping the bid up into that range after the minutes release (it improved almost immediately from down around 126-16 after the minutes were released) is a further sign the data is causing the markets to doubt the likelihood of an FOMC hike in December.
The December Gilt future failing below 117.50-.15 dropped quickly to the next lower support in the 116.50-.00 area from which it is also recovering. And even though it stalled back into 117.50 early this week, it has returned to test the low 118.00 area next recent and historic congestion, with not much until the low-mid 119.00 area above that.
As important, the recently more mighty once again December Bund future failed all key areas from 157.50 to 156.50-.20 and even 155.50-.20. Yet without even needing to test lower support down into the 154.65-.30 area key Fibonacci level and congestion it held the 155.00 area significant weekly up channel (from the major lead contract 148.23 early June low set by the September contract shortly after becoming front month.) Now back above 155.20-.50 and even the 156.20-.50 area (also recent daily channel DOWN Break) it also pushed above 157.50 interim resistance. That opens the door to a retest of more major resistance at the recently tested 158.50.
▪ The foreign exchange is also fraught right now, with the US Dollar Index above .9775 finally able to exceed the key .9850 Tolerance of that resistance. That leaves historic resistance into the 1.0039 April high of the current overall up trend, yet with weekly oscillator resistance above that as nearby as 1.0150 area above that. Yet it has weakened since the FOMNC minutes release; not a sign of confidence in a December FOMC hike.
Yet its overall weakness fits right in with weak sister euro seeing EUR/USD on a weekly channel DOWN Break down below 1.1000 also failing 1.0850-00 historic and recent congestion, with 1.0500 area next major support below.
While that also applied to the somewhat more aggressive GBP/USD selloff two weeks ago (impacted by both the BoE Thursday and US Employment Friday) triggering a similarly important weekly channel 1.5265 DOWN Break, it has been more resilient since that time. Rather than drop too much further right away, it was only quietly trading below 1.5150-00 support, with next support as nearby as 1.5000 and 1.4850-00. Back above 1.5150-00 in spite of Fed minions somewhat hawkish comments looks good, yet still leaves 1.5265 DOWN Break as the key higher resistance.
▪ All the rest remains the same as previous and as discussed in Thursday morning’s Global View TrendView video analysis and the timely Thursday morning atypically early update of the Market Observations below the Global View TrendView video (available to all Gold and Platinum subscribers.)
The TrendView VIDEO ANALYSIS & OUTLOOK is accessible below.
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