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World Markets: The Good, The Bad, And The Ugly.

  • Written by Syndicated Publisher No Comments Comments
    November 5, 2011

    Back in June I highlighted some troubling developments occurring that suggested the global economy and financial markets were at risk. Some of those developments proved to be early warnings as to what lay ahead before the July-October swoon. Since the October bottom most equity markets have recovered and it appears an update is in order to see if the key markers that warned of the global and financial market trouble ahead have improved. A quick chart review below will show a mixed bag of the good, the bad, and the ugly, which unfortunately provides a mixed picture at this point. Before we commence, however, I recommend playing the following audio in the background to accompany your reading experience.

    The Good

    Perhaps one of the most encouraging developments over the past few months is that the South Korean Kospi Index held its bullish 2008-present channel after a brief dip below and appears to continue to be in a bull market. This is encouraging in the sense that the Kospi provides a great read on global growth, and China in particular, given that most of their exports end up in China. While the Kospi has held its bullish trend channel, it remains below its key 200 day moving average (200d MA) and is thus not out of the woods. A failure to exceed its 200d MA followed by a subsequent break of its channel would pose an ominous sign for global economic growth.

    south korea

    Click here to enlarge

    Source: Bloomberg

    The USD broke its bearish trend channel that began in the middle of 2010 and looks to trending in a slightly upwards sloping bullish trend channel. While most investors perceive a strong USD as a sign of bearishness, this is not always the case as the USD rallied in late 2009 to early 2010 alongside the general stock market. The reason why I am putting the USD in the “good camp” is that a strong USD puts downward pressure on commodity prices which in turn reduces inflationary pressures that eat into discretionary consumer spending and corporate profit margins. The reduced inflationary drag on the consumer and corporations is one of the chief reasons I cited previously (“A Window of Opportunity”) for why we may see a manufacturing rebound heading into 2012. So, I perceive a gently advancing USD as a good thing as it is a tailwind to 70% of the US economy, consumption.

    us dollar

    Click here to enlarge

    Source: Bloomberg

    The Bad

    Since China is seen as the global economic growth juggernaut, it is disturbing to see the Shanghai Index of Chinese stocks stuck in a bear market that began in 2009 when their government began to raise interest rates and bank reserve requirements. That said, the Shanghai has so far successfully retested its 2010 lows as well as held the 2005-2009 trend line. The Shanghai will need to be watched in the weeks ahead to see if its recent lows hold and potentially signal China’s bear market is over, which would imply that China’s economy may accelerate, and with it global growth. However, a break of the 2005-2009 trend line and 2010 lows would likewise send a very bearish message.

    china

    Click here to enlarge

    Source: Bloomberg

    The fact that the CRB Commodity Index broke its multi-year bullish channel and remains in a bearish trend means the global economy is still not out of the woods. Crude oil prices are also signaling the same message and we would need to see a significant improvement in oil and commodities in general (CRB) alongside China’s stock market before the all clear is given for global growth to reaccelerate.

    crb

    Click here to enlarge

    Source: Bloomberg

    west texas crude oil

    Click here to enlarge

    Source: Bloomberg

    The Ugly

    Perhaps the most disturbing sign of faltering global economic growth is seen in emerging equity markets and commodity-sensitive equity markets. The MSCI Emerging Market Indexdecisively broke its 2008-2011 trend line and has fallen sharply over the last few months and remains firmly within a steeply falling bearish trend. There has been serious chart damage to emerging markets and they will need some time to repair, indicating that global growth may still be weak for some time.

    emerging markets

    Click here to enlarge

    Source: Bloomberg

    To read the rest of this article by Chris Puplava visit here;

    The Good, the Bad and the Ugly | Chris Puplava | FINANCIAL SENSE.

    Image: Flickr (licence attibution)

    About The Author

    Chris graduated magna cum laude with a B.S. in Biochemistry from California Polytechnic State University, San Luis Obispo. He joined PFS Group in 2005 and is currently pursuing the designation of Chartered Financial Analyst. His professional designations include FINRA Series 7 and Series 66 Uniform Combined State Law Exam. He manages PFS Group’s Precious Metals Managed Account, Energy Managed Account, and Aggressive Growth Managed Account. Chris also contributes articles and Market Observations to Financial Sense and co-authors In the Know—a weekly communication for Jim Puplava’s clients only—with other members of the trading staff. Chris enjoys the outdoors.
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