Home > Uncategorized > 2012/11/22: Happy Thanksgiving with NO Ambush

2012/11/22: Happy Thanksgiving with NO Ambush

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

Happy Thanksgiving to all of our US readers, with thanks especially for the lack of any big time volatile swing in the wake of an ambush today.

Let’s begin by allowing that there is typically only a marginal chance something will change radically on a surprise in one major financial center while another major center is closed for a holiday. That said, it has happened during some past instances. Tuesday’s Summary Perspective (available via the right hand column link) includes a brief discussion of how the US bond bears were ambushed in early November 2004. Back then the US bonds were under pressure near a critical low.

Yet on the November 11th Veteran’s Day holiday (also a Thursday) the German Bund saw some very weak German news that extended its rally to a significant new high. That deferred a broader US bond selloff for four months. In the event this time around the potential for Chinese and Euro-zone Advance PMI’s released today was certainly a concern for the recent equities rally back from a significant selloff. Yet, in the event they were constructive enough to allow equities to advance the last several days’ bid.

So no ambush this time, except…

…possibly for the bears who were hoping for weaker data. Especially China HSBC Advance Manufacturing PMI popping marginally back above 50.0 is good news. Europe was a bit more mixed, with Manufacturing PMI firming while Services slipped. Euro-zone Composite (combined Manufacturing and Services) PMI illustrates the point. At 45.8 it came in pretty much on estimate, yet also indicates that these are modest improvements in what remains a recessionary outlook (anywhere below 50.0.)

And other (less influential) economic data was not quite as constructive. UK CBI (Confederation of British Industry) Total Orders were worse than expected, even if a bit less negative than last month’s very negative numbers.  And Canadian Retail Sales that were expected to rise 0.50% came in essentially flat. The fact that the electronic trade in US is continuing to modestly advance this week’s recovery from last week’s December S&P 500 future test of 1,350 area support is a sign the market psychology triumph over current economic data releases.

And the psychology right now revolves heavily around the US Fiscal Cliff negotiations. US politicians seem to have gone to school on European leaders: appear more reasonable coming out of the meeting with President Obama last Friday right in front of the Thanksgiving holiday, and get out of town.This could just as easily have been Europe last summer as the US into the Thanksgiving week. Next week will be a lot more contentious and tricky.

And that is showing up in one of the other key asset classes that has experienced some recent distortion in convergence in its classical relationship to equities: primary government bond markets. Note how little the govvies are sagging in the face of the extension of the equities rally after already dropping over the past couple of sessions. Much like their problem with pushing up any further when equities extended their selloff significantly from midweek of last week, govvies are not now inclined to break much further as equities get back up toward important resistance like December S&P 500 future in the 1,400 area.

This could be in intermarket indication that govvies expect next week to be far more challenging indeed. This week’s lack of ability to finalize what was assumed to be a ‘done deal’ on further funding for the Greek bailout is not an auspicious sign. That plays right into this evening’s opening of what will likely be very challenging EU 2014-2020 Budget Negotiations. That comes in the wake of the now failed 2012 and 2013 discussions which leaves EU budget approval a rolling month-to-month operation.

And of course there is the return of the US political class that is unlikely to bring immediate consensus on how to avoid the Fiscal Cliff. There is a distinct sense that much of the happy talk after the meeting with Mr. Obama on Friday was merely Congress’ attempt to not leave Americans too anxious into the Thanksgiving holiday and most important retail shopping day of the year, aptly named ‘Black Friday.’

For the uninitiated, that’s when Americans demonstrate their love of their fellow man by trampling anybody who gets in the way of their grabbing the limited stock at deeply discounted prices on offer from insanely early hours at their favorite retailer. And the further insult to (what is often actual physical) injury this year is that one of the most prominent retailers has jumped the dateline, and is beginning their sale at 8:00 PM Thanksgiving evening.

So maybe US retailers and their customers are the real turkeys!! Gobble gobble.

General Market Observations

This week’s recovery in equities was pretty impressive right from the weekly gap higher opening into the December S&P 500 future low 1,370 area Monday morning.  As we have already reviewed a lot of the background on that in the primary government bond market reaction in yesterday’s TrendView BRIEF UPDATE, we suggest linking back into that and the Weekly Summary for further background. The current Technical Projections available in the right column are still the relevant price levels in spite of not having been updated of late. We will be addressing that soon in order to refresh the Select Comments.

The dilemma is that the broader background is still rather bearish on balance. And if there is no address of the Fiscal Cliff issue in the US from the top of next week, we suspect the equities can come back under pressure and the govvies can rally. Yesterday’s analysis also noted the key govvies supports that should be watched while equities push higher.

The one other market worth noting is of course the weakness of the Japanese yen. That said, as explosive as the rally has been out of last week into today, USD/JPY has stalled at the bottom of its 82.85-83.30 resistance noted in yesterday’s TrendView BRIEF UPDATE. While we remain very bearish of the yen overall, it is possible it might be ready for somewhat of a bounce. That would potentially leave USD/JPY retesting the 81.50-.00 area as support. All the rest is a bit of a churn right now, even if a modest extension of the equities rally likely brings a bit more weakness to the US Dollar Index and strength to the other currencies outside of the Japanese yen.

However, the broader trend dynamic right now is tied to the US Fiscal Cliff negotiations. We expect those will be more contentious next week on the way to what is likely to be some sort of solution by mid-December. As such, the equities are capable of selling off from resistance in the near-term, yet likely to hold 1,350-20 support once again on the test that foments. In other words, it will be important to remain nimble, and use the equities as an influence on their somewhat distorted influence on the other asset classes.

Thanks for your interest.

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