Saturday, 31 August 2019

Weekend update - World equity markets

It was a bearish month for world equity markets, with net monthly declines ranging from -4.9% (Russia), -3.8% (Japan), -3.5% (Greece), -2.9% (Germany, Australia), -1.8% (Spain), -1.7% (USA), -1.6% (China), to -0.7% (Brazil, France). Near term outlook offers broad cooling into the autumn.

Lets take our regular look at ten of the world equity markets

USA - Dow

The mighty Dow cooled by -461pts (1.7%) to 26403. The key 10MA was pierced, but notably settled above. MACD (green bar histogram) cycle, ticked lower, as price momentum has remained negative since Oct'2018.

Note the monstrous technical/cyclical divergences that stretch back to Jan'2018. The monthly RSI stands at 59.49, a break under the key 50 threshold would merit alarm bells. If the August low of 25339 is broken under, it will offer the June low of 24680. Secondary target would be the lower bollinger, currently at 23451.

The Fed can be expected to cut rates Sept'18th, by -25bps to 1.75/2.00%, with Powell likely to frustrate many (not least the US President) by not acting more drastically. I don't expect any overt threats of renewed QE, until the sp'2600s.

Germany – DAX

The economic powerhouse of the EU - Germany, saw the DAX cool for a second month, settling -350pts (2.9%) to 11939. The key 10MA was pierced, but settled above. Price momentum is stalling just under the key zero threshold. Note the monstrous technical divergences that stretch back to spring 2015. A Sept' or Oct' monthly settlement under the key 10MA, would offer the giant threshold of 8000

The ECB can be expected to cut rates Sept'12th, by -10bps to -50bps, and Draghi is likely to threaten spooling up the printers again. Neither measure will help. Even more negative rates will only accelerate the implosion of the German/EU financials, not least Deutsche Bank.

Japan – Nikkei

The Japanese market cooled by -817pts (3.8%) to 20704. This was notably under the 10MA, and key price threshold of 21k. S/t bearish, with next support of psy'20k, and then the Dec'2018 low of 18948.

China – Shanghai comp'

Chinese equities cooled for the 4th month of 5, settling -46pts (1.6%) to 2886. The more bullish could argue that multi-month price structure is a bull flag, offering an eventual challenge of the key 3500s. That scenario would be negated with any monthly settlement <2700 (to be decisive). It is notably the case the HK/China situation hasn't been resolved.

Brazil – Bovespa

The Brazilian market saw a choppy month, settling moderately net lower, -677pts (0.7%) to 101134. On any basis, technically/cyclically very over-stretched, much like 2007/08. I would note the May low of 89408.

Russia - RTSI

The Russian market cooled for a second month, -66pts (4.9%) to 1293. The 10MA was effectively tested and held. Any price action back under the 1200 threshold would merit alarm bells. Lower WTIC/NG prices won't help.

France – CAC

French equities cooled for a second month, -38pts (0.7%) to 5480. We have a clear double top of 5657/5672, and its notable the CAC settled under key price threshold of 5500. Neighbouring Germany is borderline recession, and where Germany goes, other EU states can be expected to follow.

Spain – IBEX

Spanish equities fell for the 3rd month of 4, settling -158pts (1.8%) to 8812. The 10MA was settled under, as the Dec'2018 low of 8286 is easily within range. Any economic weakness will see unresolved issues like Catalonia rise up once again.

Australia – AORD

Australian equities saw the first net monthly decline since Dec'2018, with the AORD -198pts (2.9%) to 6698. Things turn m/t problematic if the 10MA is broken and settled under, and that will be in the 6300/200s in September.

Greece - Athex

Greek equities saw the first net monthly decline since Dec'2018, with the Athex -31pts (3.5%) to 868. It could be argued we have a marginal double top from Feb'2018.


All ten world equity markets settled net lower for August.

Russia and Japan lead the way lower, whilst Brazil and France were most resilient.

Of the ten markets, eight are trading above their key monthly 10MA, the exceptions were Japan and Spain.

Looking ahead

It will be a short four day week. We have just a handful of key earnings, but with a fair amount of econ-data.

Earnings: PANW, CLDR (Tues' AH), WORK (Wed' AH), LULU, ZM (Thurs' AH)


T - PMI/ISM manu', construction
W - Intl' trade, Fed Beige book (2pm)
T - Weekly jobs, ADP jobs, product'/costs, PMI/ISM serv', factory orders, EIA Pet'/NG
F - Monthly jobs

Final note

September should see further rate cuts, not least from the US Fed and the ECB. Such monetary easing is a sign that even the monetary masters see problems ahead. Whilst Europe is borderline recession, the US economy continues to tick along.

We've a great many geo-political issues to keep in mind, not least the China/HK situation, Iran/US, and BREXIT - due Oct'31st, which might mark a key equity floor, before a recovery into year end/early 2020.

Equity bears will have prime opportunity across September and October. A retrace to the June low of Dow 24680 and SPX 2728 isn't a bold target, and I would keep in mind that the Transports and R2K have already broken their June lows. The other indexes can be expected to follow.

There is also the issue of trade/tariffs, and that continued uncertainty won't help global equity markets. It is the case that Trump will be far more inclined to reach a deal with China, if his beloved equity market gets whacked. September should be.... entertaining.

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Enjoy the three day holiday weekend
*the next post on this page will likely appear 5pm EDT on Tuesday Sept'3rd.