11/16/12: The US dollar continues to show strength as now a rapidly hotting up situation within the middle east adds to a general risk-off environment. Of particular note this week, Europe\'s woes are starting to show in earnest among the bigger previously thought impervious nations of the North. Austerity may be this generation\'s 1930s tariffs. One by one the PIGS nation\'s of Europe have watched their own economies crumbled in the face of dramatic self imposed GDP reductions. Now it appears it is Europe\'s leading northern economies\' turn (this week\'s WCTS focus). Hopefully, the academics within North America can talk the lemming (North American economy) off the cliff (the fiscal-cliff rather) before we too shoot ourselves in our collective feet. Elsewhere, grain prices look to have indeed topped heading into the demand driven portion of their marketing year. Since global growth is currently in question and a risk-off atmosphere prevails, the cure for high grain prices at the moment seems to be indeed that - high grain prices.
As a follow up to recent posts regarding the noticeable bottom in the US dollar index and corresponding top in the Euro-FX, I though we ought to take a look this week at the coincidental breakdowns in the European stock markets. This collective break is significant in itself as the fundamental news out of the region seems to be rather bleak. This past week saw the Euro-zone officially fall into recession (News Link) with growth expectations pegged for the 2013 at a whooping 0.1% (and that may be optimistic). Interestingly, of specific note this past week, German itself is starting to now starting to feel the pain as its ZEW Economic Sentiment reading came in much worse than expected. Austerity is taking its' bite, people are expecting contraction and it is now feeding on itself. Money multiplyer theory would suggest these economies will not only feel the effects of the government mandated cuts but also the ripple effect of the cuts and then the ripple effect of the ripple effect etc. Europe does indeed have a long fundamental road to recovery ahead of itself.
So with this fundamental backdrop, lets take a look at the technical picture and see what it has to say. First off, it would appear the breakdown in the UK & Germany are well contained within broader bull markets. This supports (for the time being) the notion that the 'rich' northern nations of Europe are in better shape than their southern neighbors. Having said that, neither of these countries could break their 2011 respective highs so a failure here may lead to a serious test of said uptrend. Italy on the other hand is firmly within a bear market and the recent failure came well below previous peaks suggesting prices ought to test recent lows at some point in the not to distant future. It isn't even worth looking at the 'PIGS' nations charts - they are all much worse. This brings us to France - where I believe the market's attention is closely focused. France is right on the edge of doing ok and breaking. Notice the battle at the previous peaks not seen in Italy. Notice too the failure just this past week through our most recent support low. Notice too, a break of this uptrendline leads to a lot of open space. I for one shall be watching the developments out of France closely for any tells as to how bad bad might get.
The entire globe seems fixated on the US and it's fiscal cliff while not paying much attention to what is going on in their own back yards. As mussed about in my CTS commentary, it would seem North Americans take these kinds of 'cliffs' more seriously than in Europe. And indeed, it would appear politicians over here are listening (News link). I wouldn't be surprised to see a catalyst around this event. At the same time I do not see the same interest out of Europe at the moment. This to me feels dangerous as investors there seem reticent to the fact that prices are heading lower and their economic situation is gong to get worse not better in the near future - European stock investors beware!
That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
the_rational_investor@yahoo.com
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