Category Archives: Global

100 days report card not satisfactory!

In the year of 2016, Equity markets around the globe were having a Roller coaster ride with a rally in start of the year in anticipation of good economy growth around where bars were raised of Global economy growth. But then BREXIT referendum in June mashed up with the rally and second half of the year was a bit nervous until 9th Nov. On the 9th day of November, Mr. Trump surprisingly won presidential elections in US which changed winds for equity markets.

Above chart is a weekly chart of DOW Index and we could notice that post 23 June, BREXIT Referendum week, we saw some profit booking while then from 9th Nov, trump win, we have got 17% rally in equity markets. The rally was in anticipation of reforms which was promised by him during campaign but his report card on 100th Day on Friday was not cheering for many economist.

Some of the achievements which he mentioned for 100th day were efforts to roll back Obama Care, steps taken to control criminal activities, answer to chemical attack, some steps to stop trade with Mexico and Promoting Made in the USA.  But why were economist not happy? Because nothing has changed the world for financial market as another promises such as spending in investment, Tax cut and financial reforms have not been implemented. Rally of 17% in equity markets have been in just anticipation of good reforms but statistics is not showing in improvement. Consumer confidence index has started losing which means now US citizen’s hopes in Trump is fading away. As you all can notice in the graph below, that consumer confidence was at just 88 before trump win but it than zoomed to 99 in Jan but than took a dip to 96.

University of Michigan Consumer Confidence Index

To gain back confidence, Trump must implement tax cut asap which could be cheerful amongst citizens and industrialists. But he is now stuck between his words (where he promised tax cut in campaign) and fear of widening of fiscal deficit due to tax cut. So that this the reason why he is still spending some more time before he takes any steps in form of tax cut.

Personal Expenditure

Another factor which has not supported economy in Q1 has been personal expenditure which has been in decreasing state which means consumers have been saving more than spending.

GDP

Economic barometer index of US,GDP, has been in falling trend since Mr. Trump has joined the party. So now Mr. Trump has get some quick reforms to show world some results on financial stats. Until now rally was just based on liquidity and consumer expectations but now if we need any rally, it should be on improving fundamentals and not just liquidity.

Technically, DOW has given a breakout on weekly charts from a pattern for a rally but if we get any fear of war than things might change. But world shouldnt wait for any result of War because that’s uncertainty and no one can predict. Its better to buy on each dips in equity markets because next few years its going to be for finance if the trump gets everything right. And I believe we must give some more time than just 100 days to judge him.

Divergence to widen: US vs Emerging Markets

Equity markets around the world follow US market index to get overall trend of financial markets but this scenario could change now with Trump plans. It was expected that Trump victory would lead to downfall across markets but only Emerging Markets are leading the fall while US markets are touching almost life highs. Reason to this is almost found behind trump’s road map for their economy.

Key Points of “Trump”onomics:

  • To slash the highest marginal income-tax rates, cut rates of tax on corporate income and on capital gains
  • Completely abolish federal inheritance and gift taxes entirely
  • To spur Infrastructure spending and Defense spending 

Good or Bad for US ? 

Trump victory was a surprising win in US markets but it did bring some cheer in Equity market which makes us think that it was what investors think would be good for corporate while common men may have some hiccups. Why it bought such a huge buying in US ? Answer was straight from Trump campaign highlight:  To slash the highest marginal income-tax rates, cut rates of tax on corporate income and on capital gains”  Corporate balance sheets and High networth individual spending power would getting stronger with tax cut and in this anticipation money started to flow from Corporate bonds to Equity markets. But on the other side it would widen inequality i.e., Richer would get more richer. So inflation could pick up in real estate segment which would be good for sometime but not for longer term

Completely abolish federal inheritance and gift taxes entirely was thought for common men. This would bring some relief on tax pain to individual who has received gifts and some properties in Inheritance. In all this is a good factor but some might use this is a tax evasion but the ratio would be negligible which is ok! Most crucial campaign point was Boosting infrastructure spending which bought much needed rally in steel prices after hitting multi year low last December. This would also cut down unemployment to large extent which could in all again help to boost inflation in country which they are starving since years. But the plan of $550bn approx spending could increase some burden on Government.

Summarizing overall picture of his plan i feel good days are ahead for US markets.  Already stocks are zooming up which has increased bond yields meaning people are now having trust on corporate reversal. This would result in strong dollar which would bring back investment for Emerging markets to US markets. Even second thought could be that we may see early pause to on going bond buying programmed if we see uptick in inflation and rate hike! The biggest challenge to trump would be felt after few years which is Trade deficit. As dollar gets strong, domestic manufacturing would go up but that would also means that import is going to be more cheaper. This was a problem back in 2013 when we had felt same pinch of currency war. So Trump should keep a tight watch on trade deficit.

