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India’s Sensex broke below its trend channel, warning of a correction. The short inverted hammer (or gravestone) signals indecision. But bearish divergence on Twiggs Money Flow warns of long-term selling pressure. Breakout below 27600 is expected and would warn of a test of 26000.
Two short weekly candlesticks suggest the ASX 200 rally has stalled at 5500. Bearish divergence on Twiggs Money Flow warns of selling pressure. Reversal below the lower trend channel would warn of a test of primary support at 5000/5100. Breakout above 5600 is unlikely.
The ASX 300 Banks Index is testing resistance at 8000. Declining Twiggs Money Flow still warns of selling pressure. Breakout above 8000 would signal a primary up-trend but I would be cautious and wait for retracement to respect the new support level. There are some good fundamental reasons, like the real estate/apartment bubble, that suggest a reversal would be premature.
Private investment is declining as a percentage of GDP. Not a good sign when you consider that a similar decline preceded previous recessions.
Click graph to view full-size image.
Also a concern, when private credit is rising as a percentage of GDP while investment is falling. Crossover of the two lines would indicate that the private sector is borrowing more than it is investing. That is not likely to end well.
From Harlan Ullman:
Frozen conflicts are not in Russia’s long-term interest. Of course, while the short-term aim of preventing Georgia and Ukraine from joining NATO because of contested borders is working, the long-term economic damage done to Russia will prove politically destructive. Putin certainly is riding a political tiger. However, he has no clear exit strategy for safely dismounting this dangerous beast. That is a fundamental predicament….
What should the United States do? First, common sense and not confrontation is the best means to exploit Putin’s political weaknesses. By threatening Russia, his public will rally around Putin. This does not mean granting concessions. It means being smart not petulant. It also means shifting NATO’s strategy to local defense based on a “porcupine” posture with emphasis on Stinger-like anti-air and Javelin anti-vehicle missiles all reinforced by alliance capabilities to blunt Russian cyber, propaganda, intimidation and other non-conventional forms of war.
Second, the United States needs to dial back on belligerent rhetoric. By all means plan for “full spectrum war.” But do not use a PR bullhorn to announce what is being done. Teddy Roosevelt applies — speak softly but carry a big stick….
Source: Why Russian President Vladimir Putin will fail – UPI.com
Robert Hutton at Bloomberg discusses Theresa May’s speech, Wednesday, at the Conservative Party’s annual conference:
….May’s comments mark a change of emphasis from the views of her predecessor. In his 11 years as Tory leader, David Cameron argued that the party needed to show that it was in touch with modern Britain by focusing on climate change and gay rights. May, by contrast, argues that the party needs to reach “ordinary working-class people.”
She’ll say she sees the role of the government as providing “what individual people, communities and markets cannot.” And she’ll argue that this means “providing security from crime, but from ill health and unemployment too. Supporting free markets, but stepping in to repair them when they aren’t working as they should. Encouraging business and supporting free trade, but not accepting one set of rules for some and another for everyone else.”
….three senior figures in May’s administration said financial-services companies would get no special favors. The extracts of May’s speech suggest she thinks Cameron was too focused on that sector. “If we act to correct unfairness and injustice and put government at the service of ordinary working people,” she’ll say, “we can build that new united Britain in which everyone plays by the same rules, and in which the powerful and the privileged no longer ignore the interests of the people.”
Source: May Looks Beyond Brexit to Portray Herself as Workers’ Tribune – Bloomberg
Germany’s DAX is testing support at 10500. Respect would confirm the primary up-trend. This week’s long tail and a Twiggs Money Flow trough above zero indicate buying pressure. Follow-through above 10800 would complete a bear trap — a bullish signal with a target of 11500*.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
The FTSE 100 is also rallying, to test long-term resistance at 7000/7100. Rising troughs on Twiggs Money flow signal long-term buying pressure.
India’s Sensex broke below its trend channel, warning of a correction. Expect a test of support at 26000.
10-Year Treasury yields have rebounded off their all-time low, shown here on a monthly chart, but remain in a secular down-trend. Only recovery above 3.0 percent (a long way off) would signal that the long-term down-trend has reversed.
The 5-year breakeven inflation rate (5-year Treasury Yield – 5-year TIPS yield) suggests that the long-term outlook for inflation is low. But growth in Hourly Non-Farm Earnings and Core CPI (excluding Food and Energy) has started to rise.
One would expect the Fed to be preparing for another rate increase to tame inflationary pressures. But there are still concerns about the strength of the recovery.
Growth in estimated total weekly Non-Farm Earnings has been declining since early 2015; calculated by multiplying Average Hourly Earnings by Average Weekly Hours and the Total Non-Farm Payroll.
If we examine the breakdown, growth in the Total Non-Farm Payroll is slowing and Average Weekly Hours Worked are declining.
Not what one would expect from a robust recovery.
Quantitative easing (QE3) ended in the second half of 2014 after the Fed announced it would taper asset purchases in December 2013. The graph below shows that total assets leveled off at $4.5 trillion and have been maintained at that level since.
But the graph also shows that the Fed continues to drip-feed the financial system by running down excess reserves on deposit from a high of $2.7 trillion in August 2014 to $2.25 trillion in August 2016.
Commercial banks are required to hold certain reserves at the Fed but in times of financial stress will deposit excess reserves at the Fed, when trust in the interbank market breaks down. The Fed commenced paying interest on reserves in October 2008 and increased the rate to 0.50% in December 2015. This has encouraged banks to retain excess reserves at the Fed where they earn a risk-free rate of 0.50%.
By raising or lowering the rate payable on excess reserves the Fed can attract or discourage deposits, tightening or easing the availability of funds in the interbank market. Banks have withdrawn $450 billion in excess reserves over two years, which suggests that they can achieve more attractive risk-reward ratios elsewhere. The Fed has not responded, indicating that they are happy for this back-door easing to continue.
Only when the red and blue lines in the first graph converge will the Fed have commenced monetary tightening. That still appears some way off.
Macrobusiness quotes LF Economics’ submission to the House of Representatives Budget Savings (Omnibus) Bill 2016:
….It is critical policymakers reign in exponentially-growing private sector debts as this consists of a major source of future financial instability. Australia’s household debt to GDP ratio is the highest in the world, at 125% and rising. Ironically, by ignoring private debt expansion which has generated a housing bubble, public debt will inevitably rise to stimulate the economy to counteract the economic downturn when it bursts.
Source: Government aims for wrong target on debt – MacroBusiness