2015/12/10 TrendView VIDEO: Global View (early)
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TrendView VIDEO ANALYSIS & OUTLOOK: Thursday, December 10, 2015 (early)
Global View: All Markets
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, and depressed global trade volumes showed up again this morning in the UK. Weak German Industrial Production and trade have also seen weak US Wholesale Sales Wednesday as we head into US Retail Sales on Friday.
It moves on to S&P 500 FUTURE short-term at 03:15 and intermediate term view at 05:45, OTHER EQUITIES from 08:30, GOVVIES beginning at 12:00 (with the BUND FUTURE at 14:30) and SHORT MONEY FORWARDS from 17:00. FOREIGN EXCHANGE covers the US DOLLAR INDEX at 21:30, EUROPE at 24:00 and ASIA at 26:45, followed by the CROSS RATES at 29:00 and a return to S&P 500 FUTURE short term view at 32:30. We suggest using the timeline cursor to access analysis most relevant for you.
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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 Tuesday evening’s 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.
The TrendView VIDEO ANALYSIS & OUTLOOK is accessible below, along with the updated Market Observations as of this morning.
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