GLOBAL ECONOMICS AND POLITICS
Leo Haviland provides clients with original, provocative, cutting-edge fundamental supply/demand and technical research on major financial marketplaces and trends. He also offers independent consulting and risk management advice.
Haviland’s expertise is macro. He focuses on the intertwining of equity, debt, currency, and commodity arenas, including the political players, regulatory approaches, social factors, and rhetoric that affect them. In a changing and dynamic global economy, Haviland’s mission remains constant – to give timely, value-added marketplace insights and foresights.
Leo Haviland has three decades of experience in the Wall Street trading environment. He has worked for Goldman Sachs, Sempra Energy Trading, and other institutions. In his research and sales career in stock, interest rate, foreign exchange, and commodity battlefields, he has dealt with numerous and diverse financial institutions and individuals. Haviland is a graduate of the University of Chicago (Phi Beta Kappa) and the Cornell Law School.
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The long-running bull charge in the broad real trade-weighted United States dollar, and particularly its recent assault on major resistance established in March 2009, played a critical role not only in creating and sustaining emerging stock (and commodity) marketplace bear moves, but also in the recent bloody toppling of the once-mighty S+P 500 from its lofty May 2015 record peak. Interest rate levels and trends of course remain important to stock marketplace battlefields, but US dollar movements will maintain their substantial influence. The broad real trade-weighted dollar probably will remain relatively strong.
Moreover, the S+P 500’s decline since its 5/20/15 pinnacle at 2135 indicates that its major trend probably will no longer diverge as significantly from those of emerging equity marketplaces. Compare the pattern of the past few years, during which the S+P 500 exceeded its spring 2011 peak but emerging stock marketplaces in general (Morgan Stanley’s MSCI Emerging Stock Marketplace Index benchmark) did not. The S+P 500 probably will not surpass its May 2015 height by much (if at all); instead, it probably will continue to travel lower.
As “Shakin’ All Over: Marketplace Fears”; 8/13/15) noted: “Despite about seven years of highly accommodative monetary policies such as yield repression and money printing (and frequently bolstered by hefty deficit spending), the foundations of worldwide growth increasingly look shaky.” Substantial debt and leverage problems continue to confront today’s interconnected global economy. The Federal Reserve Board of course focuses on all sorts of domestic and international factors and their interrelations. However, nowadays the level and trend of the S+P 500 will continue to strongly influence its policy rhetoric and decisions.
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What’s the bottom line? Reviewing these various US and diverse international stock marketplace scorecards together, spring 2015’s similar time for highs followed by significant price declines is noteworthy. This underlines the likely slowing of worldwide growth in general. It also shows that stock trend benchmarks for America are nowadays rather closely connected to those elsewhere, including emerging marketplaces. The similar timing of lows in August 2015 emphasizes that worldwide equities in general currently are “trading together”. Renewed roughly simultaneous retreats in emerging and advanced nation stock benchmarks would be an ominous sign to equity bulls and for world GDP growth rates.
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Wall Street Marketplace Violence (9-1-15)
The Federal Reserve Board continues to stress via its wonderful forward guidance strategy that it will keep policy rates extremely low. However, the sustained rally in United States Treasury government yields shows that marketplace confidence in the Fed’s ability to manage (repress) interest rates, especially at the long end of the yield curve, has fallen. Look at the UST 10 year note. Not only did its yield bottom around 1.38 percent on 7/25/12. Not only did yields climb further from lows near 1.55pc (11/16/12 and 12/6/12). They have spiked from 5/1/13’s 1.61pc, touching 2.75pc 7/8/13. And this spike has continued even after the Fed underlined in recent weeks that it would not “taper” its money printing (and other easy money games) too quickly.
The ability of central bank maneuvers to sustain substantial economic growth (and repress government yields and rally the S+P 500 and related equities) probably has weakened.
Rising sovereign debt yields do not always reflect or portend economic growth (recovery) or higher stock marketplace prices. In the current marketplace playing field, rising interest rates in America (and elsewhere) also seem to be “leading” equity marketplace declines. Suppose the US government 10 year rate marches higher from current levels (or even if it stays relatively high versus its summer 2012 and May 2013 bottoms). Suppose the S+P 500 is unable to exceed (or break much above) its May 2013 height and that it declines beneath its late June 2013 low around 1560. The rising yields and falling equities will underscore that the easy money game of the Fed and its central banking allies increasingly strains credibility and thus has diminished substantially in its effectiveness.
In any event, it nevertheless stretches credibility to claim that these recent ECB and BoE statements represent a change of genuine significance. They appear to be clever ploys to boost confidence in the ability of the central banks to help guide and sustain recovery. How likely was (is) it that the ECB or the BoE were (are) going to raise rates anytime soon? Not only is much of Europe in recession, but Europe’s economic crisis (including sovereign and banking debt and related bailout issues) persists. Noteworthy troubles still loom in Greece, Ireland, Portugal, Cyprus, as well as in Spain and arguably in Italy. Moreover, recall the ECB President’s inspiring “whatever it takes” talk about a year ago (7/26/12); people gave substantial credence to that open-ended proclamation.
Consequently, these recent ECB and BoE remarks, like the cheerleading comments by Federal Reserve and Chinese officials after the June 2013 stock marketplace lows, look like a sign of weakness. Are the ECB and BoE losing some of their hold on the distant section of the yield curve? Yes. Again underscore the steady creep higher in longer run government rates in the United States (and many other arenas) despite keeping Federal Funds near the ground.
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