Home > Uncategorized > 2013/01/14: Calendar, OECD CLI, another great resource, Europe

2013/01/14: Calendar, OECD CLI, another great resource, Europe

© 2013 ROHR International, Inc. All International rights reserved.

The Weekly Report & Event Calendar is available through the link in the right hand column. This week’s Summary Perspective will be added sometime soon. Yet, in addition to the calendar are two other resources which we feel you might find useful.

The first is this month’s Organization for Economic Cooperation and Development (OECD) Composite Leading Indicators (CLI), which they insist shows economic growth stabilizing in most economies. We can’t really disagree that was the case looking back to the upbeat factors we have already cited for late last year.

As noted previous, on the fundamental side there are reasons why the January statistical releases are going to be fairly upbeat in the US, and that will drive positive sentiment elsewhere. In fact, we still see the US influence as critical, with the news in Europe and some other areas not being nearly as strong. The US remains the key, and the headwinds there are going to intensify. We are going to have a full Taxulationismupdate very soon on that.

1Taxulationism © 2010 Alan Rohrbach & Jack Bouroudjian. All rights reserved unless explicitly waived

Def.: Combined impact of taxation, regulation and protectionism to an oppressive degree as official policy

But there is also another update from a source and a region that is highly influential. That is the latest edition of the Reserve Bank of Australia Chart Pack. That is the very simple name for a very robust set of economic indicators. Given the importance of the Asian and Australian economy, this is a great additional research resource.

While titled The Australian Economy and Financial Markets, it is actually a terrific, very current (updated through December 27th) global economic and finance graphical representation overview. And what it does have on Australia is an incredibly good sector and finance breakdown of many industries and finance functions for that important Asian natural resource economy.

And while the online version is very easy to navigate, it allows for the download of the full (34 page) PDF version as well. After all there are some lunatics (present writer proudly included) who want to be able to compare some fairly diverse factors in hard copy. It can be printed in a four-to-a-page easy review format, such as the example below comparing world share price trends…

Click on the graph to access the RBA Chart Pack home page

Click the graph to access RBA Chart Pack

It is no surprise that research generated by the RBA also includes extensive indications for Asia. And versus the passing view of China typical of so much European and US research, this means India and the Greater Asia economic sphere as well… including emerging markets.

Beyond that this is going to be another very big week, with an interesting twist on the confidence now helping the European markets…

 

The intensity of the week is based partially on the sheer technical trend considerations of equities being so near the highs, govvies being bothered by that, and the strong trend activity in foreign exchange last week.

While the latter includes the continued secular weakness of the Japanese yen, there is also the recent strength of the euro to consider in the wake of the upbeat ECB press conference last Thursday. Other than sheer pride of country (or currency union in this case), is this necessarily a good thing? While some strength in the euro against other currencies might be warranted in the wake of assertions “the crisis is over” by the Euro-zone powers-that-be, two questions arise.

In the first instance, is that necessarily true? And on that one we refer you to this evening’s online ft.com (Financial Times) editorial EU undoes good work on banks, subtitled It disgraces commission to backtrack on bailouts. (The PDF format of that editorial is also available here.)

In a nutshell, the creditor nations of the Euro-zone have proposed the union goes back to requiring the governments of troubled banks refinance them prior to getting any rescue funds from the European Stability Mechanism. Breathtaking.

As the Financial Times duly notes, “…(the European Commission) will definitively break its promise to pry apart the lethal embrace between banks and sovereigns.” And while the FT was quick to point it out, we didn’t necessarily need them to tell us that the pledge to directly finance bank bailouts has been the keystone of the argument that the European Sovereign Debt Crisis is essentially over.

If the sovereign debt of these countries can still be so strongly impacted by the failures of their private banks, it is all right back to where they rescued it with this commitment last summer. We wonder how long the markets will remain calm if this remains the nature of the proposed bailout mechanism? And we especially wonder to what degree ECB President Draghi was aware of this pending reversion to the previous toxic situation? How far will ECB open market government bond support operations go if the ESM is not also committed to addressing the underlying problem?

Second question is a basic mobile macroeconomic consideration: just how strong a euro is desirable or sustainable for a Europe in an extended recession? This morning’s economic data certainly doesn’t indicate any surprising economic strength in Europe; if anything it illustrates how much weaker than expected the Euro-zone economy remains. And this has not even begun to factor in the pressure from the massive competitive devaluation of the yen.

