The OECD now forecasts the eurozone economy to be in a six-month recession lasting through the first quarter of 2012, followed by a slow recovery that will leave the 17-nation bloc with only 0.2 percent growth next year. Despite the OECD’s warning, European markets enjoyed one of their best sessions in weeks amid hopes that radical plans were being readied for the Dec. 9 meeting of EU leaders in Brussels. The Stoxx 50 of leading European shares ended 3.6 percent higher at 2,208.89.
Italy 3-yr auction yield jumps to record 7.89 pct | Reuters
The yield on a new three-year BTP soared to euro lifetime high of 7.89 percent at the closely watched auction which allowed Rome to raise 7.5 billion euros…..Only a month ago, Italy had paid a 4.93 yield to sell three-year paper.
via Italy 3-yr auction yield jumps to record 7.89 pct | Reuters.
Canberra is fighting the last war – macrobusiness.com.au
As we know, the Western world has passed an historic moment when credit driven growth is no longer viable. We are in the early years of a decades long deleveraging. And, as we know from the sectoral balances of macroeconomics, an economy can only grow through the expansion of the external sector or by expanding credit in either the government or private sectors. Is it useful, therefore, to be comparing Treasury’s triumphant victory over the seventies bogies of wage breakouts and inflation via a tradable goods destroying currency appreciation when the world is now set on a course in which the ONLY economic growth that has lasting value in this new milieu is that driven by expansion in the external sector?
For me the answer is absolutely not.
Treasury is busy fighting the last war. The new war is for export revenues to drive investment and growth to offset the enormous debt stocks that exist in the public and private sectors of Western economies, including Australia. That’s why destroying parts of your tradable goods sector in order to make room for other tradable goods is about as sensible as cutting off a leg so that you’ve lost weight. Sure you have, but now you just gonna sit there and eat.
via Canberra is fighting the last war – macrobusiness.com.au | macrobusiness.com.au.
Asia rallies
Asia rallied Monday on encouraging signs from Europe, with the Nikkei 225 testing 8300, the Seoul Composite (KOSPI) jumping to 1815, and Hang Seng above 18000. But a look at the quarterly chart of the Nikkei shows a long-term, bearish divergence on 63-day Twiggs Momentum, while the index is headed for a test of key support at 7000/7500. Unless we see a break above the descending trendline, the trend remains downward.
South Korea’s Seoul Composite index is headed for another test of 1650 according to the weekly chart. 63-Day Twiggs Momentum oscillating well below zero indicates a strong primary down-trend. Failure of support would offer a target of 1350*.
* Target calculation: 1650 – ( 1950 – 1650 ) = 1350
Hong Kong’s Hang Seng index recovered above 18000 Monday but the long-term trend remains downward. Steeply descending 63-day Twiggs Momentum warns of a strong primary down-trend.
* Target calculation: 16 – ( 20 – 16 ) = 12
The Shanghai Composite index did not share the enthusiasm of other Asian markets, testing support at 2375. Reversal of 13-week Twiggs Money Flow below zero warns of rising selling pressure. Failure of support at 2300 would offer a target of 2050*.
* Target calculation: 2300 – ( 2550 – 2300 ) = 2050
India warns of primary decline, Singapore may follow
India’s SENSEX broke through support at 15800/16000, signaling a primary decline to 14000*. Reversal of 13-week Twiggs Money Flow below zero confirms strong selling pressure. The index later recovered above 16000 Monday; we will have to wait to see whether the new support level holds.
* Target calculation: 16 – ( 18 – 16 ) =14
The monthly chart shows Singapore’s Straits Times Index headed for a test of primary support at 2500. Long-term bearish divergence on 63-day Twiggs Momentum indicates a primary down-trend. Failure of support would signal a primary decline to 2100*.
* Target calculation: 2500 – ( 2900 – 2500 ) = 2100
Australia rallies
The ASX 200 rallied off support at 4000, headed for a test of medium-term resistance at 4150 — and the descending trendline. 21-Day Twiggs Money Flow remains below zero and respect of the zero line would warn of strong medium-term selling pressure. In the longer term, breach of primary support at 3850 would signal a primary decline to 3350*.
* Target calculation: 3850 – ( 4350 – 3850 ) = 3350
Europe weakens
A monthly chart of Dow Jones Europe shows the index testing primary support at 210. A peak below zero on 63-day Twiggs Momentum indicates a strong primary down-trend. Failure of support would offer a medium-term target of 160*.
* Target calculation: 210 – ( 260 – 210 ) = 160
Italy’s MIB Index is headed for another test of primary support at 13000 on the weekly chart. Respect of the descending trendline suggests another primary decline. Reversal of 13-week Twiggs Money Flow below zero would also warn of rising selling pressure. And breach of primary support would signal a decline to 9000*.
* Target calculation: 13 – ( 17 – 13 ) = 9
The UK’s FTSE 100 index is also headed for a test of primary support at 4800. 63-Day Twiggs Momentum peaking below zero indicates a strong primary down-trend. Failure of primary support would offer a target of 4000*.
* Target calculation: 4800 – ( 5600 – 4800 ) = 4000
Canada: TSX 60 respects trendline
Canada’s TSX 60 index is testing medium-term support at 650. Respect of the descending trendline and 63-day Twiggs Momentum oscillating below zero both suggest another decline. Failure of primary support at 625 would offer a target of 580*.
* Target calculation: 650 – ( 720 – 650 ) = 580
S&P 500 breaks 1200
The S&P 500 index broke medium-term support at 1200 and is headed for a test of the primary level at 1100. Failure would offer a target of 900*. The 63-day Twiggs Momentum peak below zero warns of a primary down-trend.
* Target calculation: 1100 – ( 1300 – 1100 ) = 900
NASDAQ 100 index is similarly headed for the band of primary support between 2000 and 2050. Bearish divergence on 13-week Twiggs Money Flow warns of strong selling pressure. failure of support would signal a primary decline to 1600*.
* Target calculation: 2000 – ( 2400 – 2000 ) = 1600
Dow Jones Industrial Average monthly chart shows the index testing medium-term support at 11000. The 63-day Twiggs Momentum peak below zero again warns of a primary down-trend. Breach of support would test the primary level at 10400; and failure of that level would remove any doubt regarding a bear market.
* Target calculation: 10400 – ( 12300 – 10400 ) = 8500
Perils of ignoring Europe’s lessons – P.M.
DAVID MURRAY: The lending system for housing has resulted in a house price which is higher than it should be and part of the net foreign liabilities that are higher than they should be.
I believe that will be worked through by a stabilisation of house prices and steady increase in incomes and hopefully that’s the outcome but based on a price to income test, house prices in Australia are higher than they should be.
The regulations in the banking sector significantly promoted that outcome because the risk weight on housing is very low, so the gearing for housing is high. Historically the write-off rate’s been low. People believe that will last forever, which is always a worry. And this is purely with the benefit of hindsight, particularly on my part.