China: US Shutdown Exposes ‘Ugly Side of Partisan Politics’

Reuters Shanghai:

China on Wednesday said the U.S. government shutdown had exposed “the ugly side of partisan politics” in Washington and expressed concern about its effect on the world economy.

An editorial on the state-run Xinhua news service, considered a channel for Beijing’s official views, said: “The United States, the world’s sole superpower, has engaged in irresponsible spending for years.”

“In the view of the latest political failure, a replay of the 2011 summer drama seems likely, which is certainly a concern for U.S. foreign creditors,” it said.

“With no political unity to redress its policy mistake, a dysfunctional Washington is now overspending the confidence in its leadership,” the editorial said.

Chinese leaders must be both puzzled and perplexed by the current spat between Congress and the Senate. How can a government which considers itself a beacon of democracy — and which advocates democracy to emerging nations — exhibit such disfunctional behavior? Separation of duties between the President, Congress and the Senate — designed to safeguard the nation from excessive concentration of power — have evolved into a recurring political logjam. Both major parties are guilty of burdening future taxpayers with public debt, in order to buy off existing voters, and kicking the can down the road — avoiding unpopular political decisions that are in the long-term interests of the nation. Failure to address unsustainable welfare spending, for example, has allowed unfunded liabilities to balloon to more than $70 trillion by 2012.

Weak political coalitions have also led to unstable government and a short-term focus in many Western democracies. These issues are completely foreign to China’s Central Committee.

The Central Politburo Standing Committee (“PSC”) of the Communist Party of China is a committee of 7 members appointed by the Chinese Communist Party to run the country, with Li Jinping acting as General Secretary. No political group has the power to block decisions of the Committee, allowing them to focus on long-term goals rather than short-term considerations. Ascendancy of the PSC is one of the major contributing factors to China’s phoenix-like rise from the ashes of decades of political turmoil.

I am not advocating that we abandon democracy and revert to a one-party state, but we need to address the weaknesses in our current system and adopt some of the strengths of others. An outstanding example of this is the Swiss system where a similar central committee is democratically elected, based on proportional representation. All parties are represented on the 7-member Federal Council and decision-making is collective. Council members serve one year terms as the largely-ceremonial head of state. The strength of the system is its stability, with only one change to the composition of the 7-member Council over the last 50 years. This enables members to focus on long-term goals rather than on short-term political concerns — one of the reasons why the Swiss economy is one of the most stable and successful, ranked 8th in the world in terms of GDP per capita according to the IMF.

Powers of the central committee are restrained by a vibrant direct democracy where citizens regularly vote on national referendums. The power of voters to overturn their decisions maintains a strong check on the central committee throughout their elected term and would also curb the influence of special interest groups, another abscess on butt of many democracies.

While most recognize the need for change, a major obstacle is the power of vested interests that are likely to impede progress at every turn. Only a major ground-swell of popular support could sweep them aside. In a way we should welcome crises like the current impasse, as further cracks in the dam wall of public opinion. When the wall breaks, hopefully we can build a better system…..if we have learned from our past mistakes.

Read more at China: US Shutdown Exposes 'Ugly Side of Partisan Politics'.

Japan & China steady, ASX threatens correction

Dow Jones Japan index chose to ignore the poker game on Capitol Hill in Washington today, following Friday’s sharp fall. Breach of the rising trendline, however, warns of a correction.

Dow Jones Japan index

A weekly chart of the Nikkei 225 shows short-term support at 14300, with resistance at 15000. Failure of support would test the primary level at 13200, while upward breakout remains as likely and would signal an advance to 17000*. Earlier bearish divergence on 13-week Twiggs Money Flow warns of a reversal; decline below 15% would strengthen the signal. Failure of support at 13200 would confirm.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 13000 ) = 17000

China’s Shanghai Composite is testing short-term support at 2150. Failure of support would penetrate the rising trendline, warning of another correction. A sharp fall on 13-week Twiggs Money Flow indicates short-term selling pressure. Respect of 2150, or even 2100, would signal another test of resistance at 2250. Follow-through above the descending trendline would suggest the primary down-trend is reversing. But breach of 2100 would indicate another test of primary support at 1950.

Shanghai Composite Index

India’s Sensex continues on a downward path toward primary support. Penetration of the former rising trendline would increase the likelihood of a test. Breakout below 18500 would signal a primary down-trend, while follow-through below 18000 would confirm. A 13-week Twiggs Money Flow trough above zero is unlikely, but would suggest continuation of the primary up-trend.

