Australian newsreader Waleed Aly deconstructs ISIS on Channel Ten – The Project.
Hat tip to David Llewellyn-Smith at Macrobusiness.com.au.
Gold testing $1100/ounce
Solid job numbers have boosted the prospects for an interest rate hike before the end of the year. Employment is growing steadily, having exceeded its 2008 high by more than 4.2 million new jobs.
Unemployment is falling as job growth holds above 2.0 percent a year.
Interest Rates and the Dollar
Long-term interest rates are rising, with 10-year Treasury yields headed for a test of resistance at 2.50 percent after breaking through 2.25 percent. Recovery of 13-week Twiggs Momentum above zero indicates an up-trend. Breakout above 2.50 percent would confirm.
The Dollar strengthened in response to rising yields, the Dollar Index breaking resistance at 98. Respect of zero by 13-week Twiggs Momentum indicates long-term buying pressure. Breakout above 100 would confirm another advance, with a target of 107*.
* Target calculation: 100 + ( 100 – 93 ) = 107
Gold
Gold fell as the Dollar strengthened, testing primary support at $1100/ounce. 13-Week Twiggs Momentum peaks below zero indicate a strong (primary) down-trend. Follow-through below $1080 would signal another decline, with a target of $1000/ounce*.
* Target calculation: 1100 – ( 1200 – 1100 ) = 1000
US October payrolls justifies December move
From Elliot Clarke at Westpac:
Recent softer gains for nonfarm payrolls cast doubt over labour market momentum, giving cause for some to question whether the FOMC would be able to deliver a first hike before the year is out.
The October report changed that view, with the 271k gain for payrolls taking the month-average pace back up to 206k as the unemployment rate declined to 5.0%.
There is certainly more room for improvement in the US labour market. But subsequent gains need to come at a more measured pace.
We continue to anticipate that a first rate hike will be delivered at the December FOMC meeting.
Read more at Northern Exposure: October payrolls justifies December move
Marc Faber: Don’t believe China’s growth figures
Marc Faber: China Has Credit Bubble of Epic Proportions https://t.co/pZtgampX6f
— Colin Twiggs (@Colin_Twiggs) October 30, 2015
US: Robust underlying GDP growth trend
GDP rose at an annual rate of 1.5 percent in Q3, according to advance estimate https://t.co/vWMdoOL9TA pic.twitter.com/PFNZ7lXa8D
— St. Louis Fed (@stlouisfed) October 29, 2015
From Elliot Clarke at Westpac:
In assessing the strength and persistence of US growth, it is important to recognise the impact that inventories and net exports continue to have on headline results. Inventories added significantly to growth through the first half of 2015 on rapid inventory accrual; but a more modest pace of stocking in Q3 resulted in a 1.4ppt subtraction from quarterly GDP growth. Similarly, while net exports reduced the annualised Q1 headline outcome by 1.9ppts, it subsequently added modestly to growth in Q2, circa 0.2ppts. If we omit both factors from our assessment (and thereby focus on domestic final demand, DFD), we see a robust, enduring underlying growth trend. Annualised DFD growth in 2015 averages out at 2.7% – or 3.3% if we focus solely on the past six months, when the weather was more favourable.
On the whole, stripping away the impact of inventories and net exports, the past two years have seen a material improvement in the growth trend. This acceleration has primarily been the result of stronger consumption growth, particularly within the services sub-sector and in housing construction. Given the ongoing improvement in the labour market and credit availability as well as robust consumer confidence, this trend should endure into 2016.
Construction spending is the key.
Iron ore headed for the smelter
Bloomberg News quotes Zhu Jimin, deputy head of the China Iron & Steel Association, representing major steel producers, at their quarterly briefing on Wednesday:
“Production cuts are slower than the contraction in demand, therefore oversupply is worsening.”
“China’s steel demand evaporated at unprecedented speed as the nation’s economic growth slowed,” Zhu said. “As demand quickly contracted, steel mills are lowering prices in competition to get contracts.”
Little wonder that bulk commodity prices are falling sharply.
Australian producers have been ramping up production to compensate for lower prices.
But with further production due to come on line, the market looks ready for a meltdown. This from David Llewellyn-Smith at Macrobusiness:
Yes, China is still shutting in supply and is on track for 270 million tonnes this year but it’s not going to drop enough in the future (at the very best down to 200mt) as Roy Hill, Sino, Anglo, Vale and India (and possibly Tonkolili as well) continue the great ramp up, adding another 200mt plus in the next two years even as Chinese steel production keeps falling at 2-3% per year, taking 40mt per annum out of demand….. the total seaborne iron ore market is about to peak and then shrink….
The ASX 300 Metals & Mining Index is testing its 2008 low. Breach appears likely and would offer a target of 1700*.
* Target calculation: 2200 – ( 2700 – 2200 ) = 1700
North America
The S&P 500 respected support at 2050 and is headed for a test of the previous high at 2130 on the back of strong earnings performance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure but expect strong resistance at 2130. Reversal below 2050 is unlikely, but would warn of another test of primary support at 1870.
