Home > Uncategorized > 2012/05/31: Quick Post: Continued weak data affecting main asset classes

2012/05/31: Quick Post: Continued weak data affecting main asset classes

© 2012 ROHR International, Inc. All International rights reserved.

In addition to the negative psychology out of Europe, economic data remains very weak on balance. And one key indication would suggest that the early year economic bounce is over. More on that below. But first it is important to recognize that even prior to today there was a limited amount of silver lining behind a more than ample dark cloud.

And the negative factors over the past several days have been very prominent, beginning with Tuesday’s US Consumer Confidence and Dallas Fed Manufacturing Index. That was followed by Wednesday’s suggestions from the European Commission (discussed and linked to in yesterday’s TrendView Market Alert) on broader European integration to solve the current Sovereign Debt Crisis. While constructive if considered in a vacuum, they only pointed up the mechanisms and agreements that are currently lacking as the situation becomes more critical in Spain. Of course, while the expectation is it will pass, it is important to keep an eye on today’s Irish Stability Treaty referendum voting as well.

However, aside from the technical trend aspects discussed extensively in yesterday’s TrendView Market Alert, the real story is the continued weakness in the data and other news…

 

 

 …like the Chinese making it clear that any stimulus they provide at present will neither be of the size nor nature of that would forth in 2008. After that little indication yesterday morning the markets have also had to deal with weaker than expected indications for Australian Retail Sales, a broad range of Euro-zone confidence indicators, and US Pending Home Sales. And that was just yesterday’s bad news.

Today we have heard from ECB President Draghi on the idea that the problem in Europe is not only capitalization, but confidence. And the ECB would feel much better about providing additional funds if the various countries would take steps to restore growth and investment. He even noted that this could lead to a major European bank guarantee fund. Of course, that leaves the little debate between Germany (and its northern tier cohorts) and the profligates of the South on whether “growth initiative” means labor market reform or infrastructure spending. Barring a speedy reconciliation of those very different perspectives, Europe likely continues to provide negative influence.

That is also driving the negative activity today along with the additional weak economic data. That includes everything from Japanese Industrial Production to Australian Building Approvals and annualized German Retail Sales. While the latter might be some sort of statistical anomaly, the headline number was a -3.8%. While that was followed by a bit of a bright spot from better-than-expected French Consumer Spending, the German Unemployment Change that was flat, instead of lower as expected.

And then it was onto the US for weaker than expected preliminary employment indications from Challenger Job Cuts and the important ADP Employment Change. And while some folks were cheering on Tuesday when the Case-Shiller US Home Price indices came in “less weak” than expected, real estate research firm Realty Trac noted today that 26% of all US home sales in the first quarter were foreclosures. That puts a bit of concern back into the consideration prices may be bottoming.

So why all of the Prophet of Doom focus today? Because the somewhat delayed release of another key data point after the weakness already anticipated for the US Gross Domestic Product revision was really telling. It might even bring into question whether the US Employment report tomorrow can rescue the economic and equity psychology, even if it comes in above estimates (which have been reduced in the wake of today’s Challenger and ADP reports.)

The Chicago Purchasing Managers Index came in at 52.7. That was not only against a previous figure of 56.2, yet also far off the mark from the 57.5 consensus estimate. While there will be a sense in some quarters that anything still above 50.0 speaks of growth, there are troubling weaknesses in key subsets of this report. And there is an overall implication that the serial weakness in this data set after set impressive previous strength might be telling a much more negative tale than the headline number.

That was explored at length by MNI (the folks who report ISM-Chicago) Chicago Bureau Chief Alyce Andres-Franz in a brief interview by CNBC’s Rick Santelli. While you should certainly view that for your edification on the important details, the bottom line is very simple: it seems the early year boomlet is over, and the numbers are nothing less than recessionary. That may seem kind of a radical statement, but that is essentially what the lady said. More specifically, any time the index is lower three months in a row, it forecasts a recession with a 6 to 8 month lead time.

So aside from the problems in Europe being a real problem for Europe, it appears that the entire idea of a limited impact elsewhere or outright delinking is as far-fetched as we have always noted. An integrated global economy means that extreme weakness in any significant number of developed economies spells trouble for the others. This time it seems to have turned up first in China. No surprise insofar as China is a major supplier of industrial as well as consumer goods to Europe.

And now it’s rotating back around to weakening one of the strongest sectors of the US economy: the multinationals. No surprise that quite a few of the stellar US international organizations have had to take down their guidance for the second half of this year based on things being worse in Europe than they had anticipated. Of course, that is quite simply the way in which the US now can weaken as well, compounding the global problem for China and other exporters to the US… including Europe. A bit of a vicious circle.

We had noted the looming ‘disconnect’ that was likely to hit economies and equity markets ever since the last ECB meeting at the top of this month. As it decided to shift back into parsimonious mode, providing more reform suggestions than promises of funding, there was little doubt Europe’s problem could reignite in a manner that would weigh on the rest of the world as well. And that seems to be what we have at present, with some key equities technical trend aspects very near to confirming the potential for continued weakness.

 

General Market Observations

This all remains much the same as previously noted in yesterday’s TrendView Market Alert. So rather than provide any extensive technical trend perspective in the EXTENDED TREND IMPLICATIONS, we refer you back to that analysis.

Suffice to say that the key equities indication was German DAX managing to hold not too much below the low-end of its 6,320-6,285 major support on Wednesday’s Close. All the temporary slippage below it over the past two weeks meant that it would likely take a daily Close below the 6,229 low of the current selloff from a week ago Friday to confirm another major failure. And that now seems to be a real possibility.

The disturbing part is not only that the 6,300 area is a fairly major Fibonacci, channel and congestion support, but that the 6,229 low is also right in line with the weekly MA-41. That’s pretty ugly if it goes by the wayside. Also disturbing is that the next supports are not until the 6,070-6,000 area. Even at that, the market is back down in that whole broad trading range from last summer into the fall, and the meteor congestion in that range is not until 5,500 and the 5,000 area.

And while the US is still lagging on the downside and spite of the return to more negative data, it is of note that June S&P 500 future is also down to a critical threshold just as the DAX is playing with that previous low. The S&P had held around its 1,310 interim technical level on Wednesday’s Close. Yet, in the wake of weaker than expected data today it has now dropped back down toward its more critical support at the 1,297 DOWNside Objective of the Head & Shoulders Top that formed over the first part of the year. After overrunning it temporarily on the weekly Close two weeks ago and testing it again last Wednesday, another failure on a daily Close below that level would indicate a return of the more aggressive bear.

Of course, all of this is driving the extended upside ‘runaway’ psychology in the primary government bond markets. It is also the obvious driver of the weakness of the euro, Australian dollar, British pound and others against the strong sisters US dollar and (some would say perversely in such a weak global economy) Japanese yen.

And while Gold seems to have recaptured just a bit of its crisis ‘haven’ bid, note that the July Copper future has failed further below its important 3.50 area. As noted previous, next support there is not until the 3.20-3.15 area.  All of which was reviewed at length in previous analysis, and we refer you back to that for the key technical insights.

We will also be updating the Current Rohr Technical Projections Key Levels & Select Comments are after the US Close today to prepare for the significant decisions likely to come tomorrow. That will not just the in the wake of not just the US Employment report alone, as it is both preceded and followed by quite a bit of significant top of the month economic data. While no speeches or meetings are planned by the central bank and finance ministry luminaries, nobody should be surprised by ad hoc pronouncements if the US equities seem to be following the European markets down the rabbit hole.

Thanks for your interest.

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