Sensex

* Target calculation: 18500 – ( 20500 – 18500 ) = 16500

The ASX 200 retreated below its May high of 5250 for a second time; a bearish sign. Penetration of the rising trendline also warns of a correction. Breach of short-term support at 5200 would confirm.

ASX 200

There appears little danger of a primary reversal at this stage, with primary support at 4650, but 13-week Twiggs Momentum below zero would strengthen the warning. 13-Week Twiggs Money Flow (not shown) also displays a bearish divergence, indicating selling pressure. Long-term target for an advance would be 5850*, but we are likely to see a correction first.

ASX 200

* Target calculation: 5250 + ( 5250 – 4650 ) = 5850

Crawling, not walking, to non-mining led growth | MacroBusiness

Leith van Onselen quotes the latest JP Morgan report on the Australian economy:

…risk of a recession is “inevitably higher now than usual; the economy has built up vulnerabilities over time that have been masked by the continued growth in output and national income… the downside of avoiding recession is that Australia has carried these excesses through a succession of growth cycles”.

Households are particularly at risk from expensive house prices and high levels of household debt. Which brings me back to the unnecessary risks bank regulators are taking by condoning low bank capital ratios of between 4.0% and 4.5% of total credit exposure. Risk-weighting of bank assets provided a smokescreen, inflating perceived ratios to around 10%, while encouraging over-exposure to (low risk-weighted) residential mortgages.

Read more at Crawling, not walking, to non-mining led growth | | MacroBusiness.

European markets retrace, but FTSE bearish

European markets are consolidating after recent gains with the exception of Italy, which is suffering from political instability, while the FTSE 100 displays persistent selling pressure.

The FTSE 100 is heading for a test of primary support at 6400, having broken medium-term support at 6500. Declining 21-day Twiggs Money Flow after a lengthy period below zero indicates medium-term selling pressure; bearish divergence on the 13-week indicator also warns of strong selling pressure. Failure of support at 6400 would signal a primary down-trend; respect is unlikely, but would suggest another test of 6700.

FTSE 100

Germany’s DAX retraced to the new support level at 8500. Respect would offer a medium-term target of 9000* and a long-term target of 9400*. Reversal below 8000 is unlikely, but would warn of another test of primary support at 7600.

DAX

* Target calculation: 8500 + ( 8500 – 8000 ) = 9000 ; 8500 + ( 8500 – 7600 ) = 9400

France’s CAC-40 is similarly testing support at 4100. Recovery above its 2011 high of 4200 would offer an immediate target of 4300* and a long-term target of 4500*. Reversal below 3900 is unlikely but would warn of a test of primary support at 3600.

CAC-40

* Target calculation: 4100 + ( 4100 – 3900 ) = 4300 ; 4050 + ( 4050 – 3600 ) = 4500

Spain’s Madrid General Index displays healthy buying pressure on 13-week Twiggs Money Flow. Retracement that respects support at 900 would confirm a long-term advance to 1050*. Reversal below 900 is unlikely, but would warn of a correction.

Madrid General Index

* Target calculation: 900 + ( 900 – 750 ) = 1050

Italy’s MIB Index is weaker, following a rift between Prime Minister Enrico Letta and his coalition partner, Silvio Berlusconi. Follow-through below the rising trendline would test support at 16500. Recovery above 18000, on the other hand, would signal a primary advance with a long-term target of 20000*.

MIB Index

* Target calculation: 17500 + ( 17500 – 15000 ) = 20000

TSX 60 bearish divergence

Canada’s TSX 60 index is testing long-term resistance at 740, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Reversal below 730 would indicate another test of primary support at 710. Failure of support would signal a primary down-trend.

TSX 60

The VIX below 15, however, continues to reflect low market risk.

TSX 60 VIX

Short-term support for S&P 500 but long-term bearish

The September quarter-end often heralds a correction as fund managers re-balance their portfolios and shed under-performing stocks.

The S&P 500 is testing support at the May high of 1675 on the daily chart. The long tail on Monday’s candle indicates short-term buying support, but bearish divergence on 21-day Twiggs Money Flow warns of medium-term selling pressure. Breach of support and the (secondary) rising trendline would signal a test of primary support at 1625.

