- Technical Picture: Russia Invades, Markets Rise Anyway.
- Fundamental Picture: Key Lessons From Around The World.
- Lessons From The US: Jobs Report Implications And More.
- Lessons From Europe: Deflation Signs, Crimea Implications For Investors.
- Lesson From China: Not All Default Has Systemic Risk.
Technical, Fundamental Market Drivers And Lessons For The Coming Week And Beyond From The US, Europe, China, For Traders & Investors in Stocks, Forex, Commodities, and Other Global Markets - And Guess Which Energy Producers Got A Big Boost From The Ukraine Crisis?
Weekly Charts Of Sample Global Indexes November 11 2012 To Present
With 10 Week/200 Day EMA In Red: LEFT COLUMN TOP TO BOTTOM: S&P 500, DJ 30, FTSE 100, MIDDLE: CAC 40, DJ EUR 50, DAX 30, RIGHT: HANG SENG, MSCI TAIWAN, NIKKEI 225
FOR S&P 500 AND DJ EUR 50 Weekly Chart October 2012 - Present: 10 Week EMA Dark Blue, 20 WEEK EMA Yellow, 50 WEEK EMA Red, 100 WEEK EMA Light Blue, 200 WEEK EMA Violet, DOUBLE BOLLINGER BANDS: Normal 2 Standard Deviations Green, 1 Standard Deviation Orange
KEY: 10 Week EMA Dark Blue, 20 WEEK EMA Yellow, 50 WEEK EMA Red, 100 WEEK EMA Light Blue, 200 WEEK EMA Violet, DOUBLE BOLLINGER BANDS: Normal 2 Standard Deviations Green, 1 Standard Deviation Orange
07 Mar. 09 03.49
· Continued upward momentum for global equities and by extension other risk assets. The last week shows risk appetite either rising or steady.
· US and European indexes upward momentum remains strong, as indicated by their being in the upper "buy zone" of their double Bollinger bands.
The continued climb in global stocks, our overall gauge of risk appetite, despite events in Crimea will be an added confirmation to Western diplomats that markets don't see this as a fundamentally threatening event. The area is not a key strategic interest for the West, and thus it won't do much, at least not until Europe nails down a replacement for Russian gas supplies. See here for details.
FUNDAMENTAL PICTURE US Jobs Report Lessons: Taper On, Tightening Coming? Implications?
Last week Fed officials said the taper would not be slowed unless something disastrous happened. Now we have a positive jobs report, and falling weekly claims too. There's no doubt that the Fed will taper by another $10 billion this month after non-farm payrolls rose 175k in the month of February, up from 129k. In addition:
· Average hourly earnings rose 0.4%, the fastest growth rate in 8 months.
· Average hourly earnings of private-sector nonsupervisory employees rose 2.5% from a year earlier in February
Source: Business Insider/Matthew Boesler Here (data from Bloomberg)
01 Mar. 10 17.53
· The broader U-6 unemployment rate dropped to its lowest level since November, from 12.7% to 12.6%, 2008. Bad weather is believed to have kept 600k people from working, suggesting that the non-farm payrolls report would have been even stronger. We are now looking at a potentially significant increase in March payrolls as long as weekly jobless claims stay low.
The continued taper by itself is no big deal, as the Fed had already said it was unlikely to slow it. The significance of this report is that job growth has strengthened and:
· Bought the FOMC some credibility for its past optimism and for staying the course despite short term bad news.
· Again raised prospects for a sooner than anticipated tightening.
· Gave the Fed some flexibility on use of the unemployment rate as a tightening guide, not that it ticked up, the FOMC doesn't have to disown it yet, though it probably will.
· The jump in average hourly earnings strengthens the growing minority that believe the US job market is already tighter than believed, meaning that those with the skills that fit this economy are getting work. Those that remain unemployed won't be helped by continued ultra-easy monetary policy, because they're "structurally unemployed," meaning they need new skills or to need to move to a more robust job market, or have some other fundamental problem. Steven Englander, global head of G10 FX strategy at Citi, said (before the Friday release) that another 1-2 strong reports will raise investor fears of a rate hike earlier than the current late 2015 consensus. As he predicted, after the Friday jobs report, markets already gave signs of an earlier tightening
Money-market yields implied by 3-month eurodollar futures spiked
So did the 10-year U.S. Treasury note and other benchmarks of long term rates.
When that happens the USD gets a boost. The impact on risk assets like stocks is harder to predict. Sure, there would be at least a short term sell off, but would persist and actually bring a sustained pullback? That depends on how well the Fed can convince markets that the tightening will be gradual.
Equally important, would that again rock emerging market currencies and bring another round of benchmark rate increases and emerging market stock selloffs?
Other US Lessons
What Actually Might Slow The Move To Tighten: The BEA reported that the core PCE deflator, the Fed's preferred inflation measure, dropped to 1.1% in January from 1.2% in December, a -0.1% monthly change. At this rate we get dangerously close to a deflation story with the coming months. An additional motivation to keep rates low is….
Obama Presents Budget Plan, Sees Debt Payments Tripling: The government expects debt interest payments to more than triple over the next decade to $886 bln, due to higher interest rates and, of course, increasing debt.
Europe More Signs of Deflation
Last week EU industrial producer prices fell 0.3%.
Ukraine Crisis Escalates: Winners, Losers, How To Profit, Outcomes
The most significant event of the week was Russia's moving troops into Crimea (part of Ukraine) and the Crimean parliament's vote to secede from Ukraine and join Russia. Crimea is not a vital interest for the West so expect only a diplomatic response (and probably not a strong one given Europe's current dependence on Russian gas exports). We reviewed the ways investors can protect themselves and profit from what is likely to be a slow simmering long term affair, as well as likely outcomes, in our special report.
The big news from China was that it had its first big corporate bond default and it has not shown any systemic risk effects. The big lesson is that investors understand that the state is not a guarantor of corporate debt, as in any other capitalist country.
There's more to the story, we may get a separate post out in the coming week if time permits.
DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.