And as a preview, that is the factor even beyond Europe that pins down the final aspect of Taxulationism: protectionism on top of excessive taxation and regulation. No overt tariffs passed? No trumped up grounds for rejecting agricultural products? Nope. It has moved on to the more blatant Currency Wars aspect, where sheer predatory exchange-rate devaluation eliminates the need for more obvious protectionist measures.

Which might all seem a bit more subtle, if it were not for the glaringly apparent shifts in the competitive advantage. We wonder how long European exporters will be happy with the stronger euro, especially in the face of the new Japanese government’s successful revaluation of a yen that might have indeed been a bit too strong? Signore Draghi and the political class in Europe had best brace themselves for the blowback.

General Market Observations

Yet, for now the top of the year major March S&P 500 future 1,420-1,444 technical gap higher will also underpin the market on any near term setback. Especially interesting is the low end of that gap being back into the 1,420-25 range. That was both the pre-election resistance and pre-existing historic congestion. Yet the market is also now up into critical high end 1,465-75 resistance, with not much above it until the low 1,500 area. For more on the extensive confluence of factors contributing to that highly critical nature and psychology surrounding the potentials, see last Thursday’s Rohr-Blog post.

EXTENDED TREND IMPLICATIONS

We also see that this upbeat psychology has weighed on primary govvies in a significant way. That said, each has been able to hold for now at some key lower supports, even if violated higher supports will act as govvies resistance for now; as was amply demonstrated when equities got the bid back from midweek last week.

March Gilt future failure below important 117.00 support turns that area into resistance, and puts it back into an entire lower range with next major supports not until mid-114.00 and mid-113.00 areas. However, at least so far it has been able to hold interim 116.30-.00 support. Similarly for March Bund future that also failed key 143.75-.50 support, its 142.62-.30 support has held on a couple of tests.

The outlier is the March T-note future that only just barely sagged below its critical 131-16/-12 support after the US Employment report, and just touched it last Friday. This also means holding better than the other long ends for now. Much as was the case with the 117.00 support in the Gilt, that area is the meat of the congestion at the high-end of the significant late 2011 through April 2012 trading range.

And any significant weekly Close failure back into that range would leave the T-note as damaged as the Gilt below some significant Fibonacci levels and congestion. While there is some interim support is nearby as 130-20 (the December 2008 spike high), more major support does not occur once again until the upper 129-00 and 129-00/128-14 areas.

It is also of note that the US Dollar Index fared so poorly in the wake of the upbeat communication out of last Thursday’s ECB press conference. As noted last week, the public seems to have bought into the headline “The (euro) House Is Not Burning” for now. That has driven the US Dollar Index back below .8000 toward its low-.7900 to .7860 support.

However, that seems to have a bit of a delimiter as well in the form of just how far above its test of 1.3000 support EUR/USD is ready to rally right now. While that surge also Negated a near term 1.3200 DOWN Break (now near term support), heavy resistance (congestion, DOWN Break and ultra-long term MA) awaits in the 1.3450-1.3550 range. As noted above, fundamental factors come into play as well: just how strong a euro is desirable or sustainable for a Europe in an extended recession (and see this morning economic data on that)?

And it is obvious this is secular strength in the euro rather than US dollar weakness. Note the GBP/USD very temporary extension above 1.6300 serial highs only to fail back below it, and now not act very well from the good support in the 1.6000-1.5950 range.

That even goes for the ostensibly Asia-assisted Australian dollar, as the latest AUD/USD rally above 1.0450-1.0500 has stalled at recently generated resistance as nearby as the 1.0600-25 area. It all feels a bit stretched, and unless there is more general US dollar weakness, all of that reinforces our hypothesis on the early year economic improvement possibly being no more than a positive holdover from late last year.

And the really aggressive trend in foreign exchange remains with the sharp weakening of the Japanese yen. After the USD/JPY February rally above key resistances at 78.35 and 79.50 were UP Breaks, 84.00-.50 was key resistance. Back above it late last month after the prolonged retest of those lower UP Breaks was a major confirmation of the overall Upturn (i.e. yen weakness.)

Pushing above 85.54-.94 resistance as well left it even violating far more critical 87.50-.00 resistance two weeks ago. As noted early last week, that was also near term UP Acceleration. As such, holding last week’s retest of that area on the early week dip has maintained that UP Acceleration.  As far gone as that trend may feel, next significant resistance is not until the 91.00 area, and our intermediate term Objectives remain 94.00-95.00 and the 105.00 area.

Thanks for your interest.

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