Home > Uncategorized > 2013/02/11: Calendar, OECD still mixed with US the key

2013/02/11: Calendar, OECD still mixed with US the key

© 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 key areas of interest we want to cover today: What a significantly robust week it is on all fronts, and (in spite of what some may say about the possible self-sustaining potential of the Chinese and other Asian economies) the degree to which the US remains the key to the rest of the world’s further growth prospects.

That we have quite a bit of important midmonth economic data is a given. After a light data day today, those always include a range of global GDP figures (somewhat after the US release), US and UK Retail Sales, various Chinese data even though it is closed all week for the Lunar New Year. And first but not least of the truly global indications was the OECD (Organization of Economic Cooperation and Development) Composite Leading Indicators (CLI.)

Still mixed... US holds the key

Still mixed… US holds key (click for full report.)

       Those still showed a very mixed picture that we interpreted to mean there is still quite a burden on the US to continue to lead any further global economic growth. More on that later. But for now, there are also extensive finance minister and central bank meetings this week beginning with Europe today and tomorrow and evolving into the G20 in Moscow Thursday and Friday.

And those are looking to be pretty contentious this time around.



It is rare that the G20 all sing from the same hymn book, much less the same song. This time it is different hymnals even within some geographic blocks, especially as it relates to exchange rates.  We agree with those who say that the ‘currency wars’ characterization might be exaggerated. Yet there is a sense of ‘currency skirmishes’ at least in part due to that discord within some geographic blocs.

The competitive economies in Europe do not as yet see any major threat from the recent very sharp drop of the Japanese yen. The non-competitive ones have proposed more active management of the euro’s exchange rate. ECB’s Draghi rightfully pointed out that is hard to do, and the current currency shifts are indeed based on domestic politico-economic necessity rather than overt international trade advantage. But as Brian Blackstone of the Wall Street Journal inquired at last week’s ECB press conference, doesn’t the exchange rate effect on exports also count as an impact on the ECB’s monetary policy transmission?

That was a good one. And all Signore Draghi could do was to ultimately revert to the Euro-zone reliance on G20 assessment of whether a particular country’s fiscal and monetary policy was facilitating competitive currency devaluation. Well, that’s quite a statement.  So the fate of the German mercantile machine and (even more so) the export success of the weaker sisters in Europe is going to rest with the assessment of the G20?

This is going to be interesting. And there are those even in Northern Europe who have questioned whether the classical ‘benign neglect’ of Europe’s export regime (if the euro is allowed to remain strong) is acceptable. It’s not just a matter of whether Germany and the competitive economies can handle it… they are being asked to write the checks to support the Southern Sisters that are not going to grow out of their problems with a depressed export sector.

Bottom line on that one? Watch the German Trade Balance over the next couple of months. If it begins to slip as well, then expect there to be more intense pressure (even if it takes place behind the scenes) on the ECB to weaken the euro. The ironic part is Mr. Draghi’s expression at the press conference that the Euro-zone economy remained weak enough to remain highly accommodative .

And that weakened the euro quite a bit in the short run. Not likely enough to satisfy those who desire it become a fillip for greater exports. But enough to show that the euro can be weakened by the powers-that-be backing off from previous upbeat assessment of Euro-zone conditions. Maybe what Europe needs is a more realistic expression of its weaknesses and potential risks (at least outside of a seemingly resurgent Germany) to benefit from a less positive euro as well.

It will be interesting to see how they parse that coming out of their finance ministers meeting early this week and especially the Moscow G20 meeting. Of course, if there is no address of the euro’s premium valuation there, it won’t be the first time the French meet defeat after entering the Russian capital. At least Hollande won’t be required to march back on foot.

OECD Composite Leading Indicators

This can be short and sweet. With the further important international machinations pending later in the week, President Obama’s State of the Union Address tomorrow evening looms large. These are often tedious ramblings on everything including the kitchen sink programs the sitting president wants to implement…

…regardless of whether there is any chance any of them can actually become law. And we are sure that the address tomorrow evening will be a real barn burner. Anything less than proposing the government do all it can to continue massive spending and tax the heck out of whoever making more than median income will not be well-received by Mr. Obama’s minions. However, he will also assert that through creative elimination of waste and fraud, all of it will be ‘revenue neutral’ (i.e. it won’t cost a single cent more than the spending already proposed.)

Of course, that’s the ultimate canard. The Republican response will be to point out that even if it were so, the US is on track to add another $4.0 trillion to its national debt over the next several years. And yet it seems (future consequences notwithstanding) the equities are thriving on the idea US government spending will indeed remain robust. So what are we to make of that inference that further global OECD CLI improvement is substantially based on further US economic improvement? It likely won’t happen.


The problem is that one way or another the US will likely hit some headwinds sooner than not. There is now a very good chance that Republicans who do not want to see the spending increase at the pace Mr. Obama’s previous actions and speech tomorrow evening will suggest are going to allow the mandatory US federal budget ‘sequestration’ to take hold on March 1st. While that is a radical move that may bring short term political and opprobrium, they see no other choice to exert pressure on spending.

And they are not totally wrong to take this tack after they ceded quite a bit on additional revenue in the immediate Fiscal Cliff crisis avoidance negotiation at the top of the year.  Those tax hikes included no attention whatsoever to the Payroll Tax increase (engendered by no extension of its suspension) on the middle class the President was ostensibly defending. And it now seems they were just the nose of the President’s tax increase Trojan Horse.  

