The Eurozone experienced negative CPI growth over December/January.
Australia shows consumer price growth declining at the end of 2014. The next CPI update (Q1 2015), at end of April, is likely to reflect further slowing.
Declining inflation expectations reported by Westpac (in the 0 to 5% range) tend to support this.
From Seeking Alpha:
The euro fell to a fresh 12-year low on Wednesday, extending a broad decline just days after the ECB launched its €1T bond-buying program, while the dollar index soared to its highest in more than 11 years at 98.95, buoyed by expectations that the Fed could soon lift U.S. interest rates. Nearly all now believe the FOMC will remove the word “patient” from its policy statement after its March 17-18 meeting, opening the door for a rate increase in June.
Not so fast. US consumer price growth (annual % change) to end of January 2015 fell below zero.
Core CPI is slowing at a far gentler rate because it excludes energy prices (as well as food).
Wage pressures in the manufacturing sector are declining, despite solid job numbers, indicating there is still plenty of slack.
With inflationary pressures easing, why the haste to raise interest rates? I believe that Janet Yellen will move when the time is right. And not before.
By Leith van Onselen — Published with kind permission from Macrobusiness.
After his shoddy effort yesterday defending Australia’s giant superannuation rort, Dad’s Army’s Robert Gottliebsen (“Gotti”), has backed Treasurer Hockey’s proposal to allow young home buyers to raid their superannuation accounts to purchase their first home:
Joe Hockey’s idea to allow first home buyers to use their superannuation to break into the housing market is not stupid…
Most young people in Australia are finding it impossible to gain a first home… we are watching a fundamental shift in the Australian landscape with huge implications for the intergenerational problem…
[Last weekend]…I found myself in the company of a typical first home buyer in today’s market… They can just manage a house or larger apartment but they are saddled with a huge mortgage…
So why would we not say to that couple: “you can invest up to $50,000 of your superannuation in your first home…
A whole generation of Australians could retire without a house because they are unable to get into the market…
A question, Gotti: What do you think the extra demand from first home buyers (FHBs) accessing their super would do to house prices? That’s right, it would raise them, making the scheme self-defeating, much like FHB grants did.
Meanwhile, young people’s retirement nest eggs would be put at risk, potentially increasing their reliance on the Aged Pension (increasing the burden on future taxpayers).
Thankfully, Business Spectator’s young gun, Callam Pickering, understands these issues, penning the following rebuke today:
Australia’s approach to housing is full of misguided policies and dumb ideas…
Australian housing policy can best be viewed as a remarkably successful anti-Robin Hood scheme. We take from the poor (usually those under 40) and give it to the wealthy (often but not always ‘baby boomers’).
Over the years we have introduced all sorts of dodgy schemes to continue this rort…
Allowing younger Australians to use their superannuation for a housing deposit would have a similar effect to the FHOG… It certainly did nothing to boost home ownership…
Exactly. How about policy address the root causes of unaffordable housing – tax lurks, supply constraints, loose capital rules, and over-investment by super funds – rather than applying a band aid solution that will impoverish young people further and fill the coffers of Gotti’s rent-class?
Colin’s Comment: In 1850 Frédéric Bastiat wrote an essay Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen) which describes the common mistake of politicians, economists and the general public when devising or assessing economic policy. They focus on the immediate, visible benefit and fail to consider the unseen, hidden costs.
Here is a simple video by Sam Selikoff that explains Bastiat’s Broken Window fallacy:
http://youtu.be/gG3AKoL0vEs
Jobs report redux:
?? +59,000 jobs
?? +51,000 jobs
?? +29,000 jobs
?? +24,000 jobs
Score: ☺️ http://t.co/z9xNQJA25N— CNN Business (@CNNBusiness) March 6, 2015
“The U.S. economy added 295,000 jobs in February, a strong gain that beat expectations by a mile. Unemployment fell to 5.5%.” You would expect stocks to surge on the strong employment numbers. Instead the S&P 500 fell 1.4% on Friday. Penetration of support at 2080 warns of a correction.
I can only ascribe this to fear of a rate rise. The stronger the employment data, the closer the prospect of the Fed raising interest rates. But Janet Yellen is likely to err on the side of caution, only raising rates when she is sure that the economy is on a sound footing and inflationary pressures are rising. That is far from the case at present, despite the good job numbers.
Chart: So much for "wage pressures" – pic.twitter.com/yGh9NbqwQa
— (((The Daily Shot))) (@SoberLook) March 6, 2015
There is plenty of short-term money in the market, however, that seems to think otherwise.
