2012/10/10: Weekly Perspective available… Thus spake the financial luminaries!
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A confluence of central bank releases and Non-Governmental Organization (NGO) analyses and meetings make this one of the most intense weeks in recent memory. This by far supersedes even last week’s important central bank and economic data influences. Top of the week OECD Composite Leading Indicators (CLI) showed even previous signs of hope from the US and Japan were steadily receding into weakness. More on this in the Weekly Report & Event Summary Perspective available via the link in the right sidebar.
And if anyone is wondering why the equities have taken fright right away from Monday’s gap lower opening, just note the World Bank and IMF reinforced the CLI negativity. The former noted weakness in China and the Pacific was driven by weakness in Europe. So much for ‘delinking’. And the IMF returned to their consistent view that austerity alone would not solve fiscal problems. Yet that is not consistent with the view of benefactors in Germany and northern Europe.
Along with geopolitical disruptions, that is enough to give equities pause and put them down to more critical supports after last week’s Friday Fizzle…
…as by anyone’s standards the response to the US Employment report being the best recent economic news was less than impressive. And as we noted in the technical projections posted yesterday, the December S&P 500 future weakness back below its recent 1,451 UP Break was telling in spite of a quiet partial holiday on Monday. More on that below.
But first two things are worth noting. Spanish bailout dynamics remain as perverse as we noted previous. ECB commitment to support their sovereign debt brings lower interest rates, which in turn encourages Spanish powers-that-be to take an aggressive line on not asking for the requisite bailout to receive that ECB support. And the IMF specifically criticized the lack of quantifiable steps toward resolution right into Spain expressing the notion that no bailout decision might be possible before the end of this year. Really?!
The second is the unraveling of the Obama administration geopolitical philosophy and practice. Its mishandling and subsequent miscommunication cum obfuscation of the tragedy in Libya is at the least embarrassing, not to mention politically damaging. There is now a strong sense that they either truly had no idea of the risks and what had transpired, or were committed to ‘spinning’ the situation in a way that did not implicitly trash the President’s “Mr. Softee” approach to international diplomacy.
While the drivers and specifics of the current context are admittedly much different, many on the Right cautioned during the 2008 US general election campaign that Mr. Obama was running for Jimmy Carter’s second term. Stepping back from the immediate occurrences in any individual sphere, seemingly incurable economic malaise and geopolitical disarray centered in the Middle East (albeit fairly widespread across the globe) are beginning to suggest a dishearteningly dismal sort of déjà vu.
And much as in the case of Mr. Carter, one can only wonder why the radical elements are acting out in a way that is going to defeat the key proponent of weak American policy? Why didn’t it occur to the Ayatollah Khomeini that his broader global program would’ve been much easier to advance if a dangerous dilettante like Jimmy Carter were left in office? And with due respect for the symbolism of attacking on 9/11, the current batch of Islamic radicals seems to have acted against their own interest in possibly contributing to the defeat of Barack Obama.
Mitt Romney may not be regarded as quite the ‘Mad Bomber’ that the Left considered Ronald Reagan. But does anyone have any doubt that he is just as committed (in one way or another) to reversing the low regard in which America is now held in foreign quarters? In case anyone considers that a partisan statement, consider for a moment how little even our allies respect our word at present.
And much as with Mr. Carter, across time that is something which is reflected in the markets as well. Not really much chance you can demonstrate economic leadership without effective political leadership; in both domestic and international spheres.
General Market Observations
Not the least of the fallout from continued weak international economic data along with that geopolitical disarray is the December S&P 500 future dropping back below last Thursday’s 1,451 UP Break on Monday. That was the Negation which was likely to lead to the further weakness of the past couple of days.
Especially the December S&P 500 future failure back below the gap higher from last Wednesday’s 1,444.70 Close was a clear reinforcement for that Negation. That has dropped the market to the next critical support in the 1,428-1,424.50 support; the lower end of which is the last selloff low from two weeks ago. That is important for all manner of reasons, not the least of which that area is also the overall up channel support from the major 1,253 selloff low into early June.
As such, any daily Close (and especially a weekly Close) would represent a fresh DOWN Break on multiple levels; including the December contract potential Double Top after Friday’s failure very near the post-QE3 mid-September 1,467.50 high. In which case the DOWNside Objective would be 1,383. Even allowing that that sort of target might not be hit if the market remains generally bullish, it would be reasonable to expect a vigorous test of the gaps and congestion in the 1,400 area. And that would of course have implications for other asset classes as well.
Extended Trend Implications
The fact that the weaker govvies are also somewhat back above nominally violated support at December Bund future 141.30-.00 (with a Closing price Tolerance to 140.70) and December Gilt future at 120.25-.00 (with a Closing price Tolerance to 119.80) is another constructive sign, at least for now. They seemed to be very weak for a while into those areas on Wednesday right along with equities weakness. That might have been due in part to the IMF concerns over the lack of definitive fiscal rebalancing progress in Europe. Yet once equities remained weak later in the day, the govvies got the bid back in a significant way; assisted by a very successful US 10-year Treasury note auction.
Recent overall trend activity is very similar for the euro slippage back down below EUR/USD 1.3000-1.2950 technical congestion, even if mid-low 1.2800 recent basing area forms a natural buffer. The US Dollar Index also languished below .8000 for a goodly portion of the day prior to pushing up in the afternoon on continued equities weakness. However, here as well the more critical resistance is up the .8050-70 area. Also of note, strong sister British pound has dropped back to interesting interim GBP/USD 1.6000 support.
And the commodity currencies continue to look lackluster against the US on the continued weakness of AUD/USD at no better than 1.0250 after previously failing below more important 1.0500-1.0450 support. The rest also seems to fit right in with the reversal of bullish equities tendencies from last week up until the Friday Fizzle of the attempted upward US Jobs Pop.
And while the damage has been rightfully less pronounced, December Gold future has backed off from its attempt to overrun 1,775-86 resistance on last Thursday’s Close in the wake of the much more downbeat global economic prospects. That said, there is important near-term support as nearby as 1,750. And if equities become disorderly on their selloff, the yellow metal might just regain somewhat of a ‘haven’ bid on prospects for even more (is this possible?) quantitative easing (QE) efforts by central banks. We shall see.
Thanks for your interest.