European banks in recent years dramatically boosted lending to emerging markets and were among the biggest cross-border lenders in these countries. Their retreat has tightened credit in industries—from aircraft to media to mining — squeezing economies already feeling the effects of reduced demand from the developed world for their exports….”We’re in a very vulnerable position that’s definitely impacting global growth,” Gail Kelly, chief executive of Australia’s Westpac Bank said at The Wall Street Journal CEO Council last week. “It’s certainly impacting in my country and in Asia.”
China and Hong Kong
Hong Kong’s Hang Seng Index is testing medium-term support at 18000; breach would signal another test of 16000*. 13-Week Twiggs Money Flow below zero warns of rising selling pressure.
* Target calculation: 16 – ( 20 − 16 ) = 12
The Shanghai Composite is testing medium-term support at 2400. Failure of primary support at 2300 would offer a medium-term target of 2000*. The long-term trend is edging lower in a controlled descent, so conventional target calculations do not apply. Recovery above 2600 is less likely, but would signal another test of the descending trendline.
* Target calculation: 2300 – ( 2600 − 2300 ) = 2000
Japan & South Korea
DJ South Korea Index is testing medium-term support at 390 Monday. Failure would signal a test of the primary level at 350. 63-Day Twiggs Momentum holding below zero suggests continuation of the primary down-trend.
* Target calculation: 350 – ( 420 − 350 ) = 280
The weekly chart of Japan’s Nikkei 225 shows respect of resistance at 9000. Failure of primary support at 8400 would offer a target of 7800*. 13-Week Twiggs Money Flow below zero warns of rising selling pressure.
* Target calculation: 8400 – ( 9000 − 8400 ) = 7800
ASX 200 threatens support
The ASX 200 index is testing medium-term support at 4150. Bearish divergence on 21-day Twiggs Money Flow warns of selling pressure. Failure of support would test the primary level at 3850.
* Target calculation: 3900 – ( 4300 − 3900 ) = 3500
A weekly chart of the All Ords shows a primary down-trend. Failure of support at 4200 would test 3900. Completion of a peak below zero on 63-day Twiggs Momentum would suggest another decline.
* Target calculation: 4000 – ( 4500 − 4000 ) = 3500
India & Singapore
The BSE Sensex is headed for a test of primary support at 16000/15800. Reversal of 13-week Twiggs Money Flow below zero warns of further selling pressure. Failure of primary support would offer a target of 14000*.
* Target calculation: 16 – ( 18 − 16 ) = 14
Westpac’s monthly Fearful Symmetry chronicle on the Indian economy makes an interesting point:
“The reality is that while India is an internally focused and investment-led economy — thus producing a low-beta response to swings in global growth — the financing of investment, at the margin, must come from abroad, so it is highly vulnerable to downswings that incorporate or are driven by negative financial shocks. Put simply, in India a slowdown in the global economy is felt principally through the hardening of its external financing constraint. That is in contrast to the majority of its East Asian (surplus) neighbours, where global shocks are primarily transmitted via an export-led deceleration in aggregate demand, or its non-China BRIC peers, where swings in commodity prices are the key variable.”
Given that almost half of foreign bank funding is sourced from Europe, expect a significant tightening of external finance and hence domestic investment.
Singapore’s Straits Times Index is headed for medium-term support at 2700. Failure of 2700 would indicate a test of primary support at 2500. Reversal of 63-day Twiggs Momentum deep below zero warns of a strong primary down-trend.
* Target calculation: 2500 – ( 2900 − 2500 ) = 2100
Europe: breach of medium-term support would signal decline
Italy’s MIB index is testing medium-term support at 15000 on the weekly chart. Failure — and respect of the descending trendline — would warn of another decline, with a target of 9000*. Breach of primary support at 13000 would confirm.
* Target calculation: 13 − ( 17 − 13 ) = 9
France’s CAC-40 index is similarly testing support at 3000. Breach of support would warn of another decline — as would reversal of 13-week Twiggs Money Flow below zero. Failure of primary support at 2700 would offer a target of 2000*.
* Target calculation: 2700 – ( 3400 − 2700 ) = 2000
The DAX is also testing medium-term support. Reversal below 5600 would warn of another test of primary support at 5000. Failure of 5000 would offer a target of 3600*.
* Target calculation: 5000 – ( 6400 − 5000 ) = 3600
Even the FTSE 100 index is testing medium-term support. 13-Week Twiggs Money Flow looks stronger than its European neighbors, but reversal below zero would warn of a further decline. Breach of medium-term support at 5350 would warn of a test of primary support at 4800.
* Target calculation: 4800 – ( 5600 − 4800 ) = 4000
Praise for good regulation – macrobusiness.com.au
[Economist Stephen King] is generally quick to remind us that regulation creates markets. Without property law and contract law, markets, as we know them, won’t be able function at all. The framework in which to understand regulation is that good regulation creates functional markets and balances benefits between market players and society at large. Bad regulation creates dysfunctional markets, or none at all, and can impede production by market agents by creating new risks, and costly hurdles.
via Praise for good regulation – macrobusiness.com.au | macrobusiness.com.au.
TSX 60 warns of another decline
Canada’s TSX 60 index broke medium-term support — at 680 on the weekly chart below. Respect of the descending trendline suggests another decline. Failure of primary support at 650 would confirm. 63-Day Twiggs Momentum deep below zero also indicates a strong primary down-trend. A conservative target for the decline would be 580*.
* Target calculation: 650 − ( 720 − 650 ) = 580
Nasdaq, Dow warn of correction
The NASDAQ 100 index broke support at 2300 on the weekly chart, warning of a correction to test primary support at 2000. A large bearish divergence on 13-week Twiggs Money Flow now warns of a primary down-trend; reversal below zero would strengthen the signal. Failure of support at 2000 would confirm.
* Target calculation: 2000 – ( 2400 – 2000 ) = 1600
Dow Jones Industrial Average broke out below its recent pennant, warning of another test of primary support at 10600. Breach of support at 11600 would confirm the signal. Reversal of 63-day Twiggs Momentum below its recent lows (-4%) would complete an “iceberg” — with the indicator just peaking above the zero line — indicating a primary down-trend.
* Target calculation: 10600 – ( 12200 – 10600 ) = 9000
Debt Crisis Contagion: The Euro Zone’s Deadly Domino Effect – SPIEGEL ONLINE – News – International
The main problem of a Greek exit from the euro zone is not necessarily the direct impact on banks. I believe our government when they say that they would be able to get that under control. The real problem is the next domino. The crisis will spread unchecked to Italy. If Greece leaves the euro zone, then owners of Greek bonds will lose their entire investment. At best, the Greeks would pay them back a small part of their investment — in almost worthless drachmas.
So what kind of investor in his or her right mind would purchase Portuguese, Spanish or Italian sovereign bonds in this kind of situation? Not even a yield of 7 percent can make up for all the risk that Italy won’t be able to pay back its debt. As things now stand, Italy’s debt accounts for 120 percent of its annual GDP, growth is close to zero and the country is currently slipping into a deep recession. In fact, it’s a matter of mathematical inevitability that Italy won’t be able to service its loans if interest rates on its sovereign debt don’t fall. Granted, there have to be reforms. But reforms don’t resolve an acute debt crisis. We’ve already learned that lesson from other crises.
via Debt Crisis Contagion: The Euro Zone’s Deadly Domino Effect – SPIEGEL ONLINE – News – International.