2016/02/16 TrendView VIDEO: Global View (early)
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TrendView VIDEO ANALYSIS & OUTLOOK: Tuesday, February 16, 2016 (early)
Global View: All Markets
While equities have recovered to some degree and the govvies backed off from their sharp bid late last week much is the same as Tuesday evening’s Commentary: Fear & Loathing in Marketland post. That obviously includes the clear opening portion “WARNING: Extreme bout of Yellen-itis possible!!” The Fed Chair maintained the Fed's ‘normalcy bias’ in her firm commitment to the next move in US interest rates still being up. And that was undoubtedly part of equities problem out of Wednesday afternoon into Thursday morning. While there are certain aspects of US data that are somewhat upbeat, the general context of global data remains very weak. Monday morning saw roundly weak data out of Japan (including GDP and Industrial Production.) Even though the headline Chinese Trade Balance was a bit better than expected, that was on the back of weak Exports and abysmal Imports.
On the whole, the recent equities rally has been more so on central banker influence into a return of the ‘bad news is good news’ psychology. This is further evidenced by weakness in the Euro-zone Trade Balance and German ZEW surveys along with ace still very weak US Empire (New York State) Manufacturing Survey this morning (still -16.46.) While there is quite a bit of other economic data this week the main focal point will likely be Wednesday afternoon’s release of the FOMC January meeting minutes. However it is of note that the OECD Economic Outlook Interim Report will be released early Thursday morning (US time.) One of the key aspects of the full report that was released in early November was its concentration on diminished international trade. Economic data released since that time has reinforced the threat from that weakening cyclical influence.
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Video Timeline: It begins with macro (i.e. fundamental influences) mention of aspects noted above, and the degree to which data remained weak on balance last week. That was especially so for Industrial Production and Trade figures, as well as the US NFIB Small Business Confidence. That is often a key forward indicator on US employment.
It moves on to S&P 500 FUTURE short-term at 04:00 and intermediate term view at 07:00 with a look at the monthly chart as well from 08:45, with OTHER EQUITIES from 11:15, GOVVIES beginning at 16:45 (with the BUND FUTURE at 20:15) and SHORT MONEY FORWARDS from 23:00. FOREIGN EXCHANGE covers the US DOLLAR INDEX at 25:15 EUROPE at 26:30 and ASIA at 29:45, followed by the CROSS RATES at 33:45 and a return to S&P 500 FUTURE short term view at 36:00. As this is an especially extensive analysis due to our desire to review the longer term indications in some markets, even more so than usual 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: Back on the evening of December 8th 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 last year which are less than constructive for the global economy and equity markets. We suggest a read if you have not done so already.
We pointed out in December that in the face of another likely Santa Claus Rally this was not an actionable view during the year-end equities rally. Yet it was (and remains) important background to utilize in 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.)
▪ Revisiting a key point related to Janet Yellen's congressional testimony, there needs to be a lot of other data which improves further to reinforce the FOMC December meeting position on accommodation withdrawal across the balance of 2016. One of the key factors the Fed obviously liked within what was a disappointing US Employment for last Friday was the best indications on Hourly Wages (+0.5%) in many many months.
However, given the still weak nature of the current sustained US recovery compared to its predecessors, US consumers have been less inclined of late to engage in their classical tendency toward conspicuous consumption. Of course, this has showed up in far weaker US Retail Sales than have been expected for many months now. As such, last Friday’s January figures coming in just a bit better after weak indications for December probably reinforced the Fed's inclination that it could tighten a bit further across 2016. Yet with energy prices remaining quite subdued, one of the other aspects that has analysts looking for the classical US consumer tendencies confused is the lack of a ‘spending dividend’ from the savings on home energy usage and automobile fuel.
All of which is going to make Wednesday afternoon’s release of the FOMC meeting minutes that much more interesting on what the Fed is expecting that will justify further removal of accommodation later this year. After typically hawkish New York Fed President William Dudley raised some concerns over the Fed's future tightening agenda two weeks ago. it will also be very interesting to see how many Governors are dissenting on the potential for another rate hike as early as the major March 15-16 meeting.
▪ While it might not make much difference to the current economic situation for the markets, there was some encouraging communication from Fed Chair Yellen's testimony over the past couple of days. Rather than her relenting on the Fed's ‘normalcy bias’, that was more so in the form of some of the politicians allowing that they are in good measure to blame for the lackluster nature of the current US economic situation.
We are repeating this from Friday's Global View post for the edification of any US readers were more focused on the holiday weekend than catching up on some important extended research. It is not surprising especially in the Senate that folks like Robert Corker, Patrick Toomey and Robert Menendez all shared their views that the Congress was responsible to create conditions of greater productivity and higher wages, and not the Fed.
It's about time. As our regular readers know, we highlighted our long-standing view of why the markets are currently in trouble in last Tuesday evening’s Commentary: Fear & Loathing in Marketland post. While many observers either did not understand it (likely mostly the case) or failed to acknowledge it, the 2016 crisis of confidence is significantly different than what transpired in 2008-2009. The situation that many could not fathom previous is finally making its way into the market perspective because the activity in everything from commodities to major equity indices has left it an unavoidable possibility:
As noted Tuesday evening: The next financial crisis will occur when the investment and portfolio management community (and ultimately investing public) realize that the central banks alone cannot restore the robust growth from prior to the 2008-2009 financial crisis.
And in our view this is why so many of the US economic observers are not understanding how the equities can be so weak and govvies so strong while the US economic data does not seem to be quite so dire. It is the same issue in reverse that impacted Europe out of the 2008 US financial crisis: there is no ‘delinking’. In globally connected economies and financial markets, the weakness of Europe and Asia will swing back to affect US.
This is why Thursday morning’s (US time) OECD Economic Outlook Interim Report will be so important. Follow up analysis of that early November full report’s concentration on diminished international trade will be very interesting. As OECD Secretary-General Gurría noted back then, world trade and only dropped to or below 2.00% growth five times in the last 50 years. Each time was accompanied by significant global economic contraction.
▪ The bottom line for the markets is that the March S&P 500 future weakness Wednesday afternoon in the wake of Janet Yellen's testimony leaving it failing again below the low end of the 1,865-60 major weekly chart channel DOWN Break put it back into trouble. However, the prospect of agreement between the Crude Oil producers along with the recovery of the European financial stocks has put it back above that area. That said, cleanouts back above key resistance have been a real earmark of previous bear markets, and even this one on the October-December squeeze back above 2,020-10 area.
And now the question becomes whether history repeats itself in the form of the current squeeze back above the key resistance season fail once again back below the 1,865-60 major weekly chart channel DOWN Break. If so, the major targets may be quite a bit lower than where we are now. See Tuesday evening’s Commentary: Fear & Loathing in Marketland post for more on that. However, even with interim supports at 1,831, 1,813 and 1,804, next significant supports below 1,865-60 are not until Fibonacci retracements and congestion areas in the 1,777 area, 1,750 area and all the way down to the 1,732-26 range.
▪ So much else on our downbeat expectations for the global economy and equities, and commensurate resilience of the govvies remains the same as the previous analyses since early 2015. We refer you back to those observations, which remain considerably the same as previous. If you want to review the extended ‘macro’ perspectives prior to the posts noted above (i.e. observations and analysis that became more telling into last summer), there are links to those via the right-hand side bar in our Equities Summer-Fall 2015 Prismatic Evolved Trend View. That page also reviews our S&P 500 analysis through September into the later part of October with links to additional perspective.
The TrendView VIDEO ANALYSIS & OUTLOOK is accessible below.
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