Apart from China and India, major markets continue to look bullish.
The S&P 500 is retracing to test support at 2080/2100, but respect is likely and would confirm an advance to 2200*. Oscillation of 13-week Twiggs Money Flow high above zero indicates strong long-term buying pressure.
* Target calculation: 2100 + ( 2100 – 2000 ) = 2200
A quarterly chart shows the Nasdaq 100 headed for its Dotcom high of 4800. Expect major resistance at this level. Correction back to 4000 and the primary trendline may provide a long-term buying opportunity.
CBOE Volatility Index at 14 indicates low risk typical of a bull market.
Germany’s DAX found resistance at 11500. Expect retracement to test new support at 11000, but respect is likely and would confirm the target of 12000*. Rising 13-week Twiggs Money Flow indicates healthy buying pressure.
* Target calculation: 11000 + ( 11000 – 10000 ) = 12000
The Footsie is consolidating below its December 1999 high of 6950. 13-Week Twiggs Money Flow oscillating high above zero indicates long-term buying pressure. Breakout would signal a fresh primary advance, with a long-term target of 8000*. Follow-through above 7000 would confirm.
* Target calculation: 7000 + ( 7000 – 6000 ) = 8000
China’s Shanghai Composite Index faces resistance at 3400. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure. Reversal below 3050 would warn of a decline to test the primary trendline at 2700. Breakout above 3400 is less likely, but would signal another primary advance.
Japan’s Nikkei 225 Index is likely to retrace to test new support at its 2007 high of 18000/18300. Rising 13-week Twiggs Money Flow indicates buying pressure. Respect is likely and would signal an advance to 20000*.
* Target calculation: 18000 + ( 18000 – 16000 ) = 20000
India’s Sensex encountered stiff resistance at 30000. Declining 13-week Twiggs Money Flow indicates medium-term selling pressure. Reversal below 28000 would warn of a correction to 26500/27000. Respect of the primary trendline would establish a solid base for further advances, otherwise we may see an extended consolidation below 30000.
The ASX 200 encountered resistance at 6000, retracing to test support at 5850. 13-Week Twiggs Money Flow continues to reflect healthy buying pressure. Respect of support would indicate continuation of the advance, towards 6150*. Follow-through above 6000 would confirm. Breach of 5850 is less likely, but would warn of a correction back to the rising trendline, around 5650.
* Target calculation: 5650 + ( 5650 – 5150 ) = 6150
Nymex WTI Light Crude is testing resistance at $54/barrel, while Brent Crude is at $62/barrel. WTI above $54/barrel would signal a bear market rally, but is likely to leave the primary trend unaltered. Breach of support at $45/barrel would signal another decline.
The crude oil market is in contango, with spot prices lower than future prices, encouraging traders to store oil until prices rise. But Leslie Shaffer reports that oil storage is nearing full capacity:
“We’re going to see pretty fast inventory builds over the next few weeks,” Francisco Blanch, head of commodity research at Bank of America-Merrill Lynch, told CNBC Wednesday, noting that global supply is running around 1.4 million barrels a day above demand.
“If you run out of space, prices tend to react a lot more violently to adjust that supply and demand imbalance and that’s what we expect over the next few weeks,” he said, forecasting both WTI and Brent will fall toward $30 a barrel.
The 5-year breakeven rate for inflation — calculated by deducting the yield on 5-year TIPS from the 5-Year Treasury yield — rallied in recent weeks and is testing resistance at 1.60%. But the long-term trend is down and we should expect another test of support at 1.2%.
Apart from Japan, deflationary pressures are rising in all major OECD countries. Given the global trend, the Fed is likely to raise interest rates at a leisurely pace. Expect low inflation and low interest rates for the next 2 to 3 years.
Can you spot the direction of the trend? pic.twitter.com/75Gq9cAENp
— David Schawel (@DavidSchawel) March 1, 2015
10-Year Treasury yields rallied along with the inflation breakeven and are now testing resistance at 2.15%. Breakout would test the descending trendline around 2.40%. But reversal below 2.0% remains as likely and would signal another test of 1.65%.
The Dollar Index broke through resistance at 95.50, offering a medium-term target of 100*.
* Target calculation: 90 + ( 90 – 80 ) = 100
Low inflation undermines support for gold. Spot Gold is testing long-term support at $1200/ounce. Reversal of 13-week Twiggs Momentum below zero warns of another decline. Breach of support at $1200 would signal another decline, while follow-through below $1150 would confirm.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
Apart from China and India, last week’s broad market rally is going strong, with the S&P 500 and the DAX making new highs.
