2015/12/09 TrendView VIDEO: Concise Highlights (early)
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TrendView VIDEO ANALYSIS & OUTLOOK: Wednesday, December 9, 2015 (early)
Concise Highlights
Our Friday pre-US Employment Early Alert began with the headline “Draghi Disappointment & General Rout.” However, shortly after that on Friday morning Mario Draghi ‘embellished’ his contained comments on maintaining the same level of monthly securities purchases under ECB’s Quantitative Easing program. He returned to oft stated market and economy support that the ECB was prepared to do whatever is necessary to restore Euro-zone growth and inflation over the intermediate term. While that restored confidence in the near term, the weakness of the energy and commodity markets this week are weighing on the equities once again and boosting the govvies. And the response in the foreign exchange is differentiated by whether a particular economy is a commodity producer or consumer. Ergo the weakness in the Australian dollar while the euro has bounced back again.
Yet there is a sense that equities will likely be alright once the spillover from the energy and commodity markets abates. After all, lower priced energy in particular is good for developed economies. The problem now is the major components of the equity indices comprised of energy and commodity producing companies. Once the energy markets complete their current fall to new lows for the current down trend, the equities are likely to rebound (more on that below.) And there is also that consistent friendly seasonal factor…
The Santa Claus (more like ‘Santa Portfolio Manager’) rally influence. Even the sharp drop into the horrific Paris terror attacks, saw an immediate rebound. And it is important to note this still means a tendency toward willing buyers on selloffs. For more on ‘Santa Portfolio Manager’ that we remind folks is actually the case every year (at least in the firm-strong ones) see last November’s post on that.
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Video Timeline: It begins with macro (i.e. fundamental influences) mention of the return to weaker data in the US last week prior to Friday’s firm US Employment report. Weakness of Chinese data continues this week in depressed trade volumes accompanied by the same in Germany along with weak German Industrial Production. US NFIB Small Business Confidence was also weak into US Wholesale Sales today and Retail Sales on Friday.
It moves on to S&P 500 FUTURE short-term view at 04:00 and no intermediate term view that is the same as Monday, with only mention of OTHER EQUITIES from 06:00 and GOVVIES from 07:15 including video of the BUND at 08:30, and only mention of SHORT MONEY FORWARDS from 11:45. Foreign exchange is also only mentioned, with US DOLLAR INDEX at 12:15, Europe at 12:45, ASIA at 14:00 and CROSS RATES that are mostly steady yet with a weak Australian dollar and strong euro at 15:45 prior to returning to the S&P 500 FUTURE short term view at 17:00.
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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.
NOTE: Tuesday evening we posted our major Extended Perspective Commentary. That reviews a broad array of factors to consider Will 2016 be 2007 Redux? For many who believe that the US economy is really strengthening and can once again lead the rest of the world to more extensive recoveries, this may seem a bit odd.
Yet there are combined factors from many areas we have been focused on since the early part of this year which are less than constructive for the global economy and equity markets. We suggest a read if you have not done so already.
This is not an actionable view during the buoyant year-end equities, yet it is important background to utilize into 2016. This is much like our major late 2006 perspective on Smooth Rebalancing? …or… The Crash of ‘07? (even though the actual crash was deferred into 2008.)
▪ So while our longer term equities skepticism abides, we have learned over many years (even when we were very bearish into the end of 2007) that into and after Thanksgiving is NOT the time to press the bearish case. More likely we are now in a wide swinging affair with potential to revisit more major lower supports and hold; even if the major higher resistances are not going to be violated (or only modestly exceeded in December) in a weaker US economy with a now more hawkish Fed.
▪ And with the second round of strongish (not really spectacular) US Employment figures last Friday, the chances are now almost overwhelming the Fed will raise rates in their December 16th statement. However, even if they do, how will that be reinforced by the attendant revised projections and Janet Yellen’s press conference? While no central bank is likely to ever say it in so many words, there is a chance this may be a “one and done.”
As we explore in the major Extended Perspective Commentary noted above, the Fed is stuck with a ‘Normalcy Bias’ that is pushing it to represent that things are back to ‘normal’. However, within what most agree is a ‘new normal’, there are factors that are very different from anything seen in previous recoveries. That is all reviewed in Tuesday evening’s extended Commentary. The bottom line is that even if there is going to be more than one FOMC rate increase, it will remain highly data dependent; including the influences from quite a bit weaker overseas economies and markets.
It may in any case be a very short and shallow base rate increase cycle, and we still suggest watching longer dated government bonds for a sign of whether they believe the hike will weigh on the US economy rather than encourage it. Sustained strength in the long ends right after next Wednesday’s hike might even imply the bonds think the hike might be a ‘policy error’.