S&P 500

Selling pressure is also evident on the weekly chart, where a similar divergence warns of a primary reversal. This is a relatively weak signal, with 13-week Twiggs Money Flow elevated well above zero and primary support some way above the long-term rising trendline. Failure of support at 1625 would signal a reversal, but it would be prudent to wait for confirmation from the long-term trendline or other major indexes.

S&P 500

* Target calculation: 1700 + ( 1700 – 1550 ) = 1850

VIX crossed to above 15, but still indicates relatively low market risk.

VIX Index

Dow Jones Industrial Average broke its (secondary) rising trendline, signaling a test of primary support at 14800. Bearish divergence on 13-week Twiggs Money Flow warns of a reversal and breach of 14800 would confirm. Recovery above 15660 is unlikely, but would indicate a fresh advance.

Dow Jones Industrial Average

Buy Yen on Debt Debacle? | WSJ

Ian Talley at WSJ reports:

In, “The Curious Case of the Yen: A Safe Haven Currency without Inflows” (see p.142) the IMF studied 11 shocks between the August 1990 U.S. savings and loan crisis and the August 2011 U.S. debt ceiling confrontation that pushed the volatility index 10 percentage points higher than its previous 60-day average. “The yen has tended to appreciate on average during these episodes, against the U.S. dollar, the euro and in nominal and real effective terms,” the IMF found.

Read more at Buy Yen on Debt Debacle? – Real Time Economics – WSJ.

Forex: Aussie and Euro breakout

The Euro broke through resistance at $1.34/$1.3450, offering a medium-term target of $1.37* and long-term target of $1.40*. A trough above zero on 13-week Twiggs Momentum indicates a healthy up-trend.

Euro/USD

* Target calculation: 1.34 + ( 1.34 – 1.31 ) = 1.37; 1.34 + ( 1.34 – 1.28 ) = 1.40

The greenback is ranging aimlessly between ¥96 and ¥101 against the yen, indicating uncertainty. Breakout from the range will indicate future direction. Reversal of 13-week Twiggs Momentum below zero would suggest a primary down-trend.

USD/JPY

* Target calculation: 101 + ( 101 – 96 ) = 106

The Aussie Dollar retraced to test support at $0.93/$0.935 against the greenback after its recent breakout. Respect is likely and would suggest an advance to $0.97*. Follow-through above $0.95 would confirm.

Aussie Dollar

* Target calculations: 0.95 + ( 0.95 – 0.93 ) = 0.97

The Aussie found support at $1.12 against its Kiwi neighbour. Recovery above $1.16 and the descending trendline would complete a double-bottom reversal, offering a target of $1.20*.

Kiwi Dollar

* Target calculations: 1.16 + ( 1.16 – 1.12 ) = 1.20

Asia recovery helps ASX 200

China’s Shanghai Composite Index ran into resistance at 2250 and is likely to retrace to support at 2100. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Respect of 2100 would be bullish, while recovery above 2250 would penetrate the descending trendline, suggesting that the primary down-trend is reversing. A primary up-trend would signal increased demand for resources and give a significant boost to the ASX. Failure of 2100 is unlikely, but would indicate a test of primary support at 1950.

Shanghai Composite Index

Japan’s Nikkei 225 is testing resistance at 15000. Breakout would signal an advance to 17500*. Earlier bearish divergence on 13-week Twiggs Money Flow, however, warns of a reversal. Penetration of the rising trendline would also suggest the primary up-trend is losing momentum. Failure of support at 13200 remains unlikely, but would signal a reversal.

Nikkei 225

* Target calculation: 15000 + ( 15000 – 12500 ) = 17500

India’s Sensex retreated below resistance at 20500. Tall shadows and long tails on the weekly chart indicate excessive volatility. Reversal below last week’s low at 19500 would warn of another down-swing. Breach of the rising trendline would strengthen the reversal warning. A 13-week Twiggs Money Flow trough above zero, however, would suggest continuation of the primary up-trend.

Sensex

* Target calculation: 18500 – ( 20500 – 18500 ) = 16500

ASX 200 recovery above the May high of 5250 indicates a primary advance. Follow-through above 5300 would confirm. Rising 21-day Twiggs Money Flow suggests medium-term buying pressure. Long-term target for an advance would be 5850*.

ASX 200

* Target calculation: 5250 + ( 5250 – 4650 ) = 5850