The S&P 500 broke resistance at 2100. Expect retracement to test the new support level, but respect is likely to confirm an advance to 2200*. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.
* Target calculation: 2100 + ( 2100 – 2000 ) = 2200
CBOE Volatility Index is declining, indicating low risk typical of a bull market.
Germany’s DAX broke resistance at its medium-term target of 11000*. Expect retracement to test the new support level. Respect of support would indicate trend strength and a medium-term target of 11500 (10000-8500). Rising 13-week Twiggs Momentum troughs above zero predict a strong up-trend.
* Target calculation: 10000 + ( 10000 – 9000 ) = 11000
The Footsie is testing its December 1999 high of 6950. Breakout would signal a fresh primary advance, with a long-term target of 8000*. Follow-through above 7000 would confirm. Momentum is rising, but it will take considerable impetus to make a new high.
* Target calculation: 7000 + ( 7000 – 6000 ) = 8000
China’s Shanghai Composite Index faces considerable resistance at 3400. Declining 13-week Twiggs Money Flow warns of medium-term selling pressure. Reversal below 3050 would warn of a decline to test the primary trendline at 2700.
Japan’s Nikkei 225 Index broke resistance at its 2007 high of 18000/18300. Rising 13-week Twiggs Money Flow reflects buying pressure. Expect retracement to test the new support level, but target for the advance is 20000*.
* Target calculation: 18000 + ( 18000 – 16000 ) = 20000
India’s Sensex is testing resistance at 30000, but declining 13-week Twiggs Momentum over the last 6 months warns the primary up-trend is weakening. A healthy correction to 26500/27000 (signaled by breach of support at 28000) would re-establish a solid base, otherwise the index may struggle to break 30000.
The ASX 200 is consolidating between 5850 and 5950. The narrow range is a bullish sign and breakout above 5950 would indicate continuation of the advance to 6150*. Rising 13-week Twiggs Money Flow indicates buying pressure. Reversal below support at 5850 is unlikely, but would warn of a correction.
* Target calculation: 5650 + ( 5650 – 5150 ) = 6150
Alexander Hamilton started the U.S. Treasury with nothing, and that was the closest our country has ever been to being even.
~ Will Rogers
The prospect of higher interest rates is fast approaching, but 10-Year Treasury yields retreated below 2.0%, warning of another test of the December low at 1.40%.
The weight of foreign purchases, for reasons other than yield (dollar peg/currency manipulation), may be overwhelming the market response. This has happened before, in 2004/2005, when the Fed was alarmed to find that long-term yields failed to respond to monetary tightening. The graphs below are from a 2012 report by DO Beltran (and others) at the Fed. The Fed Funds Rate was steadily increased between mid-2004 and the end of 2005, but 10-year yields declined slightly over the same period.
The reason was fairly obvious: a massive surge in foreign purchases (mainly from China) had left the long-term market awash with liquidity. US monetary policy was effectively being controlled from Beijing.
I cannot understand why this abuse has been tolerated.
The Dollar Index has been consolidating for the last 5 weeks, but the narrow range is a bullish sign and the Dollar is likely to strengthen further. Breakout would offer a medium-term target of 100*.
* Target calculation: 90 + ( 90 – 80 ) = 100
Spot Gold is testing support at $1200/ounce. Reversal of 13-week Twiggs Momentum below zero warns of another decline. A trough below the zero line would strengthen the bear signal.
* Target calculation: 1200 – ( 1400 – 1200 ) = 1000
The strong Dollar, low inflation and higher interest rates all point to another decline, but so far support has held firm. Completion of another trough at this level would strengthen the argument that gold is forming a long-term bottom. Possibly with help from Beijing.
This might be the most mind-blowing fact I learned this year: http://t.co/jJB3cEoq7j pic.twitter.com/Dr34RLeJbU
— Bill Gates (@BillGates) December 12, 2014
China has been on a record-breaking infrastructure binge over the last decade, but that era is coming to an end. Fall of the Baltic Dry Index below its 2008 low illustrates the decline of bulk commodity imports like iron ore and coking and thermal coal, important inputs in the construction of new infrastructure and housing.
High-end commodities like copper held up far better since 2008, but they too are now on the decline.
With the end of the infrastructure boom, China’s economy may well prove to be a one-trick pony. Transition from a state-directed infrastructure ‘miracle’ to a broad-based consumer society will be a lot more difficult.
