Best of the Week
Most Popular
1.Gold And Silver Voodoo Analysis Price Forecasts - Austin_Galt
2.UK Saved From I.S. Threat But Scottish Independence Nightmare is Not Over! - Nadeem_Walayat
3.Silver Price At or Very Close to an Important Low - Clive_Maund
4.Gold And Silver - PetroDollar On Its Deathbed? PMs About To Rally? No - Michael_Noonan
5.Gold and Silver Bear Phase III Dead Ahead - Rambus_Chartology
6.Stock Market Major Selloff Looms - Zeal_LLC
7.Inflate or Die! When Leverage Fails and Market Hope Turns to Fear - Ty_Andros
8.Gold Price Very Close to an Important Low - Clive_Maund
9.Market Forecasts for Stocks, Gold, Silver, Commodities, Financials and Currencies - EWI
10.U.S. Aggression - Will Russia and China Hold Their Fire? - Paul_Craig_Roberts
Last 5 days
“Back Door” Method For The Government To Pay Down The Federal Debt Using Private Savings? - 1st Oct 14
Dow Stocks Index And The No Mercy Cycle - 1st Oct 14
Why China Thinks Gold is the Buy of the Century - 1st Oct 14
Forex Volatility Predicts Bottom in Gold and Silver? - 1st Oct 14
Stock Market Wil-e-Coyote Moment May Have Arrived - 1st Oct 14
Europe Teetering the Ddge of a "Japan-style" Deflation - 30th Sept 14
Economists Economic Atonement - 30th Sept 14
Everything You Need to Know About the Stock Market S&P Index Until Christmas - 30th Sept 14
Singapore Becoming Global Gold Hub - Launches Kilo Bar Contract And Gold ATMs - 30th Sept 14
Germany Fights on Two Fronts to Preserve the Eurozone - 30th Sept 14
Turn the Tables on the Gold and Silver Market Manipulators - 30th Sept 14
U.S. 2014 Election Business as Usual - 30th Sept 14
Gold - Time to Buy the Dip? - 30th Sept 14
Urging Investors to Stay Liquid for the Coming Gold Stocks Boom - 30th Sept 14
The Japanese Deflation Myth and the Yen’s Slump - 29th Sept 14
Epic Investor Optimism that Can Be Reversed Only by a Huge Stocks Bear Market - 29th Sept 14
Russia’s Gokhran Buying Gold Bullion In 2014 and Will Buy Palladium In 2015 - 29th Sept 14
The End of Monetary Policy - 29th Sept 14
Here's What Rising Interest Rates Really Do to Your Shares - 29th Sept 14
Is a Credible Stock Market Top Forming? - 29th Sept 14
Silver Price At or Very Close to an Important Low - 29th Sept 14
Gold Price Very Close to an Important Low - 29th Sept 14
Nihilism And The Unknown Future - 29th Sept 14
Stock Market S&P, NAS Change In Trend? None Apparent, But A Caveat - 29th Sept 14
UK Saved From I.S. Threat But Scottish Independence Nightmare is Not Over! - 29th Sept 14
U.S. Aggression - Will Russia and China Hold Their Fire? - 28th Sept 14
Currency Wars and the Death of the Euro - Audio - 28th Sept 14
Obscure Maritime Law Practically “Guarantees” Profits for These Energy Companies - 28th Sept 14
Stock Market Primary IV Underway? - 27th Sept 14
Darwin And The Climate Apocalypse - 27th Sept 14
The Global Middle Class and Copper Consumption, A Stop Spike Event - 27th Sept 14
Can Money Save The Climate? - 27th Sept 14
Gold And Silver - PetroDollar On Its Deathbed? PMs About To Rally? No - 27th Sept 14
Debt and Inflation Consquences of American Fear - 27th Sept 14
U.S. and Global Confidence are in Divergence - So Are Stock Markets - 27th Sept 14
Are U.S. Cars About to Crash? - 27th Sept 14
Why the U.S. Created and Armed ISIS From Libya to Syria - 27th Sept 14
Stock Market vs the Developing Bear Market for Liberal Democracy? - 26th Sept 14
Stock Market Major Selloff Looms - 26th Sept 14
How My Charts Uncovered Two Big Stocks That Are Soaring Like Small Caps - 26th Sept 14
What Cycles Reveal About Stock Market Crash - 26th Sept 14
Gold Not A Safe Haven On Terrorism, Middle East Bombing, Russia ... Yet - 26th Sept 14
Valuing Gold and Turkey Farming - 26th Sept 14
Gold $1200 Underpinned by Physical Demand - 26th Sept 14
Inflate or Die! When Leverage Fails and Market Hope Turns to Fear - 26th Sept 14
Market Forecasts for Stocks, Gold, Silver, Commodities, Financials and Currencies - 26th Sept 14
Gold and Silver Bear Phase III Dead Ahead - 26th Sept 14
The Home Depot Breach Boils Our Blood – and It Should - 26th Sept 14
Why the Pundits are Wrong About Crude Oil Prices - 26th Sept 14
Where’s the Economic Growth? - 26th Sept 14
Stock Market Future Bull - 25th Sept 14
The Specter of Global Debt Default is Once Again Rearing its Head - 25th Sept 14
All Major Market Analysis and Forecasts Investor Open House has Started! - 25th Sept 14
Federal Reserve Policies Cause Booms and Busts - 25th Sept 14
Currency Wars Deepen - Russia, Kazakhstan Buy Very Large 30 Tons Of Gold In August - 25th Sept 14
Strong U.S. Dollar Pressures Gold - 25th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Most Exciting Event in the History of Technical Analysis

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.


© 2005-2014 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

Free Report - Financial Markets 2014