He has shown he can split the Republican moderates from the hard core Tea Party ‘cut spending’ ideologues. It seems he feels he can now destroy the Republican Party by sticking with the same tactic. Yet the Republican moderates viewed the top of the year revenue concessions as the ‘final word’ on that side of the ledger, and are now looking for good faith spending cuts prior to any further ‘revenue enhancements’.

They are already under political pressure from those to the Right of them in their own party, and also feel they have done the right thing and are looking for reciprocation. If none is forthcoming, they will move back into alignment with the spending cut wing… as that is a natural position for them in any event. So the degree to which the President wants to play politics and likely over­-estimates the strength of his hand (we’ve seen this before) leads us to a conclusion that the markets do not seem to have fathomed yet…

…this time around the Republicans are serious, and will not budge from demanding spending cuts to enhance the effect of the increased revenue the Democrats have already been provided. Unless the Democrats do indeed come up with some sort of meaningful cuts, the US will get hit with the budget sequestration on March 1st.


General Market Observations

The March S&P 500 future recovery back above psychological 1,500 area after dipping below it at various points last week without even the closing the gap back down to Monday’s 1,493.40 Close was an impressive bit of resilience. And that followed through on the upside this morning above 1,510 in the wake of Friday’s better-than-expected US Trade Balance.

As the US has been the psychological upside leader, it is no surprise other equities are doing well this morning in spite of some weak European indications in the OECD CLI. With the DAX back above 7,600 and US NASDAQ 100 maintaining Friday’s push above its 2,750-60 resistance, the only outlier is recently exciting DJIA not managing to get back to 14,000 so far. That said, the burden of proof is on the bears to get the March S&P 500 future back below 1,510 interim resistance at which it has stalled of late, or potentially suffer yet another upside jailbreak to the more prominent 1,526 historic congestion and next major oscillator threshold.


Of course, that has implications for other asset classes as well, most directly back into primary government bond markets. As we noted of late, govvies acting as well as they have at lower supports has been a bit of another ‘hostage to fortune’ situation. While March Bund future is back into previously failed 142.62-.30 support after holding the top of 141.30-.00, how long can that maintain if equities push significantly higher? Similarly in the strong sister March T-note future recovering from below major 131-16/-12 Fibonacci and historic congestion support, and that really maintain if equities strengthen even more from current levels? And March Gilt future is back to the sister status below 117.50-.00 in spite of holding minor slippage below interim 116.30-.00 support, which now has a 115.75 Tolerance around the early January lows. Yet the recent recoveries over the past week and a half and not even been able to trade or Close above the interim congestion and moving average resistance in the 116.50-.70 range. All the equities weaken to continue holding supports.

Foreign exchange had reflected the renewed ‘risk on’ psychology mostly through the improvement in the euro up last Thursday’s ECB press conference. But for now it is simply that EUR/USD and its push above 1.3450-1.3550 has been reversed by sinking back below the low end of it. That was also an aggressive daily chart up channel (from the early January 1.3000 low) DOWN Break. As such, that is now resistance again. Of course, that does not necessarily indicate a major trend reversal. Especially if the equities continue to strengthen, more likely we see a EUR/USD reaction down around the 1.3250-80 congestion, or recently Negated 1.3200 DOWN Break at worst. If equities happened to weaken instead, then there might cause to suspect there will be more weakness in the euro as well.

And one of the key non-confirmation factors for equities has been the relative weakness of the commodity currencies. Especially in light of the alleged return to strength in China, it is most interesting that the Australian dollar has underperformed. That said, AUD/USD is into more critical 1.0250 support that may indicate just how weak it is going to act. There is also the consideration of why the ostensible global economic improvement has not seemed so far to help the weaker economies in Europe, or even the UK. In that regard the recent choppy activity of GBP/USD around the 1.5750 area support will likely be telling.

And the oscillation of EUR/USD around that 1.3450-1.3550 area is also of note for its impact on the US Dollar Index. While it had slipped back below the .8000 area on recent euro strength, that was buffered by the weakness of the Japanese yen. And once again it held right into its more critical support in the .7915-.7860 area. Now back above .8000, that is less critical as compared to the bigger decision to be made up that the consistent recent rally failures and weekly MA-41 in the .8080 area.

And speaking of the Japanese yen, isn’t it interesting that it has finally stalled up into the low end of its USD/JPY 93.80-95.00 intermediate-term Objective? That is especially interesting after having no problem overrunning key lower 97.50 and 91.00 resistances anticipation of the major changes the new government was bringing to both its stimulus programs and monetary policy. In a classical instance of ‘buy the rumor sell the fact’, the short-term top evolving in the last week was right into the current Bank of Japan Governor agreeing to resign several weeks early to better facilitate those policies. Even so, it looks like the 91.00-90.00 area will likely be good short-term support on any initial setback. And 100.00 remains the next intermediate term Objective if 93.80-95.00 is overrun at some point.

All the rest remains consistent with Current Rohr Technical Projections – Key Levels & Select Comments (through Thursday’s US Close.) Those are available to Platinum echelon subscribers through the link in the right-hand column.

Thanks for your interest.

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