Technical View on Dollar index

Dollar index which measures dollars strength vs Other currencies is also in a rising trend and supporting my view stated above.

dollar_index

Above chart is a dollar index weekly chart and as we could notice at bottom that momentum is just catching up while on the charts it has given a 2 years consolidation breakout above 100 level last week. Secondly it also moved out up short term upside trending channel fueling in more support to strong dollar. Now we talk about support on the downside it would be 96 which is the blue 50 weekly average which is acting as strong support since late 2014. 

Technical View on Dow Jones Index

Now lets look at the chart of Dow Jones to get Trump victory more clearer

dow_theoryAs we all could see in attached weekly chart of Dow Jones, we have given a Double Bottom breakout with a confirmation neckline at 17950!  Last week also confirmed breakout of a downside temporary correction by moving out of that channel which exactly took support at neckline making Double bottom target 20450 more rock solid.

So we could confirm from above that good time for US is ahead atleast for time being

Emerging markets in Trouble?

Fortune of Emerging markets seems to have changed overnight. Emerging markets were expecting Clinton to come in power and we could make at obvious reasons why from Trump road map. Two biggest negative factor for Emerging markets: Firstly; Strong dollar and rising rates in US would trigger a good sell-off in emerging markets. This seems to have already started as since the trump victory, emerging markets have seen outflows world $7bn from their equity. So for sure its going to be some trouble ahead in emerging stock market indexes. Secondly: Strong dollar would raise cost of exiting finance with emerging economy corporate have raised from outside their country. This would burden balance sheet which could add more trouble to companies. So in-short currently we should avoid emerging markets.

Technical view on MSCI Emerging market index

MSCI Emerging market index measures a pool of selected stocks from emerging markets and it has also followed the path stated above i.e., Sell-off. 

msci

So as we could notice in the weekly chart of MSCI  Emerging market index above that it had given a inverse H&S breakout few weeks back as Clinton was expected but now it has proved to be false breakout and sell-off could be witnessed easily. Though one more close below neckline at 868 is required bit indicators have started weakening.

Global Forecast

After analyzing US vs Emerging markets on Trump win, i could sum up that Emerging markets are going to have some tough times in near future while US markets could out perform. Surely, exports from Emerging markets are going to take a hit for few quarters but that wont be completely avoided by US corporates as still emerging markets enjoy Low Labour Cost. And emerging market governments such as India and Indonesia are taking strong steps to attract Foreign capital which could be fruitful for some sectors as they have Demographic opportunity. 

But as of now we could expect Divergence between US and Emerging markets to widen as we could already mark in the graph below

divergence

To end up, divergence might widen for few weeks more but ultimately now its would be good time to pump in some money in emerging stock markets such as India, Turkey, Indonesia and Thailand where Domestic demographic  demand would start inflating corporate profits soon.

BREXIT Recap

Introduction

WHAT IS BREXIT?

A referendum wil be held on Thursday 23 June, 2016 to decide whether Britain should exit (Britain’s Exit – hence the term Brexit) or remain in the European Union.

WHO WOULD VOTE?

The votes in which everyone ( or nearly everyone) of voting age can take part, normally giving a ‘Yes’ or ‘No’ answer to a question. The side which gets more than half of all votes cast is declared as a winner.

All British, Irish and Common wealth citizens over 18 who are the resident of U K, along with U K nationals living abroad who have been on the electoral register in the UK in the past 15 years.

DECISION:-

A decision to leave, this would be a first by a member nation.

The European Unification

The European Economic Community was launched in 1958. It became the European Union in 1993. The Euro Currency was created in 1999.

Brexit 1

If there are majority votes – in favor of LEAVE Britain

THE LEAVE VOTE :-

ØThis would deepen the crisis facing a continent already struggling with economic weakness, debt problems, large-scale migration and growing geopolitical instability to its south and east.

ØWithout the U.K., which alongside France dwarfs the military capacities of other member states, the EU’s defense, security and diplomatic capabilities would be hit. Only Britain and France have sizable expeditionary forces, nuclear weapons and United Nations Security Council vetoes.

ØBritain’s Exit from EU will have major repercussions for Britain, EU as well as economies across the world.

ØIncreased Paperwork: EU citizens in Britain and Brits living in other EU nations would have to update their immigration statuses. Companies working in both the UK and the EU would have to verify that they’re compliant with two sets of laws.

ØBlow to UK Economy: The UK government estimates say that Brexit could cause the country’s economy to be between 3.8 and 7.5 % smaller by 2030.

ØThreat to UK’s ‘United’ Status: Brexit could encourage England, Wales, Scotland or Northern Ireland to appeal for quitting United Kingdom.

ØRipple effect for global economy: The United States will bear the major brunt of a Brexit being UK’s biggest trading partner. President Obama has warned that it could take 10 years for Britain to negotiate a new trade deal with the US Goldman Sachs, JP Morgan, Morgan Stanley and Citi group together have contributed to the anti Brexit campaign.

If there are majority votes – in favor of STAY Britain

THE STAY VOTE :-

ØIf Vote works in favour of Britain then Britain would get a special status  within the 28 nation club.

ØMigrant Welfare Payments: Cutting the amount of benefits for low paid migrant workers from EU nations will dissuade them from flocking to UK in large numbers. Migrant workers, however, will still be able to send child benefit payments back to their home country.

ØKeeping the pound: Britain will never join euro and has secured assurances that the Eurozone countries will not discriminate against Britain for having its own currency.

ØProtection for London’s biz: Safeguards for Britain’s large financial services industry to prevent Eurozone regulations being imposed on it.

ØRunning its own affairs: For the first time, there will be a clear commitment that Britain is not part of a move towards even closer union with other EU member states – one of the core principles of EU.

The mixed reviews of EU countries

NOT IN FAVOUR:-

  • A Pew Research Centre survey published this month showed levels of disapproval of the EU in many countries as high as or higher than in the U.K.
  • In the Netherlands, 46% had an unfavourable view of the EU; in Germany and the U.K., 48%; in Spain, 49%; and in France, 61%.

MIXED REVIEW OF EU COUNTRIES:-

Brexit 2

Source:- Pew Research Centre of Global Attitudes Survey, The Wall Street Journal.

 

If Britain Exits – its impact on India

IMPACT ON INDIA:-

ØWith Euro losing one of its stars, India too can feel sighed.

ØRupee may depreciate due to double effect of foreign fund outflow and dollar rise.

ØThis will increase petrol and diesel prices to an extent.

ØThe government may want to reduce additional excise duty imposed on fuel when it was on a downward trajectory. This will increase fiscal deficit, unless revenue increased.

ØPrices of gold, electronic goods, among others will increase.

ØCheaper rupee will make Indian exports including IT and ITes, competitive.

 

Disclaimer: This is my personal view so reply on them at your risk

 

 

Germany showing back confidence

Germany has always been a focus whenever there is any crisis talks in Euro area as its one of the strongest economy at fragile time. But recently it faced some problem or may say rumors that Deutsche Bank is in liquidity crunch and bear traders were even spreading a next “lehman crisis’ in Germany.. But i thought that was stupid to conclude so easily. When Germany can take a step to save crisis in Greece, Spain or say Italy, wont it try to save their own bank??? But as the time passed and Bank officials showed confidence on their liquidity assets, we have seen markets around the global stabilizing and DAX index giving a strong sign of Short Covering. Though still the global economy is fragile but for time being there is no Deutsche crisis seen in near future. As you all could notice that, DAX has opened up above the strong resistance channel which it was holding since High this year. Though its early to confirm the reversal as we have seen false breakout too once before. But short traders so be Cautious as even indicators are supporting upside bias. 9250-9338  is strong support range and we should watch on closing basis for the same. Still Stay Alert!!

#1 Global Update: DOW would be the next COW

DOW has been in the continuous uptrend since quit some time and it has been overbought zone since long. Technically on Monday it gave a perfect Bearish Engulfing close to sign a start of a near term downtrend. Yesterdays close at 14833 was at the strong support zone. A negative close today opens the gate on the downside upto 13120. 100 DMA on DOW has acted as strong support for last few months and we may see some strong support their in coming weeks at 11618. FED’s upcoming meeting is the most important event to watch for US traders. I would recommend to SHORT DOW if it close negative today with a strict SL of 15572 CLOSING

Disclaimer: I may have personal position in index and above mentioned stocks. Views and News mentioned above may have Errors and omissions. My views are biased more towards technical analysis. Please read and study the market carefully before investing on my idea. For any suggestion contact me on my email. Some words mentioned in article don’t mean their actual meaning. They are correlated for market.