▪ In terms of overall economic and market expectations, a good deal of our economic and equities skepticism is still based on the early November OECD (Organization for Economic Cooperation and Development) Economic Outlook and Interim Economic Outlook. And we revisit how downbeat that was in Tuesday evening’s Commentary. It was also reinforced by the weakness of the outlook in the most recent monthly Composite Leading Indicators (CLI) released Tuesday morning. If you have not done so already, Tuesday morning’s brief Commentary on that is also worth a look.
Especially of note is the slideshow (enlarge to full screen) and the video of the Economic Outlook presentation. Of particular interest in the press conference video discussion by Secretary General Angel Gurria and others is the focus on the extreme weakness of global trade (we have noted previous), and the fact that structural reform we have been so focused on all year is the only policy lever left after monetary and fiscal tools have been mostly exhausted. Those two factors play heavily into our extended view in Tuesday evening’s major Commentary.
▪ The more skeptical view of accelerated ECB Quantitative Easing (QE) was revisited by ECB Governing Council member Sabine Lautenschläger in an important speech two weeks ago Monday afternoon in Munich. She expressed her doubts that more QE would make much difference without complementary structural reforms. Of course this is a view we have been expressing since the top of the year (It’s Lack of Reform, Stupid Parts I & II, January 19th and 24th.) It is also a view shared by Mario Draghi.
The difference is whether Ms. Lautenschläger and her German counterparts were ready to hold further QE hostage to incremental reforms, or is this just so much more central banker discussion? It is possible that the less than unanimous ECB Governing Council vote on the more modest QE program extensions announced last Thursday were due to Teutonic skepticism. While Mario Draghi can say whatever he sees fit in between meetings, the acquiescence (at a minimum) of the more frugal members of the Governing Council is still required for any ECB action.
▪ While there is much to discuss on the macro background factors, that was all covered in Tuesday evening’s major Extended Perspective Commentary. It went beyond the OECD assertions to other important anecdotal and statistical perspectives.
▪ A couple of final words on the current background for a couple of the most highly volatile markets right now.
While it was quite a strong finish back above 2,080-75 on Monday, the December S&P 500 future falling not just below it Tuesday morning but also cracking next support in the 2,060-58 area as well is a negative sign. Yet this all seems part of the Agony & Ecstasy whipsaws as we get into the holiday period.
Santa Claus may still show up to bolster the equities, but for now the markets have had only a lump of coal in their stocking… literally. The weakness of commodities highlighted by Crude Oil weakness is hurting some significant sectors of the major equities indices. Obviously mining and oil production are big industries, and the equities needs to take their additional pain seriously.
However, as we have seen on quite a few occasions, cheaper commodities are NOT a long term drag on the global economies or equities markets. The problem right now is that NYMEX Crude Oil futures that have traded below August’s 37.75 lead contract low (October at the time) can continue lower for a while. That is a new seven-year low, and next lower historic congestion is not until the 35.00 and 32.00 areas. This would seem to call for a very agile and selective view of the equities as well until Crude Oil has bottomed.
This morning’s December S&P 500 future weakness seems to indicate a potential for sustained violation of the 2,060-58 area. If so, the classical interim support at 2,040-35 and far more major 2,020-10 area remain the key lower technical levels.
▪ The one additional note which is necessary due to a key pending change is in the German Bund. The typical early expiration of the lead contract December on Tuesday left the significant premium in the March contract on the weekly continuation chart data right back up into key mid-158.00 resistance this morning (as March is now lead contract.) While the Bund took the worst drubbing on Thursday’s Draghi Disappointment, the December contract it managed to hold the 155.50-.20 support, Closing the week not too far below the 156.00 area critical weekly channel support.
Already well back above that Monday, the 1.50 premium in the March Bund future likely anticipates weak economic activity and depressed yields into early 2016. And that is a real boon to the Bund bulls, as Tuesday’s expiration left the March Bund future well back above any of the current lower critical supports; effectively Negating last week’s limited 156.00 DOWN Break out of that weekly channel. In fact, the March Bund future is not only back above key 156.50-.20 congestion, but also above interim 157.50 congestion as well back into the 158.50 area tested by the December contract prior to last Thursday’s failure. Next resistances are the low-mid 159.00 area, 160.00 and the 160.69 all-time futures high from back in April. Of note, those are all previous congestion levels in the premium priced March contract (as its October high of the rally was 160.62.)
▪ All the rest remains the same as the Extended Trend Assessment in Tuesday’s early Commentary: OECD Composite Leading Indicators market observations.
The TrendView VIDEO ANALYSIS & OUTLOOK is accessible below.
The post 2015/12/09 TrendView VIDEO: Concise Highlights (early) appeared first on ROHR INTERNATIONAL'S BLOG ...EVOLVED CAPITAL MARKETS INSIGHTS.
