The week’s economic calendar is quiet, with the major events being Greek parliamentary developments and Chinese President Xi Jinping’s visit to Washington. Following the Fed’s decision to not hike rates this month, the market seems lost for something useful to do and the sense is that the global economy is chugging along in a familiar malaise.
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Sun 20 September
Europe Greek Parliamentary Elections
Mon 21 September
US Existing Home Sales (actual:5.31M expected:5.50M previous:5.58M)
Tue 22 September
China Caixin Flash Manufacturing PMI (expected:47.6 previous:47.7)
Wed 23 September
New Zealand Trade Balance (expected:-875M previous:-649M)
Thu 24 September
US Core Durable Goods Orders m/m (expected:0.2% previous:0.4%)
US Unemployment Claims (expected:268K previous:264K)
Fri 25 September
US Final GDP q/q (expected: 3.7% previous:3.7%)
When the Greek Prime Minister called parliamentary elections in August, market commentary and mainstream media were panic stricken. The decision to delay elections allowed time to fade the immediate concerns that were then surrounding the Greece situation. China and the Fed became market fixations and this past weekend’s Greek elections saw little market reaction if any.
The Greek election has both political and economic dimensions, in that the ruling Syriza party would have had to (according to Greek parliamentary system rules) choose a coalition partner (or two) if they did not win the election with an outright majority vote, and the choice of political partner influences economic direction.
By now we know that Syriza won the elections with a convincing majority and that runner-up, the New Democracy party (also pro-Euro), received strong support.
New Democracy party have been a likely coalition partner all along, but potential popular candidates such as the anti-Euro Popular Unity party and the right-wing Golden Dawn party contend for inclusion. The weight of Syriza’s choice of bed-fellows will, therefore, have implications for continuing bailout payments and bank emergency funding from the ECB and ESM.
A potential market negative outcome (anti-Euro, pro-independence election bias) was averted, and just as well: jitters threatened to see funding currencies and “safety” instruments, like gold and bitcoin, move on the fear factor. The present “market positive” outcome – pro-Euro – implies more confidence that Greece will walk the line drawn by policy makers and officials of the ECB and Euro Group. The expected outcome: continued bank liquidity funding, a perceived lowering of the risk of default, and a return to “as things were”.
The caveat is, of course, that the IMF expressed the view, in August, that Greece could not sustainably be bailed out. And although the ECB cannot afford to stop providing bailouts to Greece (or risk default and catastrophic “contagion”), EU popular sentiment (i.e. the mood of voters) is turning against the prospect of continuing funding of Greece.
Nasdaq reports that on the eve of Chinese President Xi Jinping’s visit to Washington, US Treasury Secretary Jacob Lew has leveled some criticism at China’s handling of recent economic risks emanating from the country, particularly its communications policy.
Last month’s, engineered devaluation of the yuan unsettled global markets and prompted concerns that China was abandoning a cautious market-friendly approach and that it is possibly entering the currency wars.
US officials criticized the move and urged China “to be more careful” in communicating significant policy moves. Chinese leadership recently tried to appease G20 members, saying that August’s currency devaluation “had been misinterpreted by global markets”, and that China stock market volatility was under control.
Mr. Lew said, on Monday, that China should allow the yuan to both strengthen and weaken according to market forces. He also urged China to provide “fair market access” to foreign companies and to respect intellectual property rights. The latter is a jibe following US Justice Department investigation of allegations of economic espionage from China after concerns raised by US multinationals regarding theft of corporate secrets.
Mr. Lew suggested China focus on targeted fiscal stimulus designed to boost domestic consumption. But not too much. As he pointed the finger earlier in his critical report:
Restrictions on the purchase of foreign-technology products, and excessively broad reviews for foreign investments, have underscored long-standing questions about China’s business climate. – US Treasury Secretary Jacob Lew.
The S&P500 index has dropped through a long-term supporting trendline (dashed blue) and it’s 200-day moving average. The above weekly candle timeframe chart shows that the index is currently resolving a reverse divergence to a previous MACD low (magenta annotation, bottom of chart), after which it will enter potential freefall territory.
Potential targets include the weekly chart’s 200MA (red) and the 800MA (purple). Ouch. Short.
Damned if you do, and damned if you don’t. Whatever the Fed does with rates, the US dollar stands to strengthen.
This analysis is provided by xbt.social.
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The writer trades Bitcoin. Trade and Investment is risky and subject to probability and market changes. CCN.LA accepts no liability for losses incurred as a result of anything written in this report.
Charts from TradingView, financial data & cartoon from Investing.com, image from Shutterstock.