Total estimated outflows from long-term mutual funds were $16.94 billion for the week ended Wednesday, August 3, the Investment Company Institute reported today.
Europe need not wait for Germany – FT.com
Replacing all national sovereign bonds (although not loans) with common eurobonds would create a market worth €5,500bn. It would be backed by governments that together owe less debt, run a lower combined deficit and have greater tax-raising capacity than the US and Japan. It would almost certainly lead to lower yields than the current eurozone average and virtually eliminate the possibility of a bond buyers’ strike.
via Europe need not wait for Germany – FT.com.
Creating a common Eurobond would make economic sense but is politically unachievable because of opposition in Germany. Convincing Germans that it is in their best interests will test Angela Merkel’s leadership abilities to the full.
Sensex reveals short-term support
Staggered red candles, rather than free-falling with little or no overlap, indicate the presence of short-term buying support on the Sensex Index. Higher volumes tend to support this. Respect of support at 16500 would indicate another test of resistance at 17500. Failure of support, however, would test 16000*.
* Target calculation: 17500 – ( 19000 – 17500 ) = 16000
Michael Barone: The Fall of the Midwest Economic Model – WSJ.com
So what does the president have to offer the Midwest? The idea that the wave of the future is an ever-larger public sector financed by a more or less stagnant private sector looks increasingly absurd. The Midwest’s public sector has, as Margaret Thatcher put it, run on “other people’s money.” Meanwhile, Mr. Obama’s trip to the Midwest has been preceded by Texas Gov. Rick Perry’s foray into Waterloo, Iowa. Mr. Perry points out that his state, with low taxes and light regulation, has been producing nearly half of America’s new jobs.
via Michael Barone: The Fall of the Midwest Economic Model – WSJ.com.
Behind its lectures, China is a sinner, too – FT.com
The main point is that China’s debt burden is far higher than it likes to admit, and much of that debt has piled up in the past few years, as a result of Beijing’s response to the global financial crisis.
“Even though headline sovereign debt levels are low in China, so much quasi-sovereign activity happens through the banking system that if you include some of those contingent liabilities, the number can get very big,” says Charlene Chu, head of Fitch’s China Bank Ratings.
“People forget that China undertook its fiscal stimulus package through the banking system rather than by issuing public debt in the way that other countries did.”
Mon Dieu! French Banks Could Pull Down the Economy
As of the end of March 2011, French banks held $410 billion of Italian debt, by virtue of their holdings of Italian government bonds and loans to the private sector, according to the Bank for International Settlement. They were also on the hook for $86 billion because of credit commitments, derivatives contracts and other loan guarantees in Italy.
The ability of the French financial system to weather an Italian storm is doubtful because French banks are less capitalized than their major European counterparts.
China Momentum v. Money Flow
The Shanghai Composite displays a similar bullish divergence on 21-day Twiggs Money Flow to the DJ Shanghai Index. Follow-through above 2660 is likely, but resistance at 2820 is expected to hold.
* Target calculation: 2600 – ( 2800 – 2600 ) = 2400
The Hang Seng Index shows a similar (Twiggs Money Flow) bullish divergence to the Shanghai Composite, but both display a sharp fall on 63-day Momentum below zero, warning of a primary down-trend. Expect a rally to test resistance at 21500, but the bear market will continue.
* Target calculation: 19500 – ( 21500 – 19500 ) = 17500
Kiwi 50 face strong selling pressure
The NZ50 Index is retracing to test 3300, but 13-week Twiggs Money Flow deep below zero warns of strong selling pressure. Respect of resistance is likely, followed by another test of support at 3100.
* Target calculation: 3300 – ( 3600 – 3300 ) = 3000
India Singapore
India’s Sensex Index closed lower Friday on average volume. 13-Week Twiggs Money Flow continues below zero, warning of selling pressure. Breakout below Tuesday’s low of 16500 would confirm the decline to 16000*.
* Target calculation: 17500 – ( 19000 – 17500 ) = 16000
The Singapore Straits Times Index fared better. Recovery above 2900 would indicate a bear rally, but resistance at 3000 is expected to hold.
* Target calculation: 2800 – ( 3000 – 2800 ) = 2600
Asian pennants
Japan’s Nikkei 225 Index displays a wide pennant formation, suggesting continuation of the down-trend. 21-Day Twiggs Money Flow deep below zero indicates selling pressure. Breakout below 8800 would offer a target of 7800*. Upward breakout is less likely, but would test resistance at 9300/9400.
* Target calculation: 8800 – ( 9800 – 8800 ) = 7800
The Seoul Composite Index displays a similar pennant. Friday’s red candle on stronger volume confirms selling pressure. Downward breakout is likely and would offer a target of 1500*.
* Target calculation: 1800 – ( 2100 – 1800 ) = 1500