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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
The Emergence of the US Petro-dollar
Sep 15, 2014
A less cited reason behind the recent strength of the US$ index and what could auger the beginning of a multi-year advance for the greenback, - the US’s output of crude oil and natural gas continues to surge to new record highs. The US’s production of crude oil has reversed years of decline thanks to the development of shale resources, which have boosted output by more than +65% in the past six years. The US’s shale boom has allowed producers to unlock thousands of barrels of reserves, putting the US on course to become the largest producer of oil globally, which would dramatically reduce its dependence on imports.
Russian Bear Rattles markets, but PPT Rides to the Rescue
Aug 14, 2014
There are very rare events that occur somewhere around the world, otherwise known as “Black Swan Events” that can befuddle “financial science” and the best designed computerized models. For example, heading into 2014, few traders could’ve predicted that the Kremlin would act to seize Crimea’s territorial waters along with the region itself, and that Moscow would deploy 20,000 to 45,000 troops along the eastern and southern borders of Ukraine, thus marking the start of the biggest confrontation between Moscow and the West since the Cold War, and triggering a round of economic sanctions with Europe and the US.
Which way is Inflation Blowing? Watch Commodities
Jul 15, 2014
In an age when governments of every political leaning and ideological stripe distort economic data to promote their parties’ interests, it is hardly surprising that the nation’s inflation rate is reported in a manner that best suits their political needs. By the same token, in an age of near universal cynicism on the part of citizens towards their corrupt politicians, - it is entirely natural for official inflation data to be wildly at odds with the reality faced by consumers and businesses, and in turn, to be regarded with utter disbelief.
“Least Loved” Bull market becomes Euphoric
Jun 6, 2014
After nearly six years of unprecedented intervention by the world’s top central banks, the world’s financial markets are hopelessly broken. What used to be accepted as market gospel that guided investors’ decisions in the marketplace, before the 2008 financial crisis, - no longer seems to apply in today’s marketplace. Wall Street is no longer the bastion of free and open markets, where the prices of bonds and stocks are determined by the collective judgment of millions of investors. Instead, market prices are determined by political appointees, called central bankers, who pull the monetary levers behind the scenes.
ECB Draws a Line in the Sand for Euro at $1.400
May 1, 2014
ECB chief Mario Draghi, who famously declared in July ’12, that the ECB would do “whatever it takes to save the Euro,” is now making a 180-degree U-turn, saying at a Jan 9th news conference that that the Euro has become too strong, and a further appreciation could threaten the Euro-zone’s tepid recovery. While the ECB does not profess to have a target level for the Euro, there’s been a steady drumbeat of comments, issued by most ECB members, since the Euro first cleared the $1.370-level, and the rhetoric escalated as the Euro approached $1.400.
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German Schatz 5-Year Yield falls below 0.25%, as Euro-zone bank Loans Stagnate
Updated 4:23 PM, Aug-24, Sun
This was supposed to be the year that the European economy decisively broke free of its shackles. But after a dismal round of economic growth reports on Thursday, the main question appears to be whether the eurozone will avoid tumbling back into recession. -------------------------------- Germany and Italy both contracted 0.2 percent in the second quarter, compared with the first, official data showed, and the French economy stagnated yet again. The region was beginning to falter even before the latest round of tit-for-tat sanctions with Russia over Ukraine further clouded the outlook. With the Continent´s three main engines sputtering, the gross domestic product of the 18-nation eurozone did not expand at all from the first quarter of this year, when it grew only 0.2 percent. The latest figure from Eurostat, the European Union statistics agency, equates to a meager 0.2 percent annual rate. -------------------------- The eurozone recovery appears to be falling apart at the seams, as most of the bloc is either "in recession or flirting with it now." ------------------- Eurozone economic growth ground to a halt in the second quarter as Germany´s economy shrank and France´s stagnated. The zero growth reported by statistics agency Eurostat on Thursday was cause for alarm throughout the 18-nation region, which is already bracing for the impact of sanctions imposed on and by Russia over Ukraine. Germany, Europe´s largest economy, contracted by 0.2 percent in the quarter, undercutting Bundesbank forecasts that gross domestic product would be unchanged. Foreign trade and investment were notable weak spots. ----------------------------- France fared little better; its GDP failed to grow for the second quarter in a row. That forced the French government to confront reality, saying it would lower its 2014 forecast for +1% growth in half. ------------------------------- Italy, the Euro-zone´s third-largest economy, slid back into recession for the third time since 2008 in the second quarter, shrinking by -0.2 percent. -------------------------- The worry for the Euro-zone is that sanctions imposed on Russia over the Ukraine crisis, and Moscow´s retaliation, will act as a further drag on growth. ------------------------Bank lending has been anemic in the Euro-zone for the past five years. European bank loans outstanding to the private sector, including households and small to medium sized businesses, was -1.7% in June than a year earlier. The lack of lending is worsening the state of the Euro-zone’s economy, which in turn, has pushed the consumer inflation rate to +0.4% in July - its lowest level since 2009. Worse yet, the jobless rate in France rose to 10.2%, and Spain and Greece continue to have the highest unemployment in the Euro-zone, at 24.5% in Spain; and 27.3% in Greece. It is worth remembering that these data ignore the millions of Europeans who have given up on finding a job after years of unemployment, and the millions more who are desperate to work additional hours. ---------------------------------------- Youth unemployment continues to be a massive problem and was around 23% during June, but much higher in the likes of Greece (56%), Spain (54%) and Italy (44%). -------------------------------- Another cause for concern on Thursday was the specter of deflation: Eurozone consumer prices rose last month just +0.4% from a year ago, Eurostat said, confirming an earlier report. And of the 18 nations in the bloc, consumer prices rose on a monthly basis in only two — Germany and the Netherlands — and declined in 15 others; they were flat in Malta. --------------------------------------------- That added to fears that Japan-style deflation was becoming more likely. Investors piled into German sovereign debt, considered the safest asset in Europe, and the yield on the 10-year bond, which moves in the opposite direction to price, fell at one point below 1 percent for the first time. the yield on the 5-year German schatz fell below 0.25% and the yield on the 2-year schatz fell below zero-percent last week.
