Todd Harrison: Global Markets Digest the Uncertain World
A confluence of dynamics into the weekend.
In my humble opinion, in the nuclear world, the true enemy is war itself.
--Lt. Commander Hunter, Crimson Tide
Yesterday afternoon, as China and Ukraine dropped the hammer on US stocks, we laid the groundwork for what promises to be a freaky streak for financial markets.
In addition to saber rattling in Russia and concerns surrounding China, the field position is critical as technical inflection points connect major markets around the world.
The road map is "who's who" in global indices, from the S&P (INDEXSP:.INX) to the Nasdaq-100 (INDEXNASDAQ:NDX) to the iShares Nasdaq Biotch Index ETF (NASDAQ:IBB) to the Dow Jones Transportation Average (INDEXDJX:DJT) to the KBW Bank Index (INDEXSP:BKX) to the Nikkei (INDEXNIKKEI:NI225) to China and back.
You may have noticed Europe is conspicuously absent from that list, but we'll fix that right now. After all, in an interconnected financial fabric, we're all in this together.
Germany -- the Mother Ship of Europe -- plays an outsized role in Russian foreign investment, so it provides a good proxy for Europe. In many ways, it encapsulates the technical dynamic as a whole; hold, and the bulls will feel empowered; break, and the bears will be emboldened for the first time in years.
On a shorter-term horizon, DAX (INDEXDB:DAX) 9000 is the level of lore, as demonstrated in the chart below.
More importantly, through a longer-term lens, Germany is sitting on a trend line that dates back to 2011 -- which is good, until it's bad (if it breaks).
Now, the DAX has already fallen seven consecutive days for a total of 602 points (6.3%), making it the largest seven-day drop since Friday, April 13 -- 100 weeks earlier. The DAX last extended the run of declines to eight days on Monday, February 23, 2009, or 1,289 days ago. Today would be the eighth day if Germany closes in the red. (Predicted Markets.)
The oversold nature of the German tape, coupled with the massive support level discussed above, should hold into the weekend, pushing the judge and jury into next week. There are no givens, however, in the digital world, where news travels at the speed of light and trading orders moves even faster than that.
Finally, I overlaid the DAX against the S&P for some stateside perspective. That's the chart below, and it speaks for itself. Good luck with that.
ICYMI: Estonian Defense Minister Sounds War Warning
The Estonian Defense Minister commented to Bloomberg in an email this morning that "Putin is preparing to invade Eastern Ukraine," and recent events "clearly show Russia only accepts force."
Insofar as perception is reality and risk appetites shape the tape, the wild card in today's equation is how many traders will want to carry risk into the weekend given tensions are so ... on edge.
Land of the Rising Sun, Courtesy of Michael Sedacca
The monetary adviser for Japan's Prime Minister Shinzo Abe, Koichi Hamada, said in an interview that the BoJ can almost double its annual bond accumulation to 100 trillion yen from its existing 50 trillion (the BoJ expands the monetary base by 60-70 trillion each year through purchases of Japanese government bonds, REITs, equity ETFs, and direct loans to banks) and this would not be "taboo."
Additionally -- and this is concerning to me from a market standpoint because it would represent deficit financing -- Hamada is comfortable with the BoJ being able to buy 100% of new Japanese government bond issues. He states that the BoJ should take this step in May if economic indicators show that the sales-tax increase by the government is seriously damaging to the economy.
From the minutes, the BoJ noted that its lending program, which provides financing to banks to issue loans, rose to a record 3.47 trillion yen in March. This is a bullish sign for Japan's economy. Many BoJ members believed that enhancing the size and duration of the facility -- the total size of available loans was increased at the meeting and the length of loans was extended to four years -- will stimulate corporations' and households' demand for credit.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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