Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Why Early Dec Will Be Financial Markets Last Hurrah! Global Economy to Crash

Stock-Markets / Financial Markets 2011 Nov 29, 2011 - 04:03 AM GMT

By: Capital3X

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticlePart of this article was originally published to C3X clients on 28 Nov 2011 early Asia trading time and discussed in the C3X live trading room, on Nov 18 2011 when the S&P was at 1160 and AUD/USD below 0.9688, EURUSD at 1.3230 and USDCAD at 1.0480. Markets have already moved in the direction of trends and trading calls that we have published since then.


TECHNICAL ANALYSIS

ES Daily charts

Stochastic have rebounded indicating a rebound while the vortex continues to bearish. We expect ES to pull back to 1230 levels which is a developing *confluence* zone.

EU volatility charts leading us

The EUR volatility has been falling over the last few days even while EURUSD has been tracking Italian Yields. We expect in between the EU auctions, EURUSD will find enough reasons to rally given the falling stress in inter bank lending. The stochastics on volatility are falling to a relatively calm lending market.

AUDUSD Daily charts

AUDUSD is a key barometer for risk. We expect AUDUSD to bounce of key FIB levels .9650 to 1.02 levels in December tracking risk trades.

USD/CAD Daily charts

USD/CAD is leverage play on crude but even then USD/CAD supersede crude over a longer duration. We expect USD/CAD to play ball with risk as USDCAD falls back to 50 MA at 1.0220 levels before Dec is done.

FUNDAMENTAL ANALYSIS
On fundamental side, we believe that the world is about to crash to a crisis that we may not have seen in our life times. Two of the world largest importers of world trade, China and India are now nearly 200 bps of their peak growth rates with both countries slowing sinking into a political quagmire.

In the euro zone, to everyone utter surprise, Germany is becoming the crux of the problem. Macro economic slowdown and credit markets starting to question the very ability of Germany to be the corner stone of EU bailout. The CDS flew of the handle to 120 from under 100 levels though since then have calmed. But it was a stark reminder to Berlin that “Do not take the bond markets for granted”.

As the crisis has spread over the last six months into the larger peripherals, the need for fiscal consolidation from large euro area member states has increased. Austerity in these larger member states such, as Italy and France, clearly weighs more on euro area economic prospects than does the austerity in smaller countries. Six months ago, we were already predicting a significant tightening of the euro area fiscal stance in 2012.

The failure of the EU authorities to find a solution to the sovereign debt crisis means the downside risks are materializing. The ECB will step in as a temporary buyer of Italian and Spanish bonds but treaty changes and fiscal union are coming our way in 2012. But without the compensating moves on the political front, markets will fear this as politically unsustainable.

The trouble is, we fear the impact of fiscal tightening on broader economic activity is itself increasing, that is, the fiscal multiplier is growing. We think this for two reasons. First, the crisis is having a materially greater impact on the bank credit channel. Second, the austerity has been insufficient to inject confidence back into markets, with the danger that it loops back into the economy with no tangible benefits seen in which case a greater level of austerity will be demanded which will then shrink growth even further.

Consumer and Industrial Confidence

The consumer and Industrial confidence in Germany are being dragged down by EU debt crisis. It is a matter of time before the Debt crisis will fully engulf the German economy, something the EUR founders need to happen if their dream for EU fiscal union needs to be realized.

German Debt holding

Significant portion of German debt is held by foreigners and hence making the Germany economy extremely susceptible to volatility.

EU Debt redemption in 2012
In other part of the world, both India and China are struggling with rising Yield and FX issues over and above a slowing consumer growth .
Expected auctions by Italy and Spain are upwards of 500 bn euros. With bond markets nearly calling a strike on Italy and Spain, we expect to be catastrophic defaults across EU zone with crisis dragging right to the German doorsteps. We expect the auctions will drag EUR/USD to parity in 2012.

Spreads are pointing to imminent Inversion

Spreads between 2y and 30 y are falling below key levels which are indicating to severe liquidity crunch which will now boil into the larger economy.

German CDS springing


Italian Yields refusing to calm

Italy, the third largest bond market in the world, is now defining the EURUSD moves. It is no more Germany which leads EURUSD moves, but in a strange sense, Italy defines the EU zone destiny.

On the other side of the coin, US economy has maintained a certain sense of calm but we believe this is temporary.

US home sales

The US home sales while have held up till now are now weakening again. The case shiller index has been stable after a 35% correction but is now ready to begin the decline as financial markets pay scale takes a drop and speculation starts to ebb away given the rising 2Y yields on US treasury (key schemes through which banks and speculators borrowed for speculation).

Emerging Markets
India

The Indian economy today has more depth and breadth than a decade ago but it is also more vulnerable to global cycles and high expectations from investors and its own population. A year ago, India boasted the best performing stock market in Asia, surging foreign investment flows, and confidence among observers and policymakers about growth exceeding 9 percent for years to come. In a striking turnaround, a year of persistently high inflation, an anaemic investment cycle, repeated governance scandals, and little movement in market friendly reforms have soured the underlying economic dynamic and market sentiments. Coupled with
substantial headwind from the debt crisis in industrialized economies, much of the exuberance associated with India has dissipated, and India’s perennial Achilles’ Heel, a pernicious combination of trade and fiscal deficits, has come back under scrutiny. We believe that India is on a structural slowdown for the next half a decade thus affecting world growth as a whole of till the time a second reform revolution brings about change.

China
China’s October trade surplus amounted to USD17bn and inward FDI amounted to USD8bn, the size of outflow of capital (which includes authorized outward FDI, portfolio outflow, private sector purchase of forex, as well as hot money outflows, among others) was substantial. It obviously reflected the expectation of RMB depreciation by some market participants. The negative net forex purchase by the PBOC leads to a contraction of RMB liquidity in the banking system, initially by the amount PBOC forex sales, and over a period of time this contractionary effect will be multiplied by the money multiplier (3.7x time). This exacerbates the downward pressure on the deposit base in the banking system and makes it more difficult
for banks to fund their lending activities. This will have severe consequences for Chinese credit markets as we already see wild volatile movement in China CDS spreads. China may no longer be the net importer of world trade and hence pushing the ball back into US and EU courts.

We believe, far from solving any crisis, the world has sunk deeper into a crisis whose depth and breadth will surprise everyone. Bond markets are ready to come calling as they take no prisoners once they decide to call the bluff. But we also believe that 2012 will see EU fiscal union being enacted post which we expect EURUSD to spring back to 1.5 and then continue the rise given the coming holocaust of US Municipal Bond run starting Oct 2012.

The immediate short term, we expect markets to well bid in Dec till the summit on 9th . We expect EURUSD to recover smartly and risk assets to post gains. The sante rally, however suppressed it maybe, is now upon us. Santa may just be a bit pale this time around.

Our feeds: RSS feed
Our Twitter: Follow Us

Kate
Capital3x.com
Kate, trading experience with PIMCO, now manage capital3x.com. Check performance before you subscribe.

© 2011 Copyright Capital3X - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules