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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Johnny Canuck who wrote (52459)

6/17/2016 6:43:18 PM

From: Johnny Canuck

Read Replies (1) | Respond to of 69262

Weekly Macro Insights for June 17, 2016

To no one’s surprise the Fed left interest rates unchanged this week. Economic data has been getting weaker and the Fed has finally acknowledged that. Corporate profits have been on a downward path for three quarters now and it appears jobs are beginning to reflect it. I don’t think this is just a soft patch in employment, as the Fed claims, and instead we are beginning to see deteriorating consumer spending. The Fed also expressed some concerns about the potential risks from “Brexit” (UK leaving the European Union).

It looks like consumer fatigue is setting in. This week the largest issuer of store credit cards (for example a Wal-Mart credit card), Synchrony Financial, spooked the market by warning of higher than expected defaults this year. The big question is how much more debt can consumers take on? It’s rare for just one company to be citing difficulties about people paying off their debts.

Consumer Discretionary stocks have been acting very poorly. You can see below how the sector has been deteriorating by looking at the equal weighted consumer discretionary index (we look at this as it removes the effect of some stocks that have a large effect on the return of the sector). Are all these puzzles pieces unrelated or are they adding up? I’m thinking it’s the latter.

Moving to Brexit risk, the Leave camp increased in a weekend poll leading to concerns amongst investors. The number of “Brexit” mentions in Bloomberg articles saw a massive surge on Monday this week, see below. The worry is not only the uncertainty over a country leaving the Euro, but whether it could lead to other countries following the same path.

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I found this interesting - The UK’s Sun newspaper has come out in favor of the UK leaving, saying that staying is bad for jobs, immigration and the general way of life. Apparently, since 1974 electoral results have gone the same way the Sun has endorsed. We shall see what happens.

The combination of Brexit fears and a dovish Fed (in favor of lower interest rates) created a strong demand for safe haven assets this week. Gold managed to top $1,300 an ounce and sovereign debt rallied around the world sending some country’s 10 year yields to unprecedented levels. Germany was one of these countries as its 10 year Bund broke the zero barrier for the first time ever (investors are PAYING to lend the government money). Some have commented this is now “the new abnormal.”

With all this uncertainty, and interest rates going more negative Euro banks took a beating this week. Deutsche Bank’s CDS spreads broke out…again, something I’ve highlighted several times before (this is a measure of risk – higher is bad). The problem is that Deutsche Bank has the second largest derivative book in the world behind JP Morgan and that is a serious concern. If the viability of Deutsche Bank were put in jeopardy, we would see many other Euro banks go under which would kick up all kinds of stress in the system reminiscent of 2008.

I’m keeping an eye out for other signs of consumer fatigue and global slowdown. Stay tuned.

?Market ?RunDown?

Reads of the Week (click on the title for the article)

Yuan Rises From Five-Year Low Amid Bets PBOC Supporting Currency

The Only Certainty for World’s Central Bankers Is Uncertainty

What A Median-Income Can Buy You In Vancouver’s Hot Housing Market

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US Buybacks Slowing Down

Speculative Long Positions In USD Continue To Drop