2015/10/23 TrendView VIDEO: Global View (early)
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TrendView VIDEO ANALYSIS & OUTLOOK: Friday, October 23, 2015 (early)
Global View: All Markets
Draghi’s Disinflation Dirigisme = Equities Elation.
The extreme concern (certainly somewhat warranted) of the ECB over potential negative inflation ended up in a tour de force of the power of the state (in this case its central bank) to influence market psychology. While the classical definition of dirigisme might be to be more hands on involved in some actual investment decisions, the power of the ECB, Fed, BoJ, and others to spur equity market activity is most impressive. While the Fed’s longstanding ZIRP (Zero Interest Rate Policy) was the forerunner of the market influence the others now wield so effectively, there is little doubt continued global downward pressure on interest rates is encouraging further flows into ‘risk assets’… like stock markets. And all of what Mario Draghi accomplished on Thursday regarding the ‘risk on’ psychology was accelerated by this morning’s PBoC rate cut.
Of course, the perverse aspect of all this is that the central bank stimulus programs are not actually encouraging a return to the more robust economic growth they all would really like to see. As we have explored at length the failure of the political class to deliver meaningful structural reforms (especially in the US), we will demure here. Suffice to say that of late we have also highlighted once again the significant weakness in global trade. Volumes are down markedly in a sign of the underlying softness of the global economy. Danish global containerized shipping giant Mærsk sharply cut its profit projections due to that slow down. And the primary culprit? Weakness on the Asia-Europe routes. And this is just as Europe is supposed to be the engine that assists the other economies out of their weakness, at least according to the latest OECD Composite Leading Indicators.
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Video Timeline: It begins with macro (i.e. fundamental influences) mention of the central bank factors noted above. However, the addition of OECD Composite Leading Indicators (discussed at length in previous posts) reinforces all the economic weakness. While there is also the weak influence of global Trade figures, of late some of the data is improving a bit. That includes this morning’s global Advance PMI’s in the wake of the ECB yesterday.
It moves on to S&P 500 FUTURE short-term indications at 03:00 and intermediate term view at 05:15, OTHER EQUITIES from 08:00, GOVVIES analysis beginning at 11:45 (with the DECEMBER BUND FUTURE at 13:45) and SHORT MONEY FORWARDS at 16:00. FOREIGN EXCHANGE covers the US DOLLAR INDEX at 18:15, EUROPE at 19:45 and ASIA at 22:15, followed by the CROSS RATES at 25:00 and a return to S&P 500 FUTURE short term view at 28:15. We suggest using the timeline cursor to access the 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.
▪ As noted since Wednesday morning’s Global View video analysis post, the continued strong equities responses to recent weak economic data confirmed an erratic yet understandable ‘bad news is good news’ rally. The response to Wednesday morning’s weak Asian economic data (including Japan’s Trade figures showing export implosion) was for the equities to rally.
And we noted at that time this was likely on a transition from ‘FOMC Friendly’ influence into an ‘ECB Friendly’ influence on the way into Thursday morning’s rate decision and press conference. And as it turned out, that was a bit of an understatement into Mario Draghi’s tour de force review of all the ways the continued central bank accommodation was both necessary and would be implemented on multiple fronts.
For much more on the full context of the meeting and what both Mario Draghi and ECB Vice President Vítor Constâncio had to say on not just “whatever is necessary” but also why it is still necessary, see yesterday’s Commentary Draghi drives disinflation psych.
▪ And the equities slippage last week Wednesday leading to strength Thursday morning was not that surprising. And it was essentially repeated on this week Wednesday’s sag back to 2,015-10 being followed by Thursday’s gap higher opening. As we noted ever since erratic activity around the 1,900 area back on October 1st, the short-term failures are historically not likely to remain down in an ‘erratic recovery’ phase of a bear trend. That was very apparent again on the push up to a new high for the overall rally late last week, and again on Thursday.
As a bit of perspective on that noted previous, in spite of rumors to the contrary, there was no hint in those September 16-17 FOMC meeting minutes that keeping rates steady was any sort of ‘close call’; they were roundly dovish. That pushed the December S&P 500 future back above the 1,990 area DOWN Closing Price Reversal signal from back into and after the actual September 17th FOMC announcement and press conference. Apparently if the news is bad enough, the markets suspect there will be even more Fed accommodation. And that is a good part of the reason why 1,990-88 area was not just a technical trend level: It was also the indication of whether the ‘bad news is good news’ psychology could continue to drive an equities rally. What is now important for December S&P 500 future is whether that psychology is dominant enough to see it hold that key 2,011-2,020 support (i.e. overrun key resistance) on near term setbacks.
▪ All the rest of the overall background remains much the same as the early sections of last week Thursday’s Global View TrendView video post and Market Observations below the video analysis. There was also an additional (and atypical) Brief Supplemental Weekend Market Observations below Friday’s Concise Highlights TrendView video analysis. Those were added due to Friday’s December S&P 500 future push up to a weekly Close above the high end of the critical 2,011-2,020 resistance. Obviously that remained a critical level this week; especially on Wednesday’s late session weakness holding not much worse than that area.
The TrendView VIDEO ANALYSIS & OUTLOOK is accessible below.
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