Category: Countries & Regions

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The World from Berlin: Will Merkel Change Her Tune on Euro Bonds? – SPIEGEL ONLINE

The left-leaning Berliner Zeitung writes:

“People in the euro crisis have become accustomed to one constant: What Chancellor Angela Merkel categorically rejects today can still be implemented tomorrow. That makes the euro-bond debate … so exciting. A ‘no’ from Berlin doesn’t necessarily mean the last word.”

“There are many indications that Germany will have to finally give in again and accept one of two solutions: Either increased bond purchases by the ECB or euro bonds. But in exchange, Merkel will exact a price. She wants to use the acute urgency to construct a euro zone that corresponds to her vision…. If Europe allows this new currency union with rigid controls for countries that exceed debt limits, then Merkel will open herself up to things she has so adamantly rejected. But she’s begun a dangerous game. It could come to pass that that the currency union she wants to stabilize according to German plans may no longer exist. Then even the best treaty amendments won’t help.”

via The World from Berlin: Will Merkel Change Her Tune on Euro Bonds? – SPIEGEL ONLINE – News – International.

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The Wages of Economic Ignorance – Robert Skidelsky – Project Syndicate

Despite austerity, the forecast of this year’s UK structural deficit has increased from 6.5% to 8% – requiring an extra £22 billion ($34.6 billion) in cuts a year. Prime Minister David Cameron and Chancellor George Osborne blame the eurozone crisis; in fact, their own economic illiteracy is to blame. Unfortunately for all of us, the explanation bears repeating nowadays. Depressions, recessions, contractions – call them what you will – occur because the private-sector spends less than it did previously. This means that its income falls, because spending by one firm or household is income for another.

In this situation, government deficits rise naturally, as tax revenues decline and spending on unemployment insurance and other benefits rises. These “automatic stabilizers” plug part of the private-sector spending gap. But if the government starts reducing its own deficit before private-sector spending recovers, the net result will be a further decline in total spending, and hence in total income, causing the government’s deficit to widen, rather than narrow. True, if governments stop spending altogether, deficits will eventually fall to zero. People will starve to death in the interim, but the budget will be balanced.

via The Wages of Economic Ignorance – Robert Skidelsky – Project Syndicate.

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Self-serving myths of Europe’s neo-Calvinists – Telegraph Blogs

From a paper by Philip Whyte and Simon Tilford for the Centre for European Reform… a pro-EU group with a broadly free-market leaning.

Eurozone leaders now face a choice between two unpalatable alternatives. Either they accept that the eurozone is institutionally flawed and do what is necessary to turn it into a more stable arrangement. This will require some of them to go beyond what their voters seem prepared to allow, and to accept that a certain amount of ‘rule-breaking’ is necessary in the short term if the eurozone is to survive intact. Or they can stick to the fiction that confidence can be restored by the adoption and enforcement of tougher rules. This option will condemn the eurozone to self-defeating policies that hasten defaults, contagion and eventual break-up.

via Self-serving myths of Europe’s neo-Calvinists – Telegraph Blogs.

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Bond markets v. the Deficit Supercommittee – Evan Newmark

The bond markets will have their say. They have voted in Europe — electing new governments in Greece, Italy and Spain — and the time is fast approaching when they will cast their vote in the US as well.

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Cut in Europe Bank Lending Has Wide Impact – WSJ.com

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.”

via Cut in Europe Bank Lending Has Wide Impact – WSJ.com.

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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.

Hang Seng Index

* 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.

Shanghai Composite Index

* Target calculation: 2300 – ( 2600 − 2300 ) = 2000

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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.

Dow Jones South Korea Index

* 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.

Nikkei 225 Index

* Target calculation: 8400 – ( 9000 − 8400 ) = 7800

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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.

ASX 200 Index

* 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.

All Ordinaries Index Weekly Chart

* Target calculation: 4000 – ( 4500 − 4000 ) = 3500

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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*.

BSE Sensex Index

* 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.

Straits Times Index

* Target calculation: 2500 – ( 2900 − 2500 ) = 2100

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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.

FTSE MIB Index

* 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*.

CAC-40 Index

* 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*.

DAX Index

* 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.

FTSE 100 Index

* Target calculation: 4800 – ( 5600 − 4800 ) = 4000

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