A strategy guide to what’s moving all major global markets. Likely market movers, and building market crash risk as we head towards the New Year
We already discussed most of the top market movers for this week here. Rather than repeat them, we’ll just list them and add anything that wasn’t already mentioned in the prior post.
1-3. EU WOES
In addition to what was mentioned here:
1. Greece Default Risk, Troika Divided
Latest decisions to be taken Tuesday at a special meeting of EU finance ministers to discuss Greece on Tuesday at 1600GMT/ 1100ET. Greek default and resulting contagion risk exert considerable pressure on the ministers to agree to disperse Greece’s next tranche of bailout funds. Beyond Tuesday, the Troika needs to resolve its internal differences about how to handle Greece, discussed here.
2. Spain Due To Return To Spotlight
As long as its 10 year bond auction this Thursday doesn’t fail and it avoids any negative surprises, Spain could remain under the radar for a few more weeks. However, as the Year-End approaches, anything that scares markets, such as a likely failure to resolve uncertainty surrounding Greece, the Fiscal Cliff, or both, will make Spain the leading concern. See here for details.
3. France Just Under The Radar For Now
France’s credit risk will likely avoid careful scrutiny as long as there are other EU nations that present more immediate threats. However it could come into focus at any time. In recent weeks it’s made headlines twice. Once on reports that Germany was actively studying French credit risk, and again just last week when it was the featured cover story of The Economist. Its banks are heavily exposed to the GIIPS, which is why France has always been so much easier on them than Germany, and why French banking stocks tend to behave like those of Italy when EU anxiety is high.
4. US FISCAL CLIFF
Even if a deal is reached at all, negotiations are expected to be bitter, prolonged, and not settled until just before the new year. That’s a huge problem for Spain, and thus for everyone else. See here for details.
5. POOR DATA CONFIRMING ONGOING GLOBAL SLOWDOWN
With so many leading stock indexes and other risk assets still close to decade highs even after the slow but steady pullback over the past months, they remain vulnerable to reminders that fundamentals don’t support these prices.
6. MIDEAST TENSIONS ESCALATING
Over the weekend Hamas escalated the conflict by shooting its longest range missiles at both Tel Aviv and Jerusalem in a clear provocation inviting an Israeli response. Unlike the Arab Spring, this conflict has yet to show much effect on oil prices, though that could easily change for a variety of reasons if neighboring forces choose to widen the conflict.
7. ANTICIPATED NEW JAPAN STIMULUS
This could be influential for Asian markets, particularly the Nikkei and currency pairs involving the JPY.
8. CONCERN OVER CONSUMER SPENDING
This week’s Thanksgiving holiday in the US kicks off the Christmas and New Year’s holiday season in the Christian world, and the most important weeks for consumer spending in the US and Europe. Last week’s GDP figures signaled that the EU is back in recession that is being felt in the wealthiest nations as well as in the GIIPS block. Hurricane Sandy’s damage to one of the US’s most important consumer markets bodes ill for consumer spending and a further hit to GDP in the EU and US.
9. ECONOMIC CALENDAR
As we already noted here, this week’s calendar is an exceptionally busy mid-month calendar. Highlights include:
- All the key US monthly reports on the housing sector, which is of special concern for Fed Chairman Bernanke
- EU meetings to deal with Greece and other contagion threats
- Policy statements, meeting minutes or speeches from the central banks of Germany, Japan, Australia, the US, and UK
- A batch of EU and China manufacturing and services PMIs
- Spain and Germany 10 year bond auctions that provides the latest picture of demand for Spanish and German credit risk
- German IFO business climate sentiment
The last three occur late in the week as liquidity drains from US markets and traders head off for the long Thanksgiving weekend. Japan also has a bank holiday Friday, which will further limit liquidity. That means trading towards the end of the week could either be very quiet, or, if there’s a major surprise, very volatile.
Consult any good economic calendar for details.
10. CONTINUED TECHNICAL DETERIORATION
The longer term technical deterioration continues on the bellwether weekly S&P 500 chart below.
S&P 500 Weekly Chart
Source: MetaQuotes Software Corp, thesensibleguidetoforex.com
03 Nov 18 0419
- The index is now at a major crossroads, with price sitting at the top of a major support zone of 1360-45, framed by the 50 week EMA (in red, also is a rough equivalent of the 200 day EMA) on top and the 61.8% Fibonacci Retracement (blue horizontal line highlighted by white arrow).
- Friday brought the first weekly close in the Double Bollinger Band sell zone, indicating long term downward momentum and further declines likely. As the chart shows, the last time this happened, in the spring of 2012, we had a further thrust lower before markets began moving higher on expected new stimulus.
Our key conclusions were covered here in our Crash Alert article.