Footsie stalls as Pound strengthens

Pound Sterling is strengthening against the US Dollar as well as the Euro (mentioned last week). Recovery of the Pound above 1.27 (GBPUSD) completes a triple bottom, suggesting that a base is forming. Crossover of 13-week Momentum above zero indicates a primary up-trend.

Pound Sterling (GBPUSD)

Breakout above 1.20 against the Euro (GBPEUR) would strengthen the signal.

The FTSE 100 continues to test support at 7100. Declining Twiggs Money Flow indicates medium-term selling pressure. A rising Pound is likely to result in a Footsie test of primary support at 6700.

FTSE 100

European stocks unfazed by upcoming election

Dow Jones Euro Stoxx 50, reflecting the top 50 stocks in the Euro monetary area, appears unfazed by the upcoming French elections. The index has undergone a shallow retracement over the last 3 weeks, while rising Twiggs Money Flow indicates long-term buying pressure.

Dow Jones Euro Stoxx 50

Polls have proved notoriously unreliable in the last year and I will not venture to comment on the election outcome. But breakout above 3500 is likely if Le Pen fails in her bid and would signal another advance.

Cable drags Footsie lower

Pound Sterling strengthened this week on news of an early election. Despite Brexit fears the Cable, as it is commonly referred to by traders, has been strengthening for several months. Crossover of 13-week Momentum above zero suggests a primary up-trend. Breakout above 1.20 against the Euro would confirm the signal.

Pound Sterling (GBPEUR)

The FTSE 100 retreated from resistance at 7400. Rising troughs on Twiggs Money Flow indicate long-term buying pressure but reversal below 7100 would warn of a correction.

FTSE 100

* Target: 7400 + ( 7400 – 6700 ) = 8100

European advance continues

Dow Jones Euro Stoxx 50, reflecting the top 50 stocks in the Euro monetary area, is consolidating in a narrow band below 3500. Rising Twiggs Money Flow indicates strong buying pressure. Breakout above 3500 is likely and would signal another advance.

Dow Jones Euro Stoxx 50

The FTSE 100 is consolidating in a narrow range below 7400. Rising troughs on Twiggs Money Flow indicate strong buying pressure. Breakout above 7400 is likely and would offer a long-term target of 8000*.

FTSE 100

* Target: 7400 + ( 7400 – 6700 ) = 8100

Robots Take Over | Susanna Koelblin | LinkedIn

From Susanna Koelblin:

First large scale shoe robot factory unveiled: Adidas will use machines in Germany instead of humans in Asia to make shoes

Adidas, the German maker of sportswear, has announced it will start marketing its first series of shoes manufactured by robots in Germany from 2017. More than 20 years after Adidas ceased production activities in Germany and moved them to Asia, Adidas unveiled the group’s new prototype “Speedfactory” in Germany. As of this year, the factory will begin large-scale production. What’s more, Adidas will also open a second Speedfactory in the U.S. in 2017, followed by more in Western Europe. According to the company, the German and American plants will in the “mid-term” each scale up to producing half a million pair of shoes per year.

Does this pose a threat to Adidas’s traditional manufacturing base in China, Indonesia and Vietnam? After all, labor in the region is becoming less cheap these days, and manufacturers are increasingly turning to robots. The current model in the apparel industry is very much based on sourcing products from countries where consumers are typically not based. In the longer term Adidas could even produce the shirts of Germany’s national football team in its home country. The shoes made in Germany would sell at a similar price to those produced in Asia, where Adidas employs around one million workers. Arch-rival Nike is also developing its robot-operated factory.

This development in the shoe area is just the beginning and will be leveraged to the apparel industry as well….

Robot factories will not restore former employment levels, with operations run by a skeleton staff. And low employment leads to low consumption. But new factories will require intensive capital investment. This may portend increased demand for capital in the future. With current high debt levels threatening the stability of the financial system, equity investors may be in short supply.

Source: Robots Take Over – The Apparel Production | Susanna Koelblin | Pulse | LinkedIn

Europe advances

Germany’s DAX is testing the band of resistance between 12000 and its April 2015 high of 12400. Rising troughs on Twiggs Money Flow indicate strong buying pressure. Breakout is expected but we are likely to experience consolidation below 12400, or a moderate correction, ahead of this.

DAX

The FTSE 100 followed through above resistance at 7350, signaling another advance. Rising troughs on Twiggs Money Flow indicate strong buying pressure. Target for the advance is 7600*.

FTSE 100

* Target: 7350 + ( 7350 – 7100 ) = 7600

Europe advances

Dow Jones Euro Stoxx 50 represents the 50 largest blue chip stocks (Volkswagen, Bayer, Allianz, L’Oreal, Phillips, Unilever, etc.) in the Eurozone, in terms of free-float market capitalization. Breakout above resistance at 3330 signals an advance to 3500*.

Dow Jones Euro Stoxx 50

* Target: 3300 + ( 3300 – 3100 ) = 3500

The FTSE 100 is testing support at its former resistance level of 7350. Rising troughs on Twiggs Money Flow indicate strong buying pressure. Respect of support is likely and would confirm an advance to 7500*.

FTSE 100

* Target: 7100 + ( 7100 – 6700 ) = 7500

Long-term target is 8000: 7000 + (7000 – 6000).

The key component driving inflation

Two interesting graphs on inflation from Niels Jensen at Absolute Return Partners:

….similarities between the story unfolding in the UK and the one in the US. Core inflation in both countries is significantly higher than it is in the Eurozone – just above 2% in the US and just below 2% in the UK whereas, in the Eurozone, it is only 0.9%. Furthermore, services are very much the engine that drives core inflation in both the UK and the US (exhibit 6).

Exhibit 6: The drivers of core inflation (US only)Source: The Daily Shot, BEA, Bureau of Labor Statistics, Haver Analytics, February 2017. Data as of December 2016

To a very significant degree that is down to rising medical care costs (exhibit 7). As the populace ages, this can only get worse – at least in the US, where almost all healthcare is provided privately and paid for by insurance companies.

Exhibit 7: US personal consumption expenditures by component (%)
Source: The Daily Shot, BEA, Haver Analytics, February 2017

Source: A Note on Inflation: Is it here or isn’t it? – The Absolute Return Letter

Europe: Long-term buying pressure

The FTSE 100 is consolidating below resistance at 7350. Rising troughs on Twiggs Money Flow indicate strong buying pressure. Breakout above 7350 is likely and would signal an advance to 7500*. The long-term target is 8000.

FTSE 100

* Target: 7100 + ( 7100 – 6700 ) = 7500

Dow Jones Euro Stoxx 50 is similarly consolidating while Twiggs Money Flow reflects long-term buying pressure. Breakout above 3330 would signal a fresh advance with a target of 3500*.

Dow Jones Euro Stoxx 50

* Target: 3300 + ( 3300 – 3100 ) = 3500