Spot iron ore prices have fallen quite sharply over the last 2 weeks, down 8% to $158/t. In the last 4 weeks, Australian spot fines, as measured by the TSI, are down almost 12% landed in China.
Westpac forecast spot prices of around US$140/t by mid 2012.
The BSE Sensex is testing resistance at 17000. Breakout would signal a bear market rally to test the descending trendline. Rising 13-week Twiggs Money Flow indicates medium-term buying support.
* Target calculation: 16 – ( 17.5 – 16 ) = 14.5
The Singapore Straits Times Index also reflects a bear market rally. Respect of resistance at 2900 would warn of another down-swing — as would a 63-day Twiggs Momentum peak below the zero line.
* Target calculation: 2500 – ( 2900 – 2500 ) = 2100
Canada’s TSX 60 index is headed for a test of the descending trendline and resistance at 730 — another bear market rally. 13-Week Twiggs Money Flow oscillating around the zero line indicates hesitancy. Respect of resistance would indicate another test of support at 650*.
* Target calculation: 650 – ( 730 – 650 ) = 570
Germany’s DAX index is testing resistance at 6000. Penetration of the descending trendline on 13-week Twiggs Money Flow indicates no more than a secondary reaction (bear market rally). Breakout above 6000 would offer a target of 6500, while respect of resistance would re-visit primary support at 5000.
* Target calculation: 5000 – ( 6000 – 5000 ) = 4000
The FTSE 100 is headed for a test of 5600 after breaking resistance at 5400. Rising 13-week Twiggs MoneyFlow indicates a strong bear market rally rather than a reversal.
* Target calculation: 4800 – ( 5600 – 4800 ) = 4000
A monthly chart of the S&P 500 index gives a clearer picture. Although the Nasdaq is advancing strongly, the S&P 500 is stuck below its long-term trendline. Note the similarity to March-May 2008 rally. Breakout above 1250 would be a bullish sign, similar to the May 2008 breakout above 1400, but retreat below the former resistance level (1250) would give a strong bear warning. Likewise, a 63-day Twiggs Momentum peak below the zero line would signal a strong primary down-trend.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
Ms Luci Ellis, RBA Head of the Financial Stability Department:
Indeed, credit booms are very often part of the story in the lead-up to a period of financial instability. We published that assessment in the March and September Reviews. In the wake of that, we have sometimes been asked: how fast is too fast? Do we have a target for credit growth? Or for the ratio of credit to GDP? Or, perhaps, for housing and other asset prices? I can tell you quite plainly that we do not have numerical targets for any of these things. A target for credit growth, or any of these other variables, is not analogous to the RBA’s inflation target……….The distinction is simply that price stability is about inflation. So it can be defined as keeping inflation at an acceptably low rate. Financial stability is harder to define, but in essence it is about avoiding episodes when the financial system significantly harms the real economy.
My interpretation of this series of statements is that a fundamental flaw is at the heart of the RBA’s view of financial stability management. The RBA has specific targets for inflation and that is the single price (including assets) stability tool but has no targets or model parameters to govern financial stability. A big mistake not just of policy but market knowledge
via The Platypus blues – macrobusiness.com.au | macrobusiness.com.au.
Alarm bells should ring if household debt starts growing at 8pc to 10pc a year.
Dow Jones Industrial Average is testing resistance at 11700. Breakout would warn of a primary advance, but the market is prone to false signals because of excessive volatility and it would be prudent to wait for confirmation. Respect of 11700, or a false break above 11700, would re-visit support at 10600.
* Target calculation: 11000 – ( 12000 – 11000 ) = 10000
The S&P 500 is similarly testing resistance at 1230 on the weekly chart. Breakout would signal an advance to 1350, while respect would indicate another test of 1100. Breakout above the declining trendline on 13-week Twiggs Money Flow suggests nothing more than a secondary reaction (bear market rally). See the monthly chart.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
The Nasdaq 100 index, however, broke through 2350 and is headed for its July high. Bullish divergence on 13-week Twiggs Money Flow indicates reversal to an up-trend. Breakout above 2440 would confirm, offering a target of 2800*.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
Why do they [European financial institutions] hold so much Greek government debt? Because under Basel II, implemented (outside the United States) in 2007, Greek government bonds, rated A-, had the same 20 percent risk weight as AA/AAA asset-backed securities in the United States. That is, until S&P downgraded Greek debt from A- to BBB+. That raised the risk weight to 50 percent, suddenly requiring 60 percent more capital from banks holding Greek bonds.
This appears to be the reason that the possibility of Greek default has led to fears of another banking crisis.
via Causes of the Crisis: February 2010.
The 20 percent risk weight required banks to only hold $2 of bank capital against a $100 security — at the 8 percent Basel rate for adequately capitalized banks — allowing 50 to 1 leverage compared to 12.5 to 1 on normal bank loans.
According to a European Union official familiar with the situation, Germany and France are weighing two models but leaning towards using the fund to insure bonds from euro-zone countries.
….Germany and France are (also) fine-tuning a proposal for European banks to bring their core Tier 1 capital ratios, a key measure of financial strength, to 9%, within six to nine months, said the EU official, who spoke on condition of anonymity.
Europe’s two largest economies agree that the region’s banks should seek to raise funds in the open market and will suggest giving the banks up to nine months to fulfil the new capital requirements, the official said.
It is not only the U.S. economy that is in peril right now. …Europe is struggling to prevent the sovereign debt problems of its peripheral Euro-zone economies from spiraling into a full-fledged banking crisis… Meanwhile, China and other large emerging economies… are beginning to experience slowdowns…Nor is renewed recession the only threat we now face. Even if a return to negative growth rates is somehow avoided, there will remain a real and present danger that Europe and the United States alike fall into an indefinitely lengthy period of negligible growth, high unemployment and deflation, much as Japan has experienced over the past 20 years following its own stock-and-real estate bubble and burst of the early 1990s.
via Roubini: Moving From the Post-Bubble, Post-Bust Economy to Growth | Credit Writedowns.