* Target calculation: 2000 + ( 2000 – 1870 ) = 2130
A declining CBOE Volatility Index (VIX) indicates market risk is easing.
NYSE short sales remain subdued.
Dow Jones Industrial Average is similarly headed for a test of 18300, with 13-week Twiggs Money Flow rising steeply.
Canada’s TSX 60 continues to test stubborn resistance at 825. Weak 13-week Twiggs Momentum, below zero, indicates the market remains bearish. Breakout would signal an advance to 900, but reversal below the former primary support level at 800 is as likely and would warn of another decline.
* Target calculation: 775 – ( 825 – 775 ) = 725
Europe
Germany’s DAX is testing resistance at 11000. Recovery of 13-week Twiggs Money Flow above zero indicates medium-term buying pressure. Breakout above the descending trendline would suggest another test of the previous high at 12400. Expect stubborn resistance, however, and reversal below 10000 would warn of another decline.
The Footsie is similarly testing resistance at 6500. Breakout above the descending trendline would suggest another test of the previous high at 7100. 13-Week Twiggs Money Flow troughs above zero indicate long-term buying pressure. Reversal below 6250 is unlikely, but would warn of another test of primary support at 6000.
Asia
The Shanghai Composite Index continues to test resistance at 3500. Respect is likely and would indicate a re-test of government-backed support at 3000.
Hong Kong’s Hang Seng Index is retracing to test support at 22500. Respect would indicate a rally to 24000, but failure remains as likely and would test primary support at 21000. A 13-week Twiggs Money Flow trough above zero would indicate (long-term) buying pressure.
Japan’s Nikkei 225 is testing resistance at 19000. Breakout would signal another test of 21000. Respect is less likely, but would warn of another test of primary support at 17000.
* Target calculation: 19000 + ( 19000 – 17000 ) = 21000
India’s Sensex encountered resistance at 27500. Rising 13-week Twiggs Money Flow troughs above zero indicate long-term buyiong pressure. Expect another test of 26500 but respect is likely and would indicate continuation of the rally. Reversal below 26500 would warn of another (primary) decline.
* Target calculation: 25000 – ( 27500 – 25000 ) = 22500
Australia
The ASX 200 is retracing to test medium-term support between 5200 and 5300. Reversal of 21-day Twiggs Money Flow below its rising trendline indicates (medium-term) selling pressure; decline below zero would strengthen the signal. Breach of 5200 would warn of another test of primary support at 5000. Recovery above the descending trendline is unlikely at this stage, but would suggest another test of 6000.
* Target calculation: 5000 – ( 5400 – 5000 ) = 4600
Do the BRICS still matter?
The foundation of the BRICS concept may be starting to crumble: https://t.co/VD3Rw71MFn pic.twitter.com/SXw87aE4ae
— CSIS (@CSIS) October 28, 2015
From Marcus Degaut at CSIS:
The group consists of two emerging industrial economies (China & India) and three commodity exporters (Brazil, Russia, South Africa). Their interests are bound to diverge, especially when slowing Chinese growth drives commodity prices lower.
Read more at CSIS: Do the BRICS still matter?
Putin’s Crimean gamble: Russia, Ukraine, and the new Cold War
From the Brookings Institute:
Since the time of Catherine the Great, Crimea has been a global tinderbox. Most recently, the world was stunned when the forces of Russian President Vladimir Putin invaded and seized Crimea in March 2014. In the months since, Putin’s actions in Crimea, eastern Ukraine and, more recently, in Syria have provoked a sharp deterioration in East-West relations. Basic questions have been raised about Putin’s provocative policies, his motivations, and the future of U.S.-Russian relations—and whether the world has now entered a new Cold War.
On October 26, the Foreign Policy program at Brookings hosted Nonresident Senior Fellow Marvin Kalb for the launch of his new book, “Imperial Gamble: Putin, Ukraine, and the New Cold War” (Brookings Institution Press, 2015). In “Imperial Gamble,” Kalb examines Putin’s actions in Ukraine, the impact on East-West relations, and how the future of the post-Cold War world hangs on the controversial decisions of one reckless autocrat, Vladimir Putin.
Joining the discussion were Thomas Friedman, The New York Times columnist, and Nina Khrushcheva, professor of international relations at The New School. Brookings President Strobe Talbott provided introductory remarks, and Martin Indyk, Brookings executive vice president, moderated the discussion.
China invades India (1962): JFK’s finest hour
…..on October 22, President John F. Kennedy announced to the nation that Soviet missiles had been discovered in Cuba….. What the president did not discuss with the American public was that, two days prior, Chinese forces attacked Indian forces along a disputed Himalayan border between the countries.
Bruce Riedel from the Brookings Institute discusses newly-declassified evidence that Indian Prime Minister Jawaharlal Nehru asked President Kennedy to use American air power.
S&P 500 reporting in full swing
Of the 172 S&P 500 stocks that have reported for Q3 2015: 120 beat, 37 missed, and 15 met their estimates.
Sectors with the highest percentage of misses so far are: Materials, Energy and Financials. Lowest are: Information Technology, Health Care, Telecom and Utilities.