Stock and Financial Markets Crash is Coming, Key Signs of Reversal
Stock-Markets / Financial Crash Feb 03, 2012 - 05:41 AM GMTBy: FNN24
2012 has begun with a bang for risk assets and there is no doubting the rally. Never trade your bias. You may want the markets to crash for the cause of the crisis that the world faces, but markets were never created to reflect the reality. It is a facade and there are rules of the game. If you obey the rules unwavering, you will make money. FNN24 in association with Deutsche Boerse provides real time news and FNN24 traders provide quant based trading analysis.
We provide a part of the premium analysis here which cover both Macro and Technical analysis.
US Manufacturing
The ISM index for manufacturing increased to 54.1 in January from a downwardly revised 53.1 (originally reported as 53.9) that reflects new seasonal factors. This level is the highest since June and consistent with a moderate expansion. The consensus was a gain to 54.5. The increase parallels the positive trend in other manufacturing surveys. Only the Chicago PMI decreased in January, but from an exceptionally high level. Details were somewhat mixed: Production declined 3.2 to a still-high 55.7, possibly on the phasing out of incentives for capital expense items at the end of 2011. The forward-looking new orders component gained 2.8 to 57.6, the highest since April. The employment sub-index slipped 0.5 to 54.3. Outside the components of the headline index, new export orders were up another 2.0 to 55.0. The solid increase in foreign demand puts fears about negative spillovers from the global economy into perspective. Also on the positive side, the backlog of orders index increased 4.5 to 52.5, indicating a greater backlog for the first time since May. On the other hand, the indices on both own inventories and customers’ inventories increased in January, reflecting the recent build-up in stockpiles which may damp future production. In sum, the report indicates that the manufacturing sector continues to improve, consistent with a moderate expansion of the overall US economy (chart).
China PMI
China’s manufacturing PMI, a general indicator of the overall Chinese manufacturing and industries sector, failed to beat expectations and fell to its lowest level since February 2009. The June figure came in at 50.9, lower than a surveyed 51.5 and previous 52.0. A reading of above 50 means the sector is expanding, while a figure below 50 would indicate a shrinking manufacturing economy.
Japan Industrial Production
Japanese industrial production was up considerably in December 2011, by 4.0% monthon-month. The downtrend, which had been in place since mid-year, seems to have come to an end. Stable domestic demand and sufficient energy supply should continue to support industrial output. As a result, overall growth will probably be more dynamic during the first half of the year.
Following a decline in November, industrial manufacturing and mining output was up strongly in December, by 4.0% month-on-month. This outcome exceeded expectations Corporates believe that production will rise by another 2.5% in January. The industrial sector is well on the way towards offsetting the drop in production seen after the floods in March 2011. The rise in output was mainly supported by the automotive sector and electronic information and communication devices.
Following the disaster in March 2011, the Japanese industry quickly recovered some of the losses at first. However, the trend (three-month average) pointed downwards from mid-2011 (see chart). Industrial production was dampened by a slowdown in important export countries and by the yen appreciation. Later, the floods in Thailand interrupted supply chains and weighed on industrial output. The recent, strong data seem to have put an end to the downward trend. We expect industrial output to rise further in the next few months. In particular, reconstruction activities after the floods should generate stable domestic demand. Sufficient energy supply and the rebuilding of supply chains should ensure adequate production capacities.
While analysts across are negative on Japan, the corporates in Japan are richest in the world in terms of Net Debt levels. Every major block of Yen buying over the last 5 years has been led by a major Japanese corporate in a bid to protect and hedge their sales. This even while BOJ has solde over USD 50 bn worth of Yen.
German Retail Sales
German retail sales surprisingly declined in December, by 1.4% month-on-month. In real terms, Christmas retail sales were even down year-on-year in 2011. Nevertheless, private consumption probably increased in the final quarter of 2011. Consumption should continue to support German growth in the coming quarters.
What conclusions can be drawn for private consumption as a whole? On average, retail sales were down 0.7% quarter-on-quarter in the fourth quarter. However, there is no 1:1 relationship between retail sales and overall consumption. After all, retail spending by private households amounts to less than one-quarter of overall consumption. We believe that private consumption continued to rise slightly in the fourth quarter. The palpable increase in employment and significant wage growth should make sure that private consumption stabilises the German economy in 2012; we expect consumption to grow by an estimated 1.25%.
BDI Index
On the technical front, Bond market and FX charts are analysed here.
Bond markets
German Bunds
US 10 Year price
Dollar Index
Oil
EUR/USD daily charts
EUR/GBP daily charts
AUD/JPY
Strong bunds and falling yields have made YEN more powerful than any currency. AUD is the king of risk trades. When two titans meet, the outcome will decide the dominant trend. Needless to say the winner here till now is still the YEN. AUDJPY on the charts above needs to take out 82.3 level which we expect to be taken out in 2012 (in keeping with our premium analysis dated 30 Jan 2012), is facing immediate headwinds as it fights of at 81 levels.
Trivia
There has been a total of 37 times when the markets have been up in January. Elections have been held in 8 such years when January returns have been positive. Every time of those 8 years, markets have been up more than 5% for the year, 7 times it has been up over 10% for the year and 3 times it has been up over 15%.
On an average, when the January return is positive, markets have closed 15% positive for the year. More importantly, the markets have never even lost money in a election year when January returns have been positive.
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Mark
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