Archived Comments:
German Schatz 5-Year Yield falls below 0.25%, as Euro-zone bank Loans Stagnate
Cost of Consumer Staples outpacing Wage increases
Updated11:31 AM, Jul-16, Wed
Commodity markets are notoriously volatile from month to month, and from year to year, quite often due to unforeseen acts of nature or military conflict. However, in order to filter out the “noise” of the markets, a simple approach is to take a much longer-term view of price trends. And for a wide array of commodities, their prices have trended significantly higher. For some of the basic staples of life, the market price of rough rice is up +83% higher, Butter is up +69%, and unleaded gasoline is up +67%, compared with 8-½-years ago. Milk and cattle prices are up +63%, and the cost of Wheat is up +61%. So when Americans are driving to the grocery store, they are feeling the pinch of accumulated rates of inflation. --------------------------------------- But what about the wages of the US-worker, - have they kept pace with the increasing cost of living? According to the Labor Dept apparatchiks, the average wage is up +19% compared with 8-½-years ago, for an increase of +2.2% per year, on average. However, for many Americans, their incomes are actually declining and that could put a squeeze on discretionary spending. For example, in the month of June ‘14, the BLS reported that the number of higher paying, full-time jobs plunged by -523,000 to 118.2-million while lesser paying, part-time jobs increased +799,000 to over 28-million. That suggests that many US-workers’ are being forced into part-time work, and their income is decreasing. Thus, the hallowing out of the US-middle class and the impoverishment of the lower income groups is worsening. --------------------------------- As such, the Fed is already talking about moving the goal posts again, from targeting inflation to targeting wage increases. “Signs of labor-market slack include slow wage growth and low labor-force participation,” Fed chief Yellen said on July 15th. Earlier, on July 11th, Chicago Fed chief Charles Evans, said on Bloomberg TV that it would not be a “catastrophe” to allow the inflation rate to overshoot the Fed’s +2% target. “Even a +2.4% inflation rate, I think that could work out,” he said. So the message is; the Fed would be tolerant of above target inflation, since lower paying part-time wages are supposed to keep inflationary pressures in check. For the Fed, with the passage of time, many of its sins of the past, in the form of a higher cost of living, are seemingly washed away into obscurity.
Archived Comments:
Cost of Consumer Staples outpacing Wage increases
British Pound Tumbles below Upward Sloping Trend Line on Signs that BoE puts Rate hikes on Ice
Updated 4:54 PM, Aug-24, Sun
British Pound chalks up worst run vs US-dollar in 6 years - Sterling bulls licked their wounds on Friday - after a mauling that has seen the British pound suffer its longest losing streak against the US$ in six years. With investors having pushed expectations of the Bank of England’s (BoE) first rate hike into next year, the pound chalked up its seventh weekly loss - closing at $1.6580. From a technical perspective, the pound’s fall below the upward sloping trend-line at $1.6970, and today’s close below June’s low of $1.6700, -- suggests selling pressure on sterling vs the US$ could persist, with the next support are seen at the $1.6300-level. In London, the 3-month Sterling Libor rate futures for Dec’ 15 delivery is yielding 1.50% today, from as high as 1.85% at the start of July. That suggests the BoE would limit any series of rate hikes to +75-bps next year, compared with earlier expectations of +100-bps. At the same time, the Fed is winding down QE and supporting the US$ against all currencies. ----------------------------------------- Bank of England says wage developments key to rate hikes – On August 13th, the Bank of England announced a major shift in its monetary policy, saying that any changes in its overnight base lending rate would be closely linked to the trend in British workers’ wages, suggesting it was in no hurry to hike interest rates. Shortly after data showed average British wages suffered their first fall in more than five years in the second quarter of 2014, the Bank cut its forecast for wage growth this year in half to +1.25%. Sterling fell sharply to a 10-week low against the US$ as traders reduced bets on the possibility of a first rate hike before the end of 2014.---------------The BoE indicated that wage developments would be the key factor to determine the exact timing of a rate move. “In light of the heightened uncertainty about the current degree of slack, the BoE noted the importance of monitoring the expected path of costs, particularly wages.”-------------------------In other words, the BoE has changed the goal posts in the middle of the game. It’s making up new rules that will guide its monetary policy in the future. What is the bottom line? The BoE is looking for ways to wiggle out of its previous benchmarks that it laid out last year that would have compelled it to hike short term interest rates. Now, the BoE wants more flexibility, and has stopped focusing on consumer prices to guide its monetary policy, and instead has switched to targeting wages. Don’t expect a BoE rate hike anytime soon.
Archived Comments:
British Pound Tumbles below Upward Sloping Trend Line on Signs that BoE puts Rate hikes on Ice

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