Blue Point Trading Market View – June 05, 2013

Blue Point Trading Market View – June 05, 2013Equities vs Exports – more market divergence in 2013. World trade growth fell to 2.0% in 2012 — down from 5.2% in 2011 — and is expected to remain sluggish in 2013 at around 3.3% as the economic slowdown in Europe continues to suppress global import demand, WTO economists reported. Check out here the top exporters globally – as might have guessed, China leads the pack. So what do recent reports tell us in terms of global exports?

As the WTO suggests, exports are flat indicating that no economic rebound in the sluggish global economy is imminent. On the other hand they are not falling off the cliff – so no panic move to the down side in the markets is imminent either. Clearly though looking at the thumbnail chart there is a big divergence between the global economic export activity and the advance of the equity markets globally. A mean reversion trade is coming – click here for other proof of this. For your own local economy, don’t look for any significant improvements in 2013 – you will be lucky to hold flat.

Markets have pull back a bit from recent highs and are probing now to the downside. As stated, we are not looking for a major crash. Markets will mark time through the summer, in a minor pullback waiting to see the next direction of the economy. Will all the central bank easy monetary policy begin its stimulative magic? Not likely – it will just keep asset prices elevated. The point here is we will have some time to see which way this is going, before we get into panic sell mode, let’s get first some confirmation of poor economic conditions ahead. We are looking for a pull back to 1600 on the SP500, but to get it to go lower we will need more negative economic data, or the markets just move sideways – for now.

Daily Market View: (click here for the video)

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There are 3 comments .

lui fortui —

So you say if we get bad economic data during summer/fall, then there should be a major SPX correction (= mean reversal with regard to exports, baltic index etc.)

But on the other hand good econ data would make a QE exit more likely. That would be bad as well.

So what would be better for stocks in your opinion: a good or bad economic outlook? (and why).


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William Thompson

You describe the debate ongoing by the economists. Milton Friedman said (search blog for this article) that it will take ever increasing amounts of monetary stimulus to have the same effect. I think the Fed realizes this and wants to exit QE. People feel bad data will cause more QE, as u state, but this will have little effect if the Fed does not increase QE. So stucks sputter and could even crash if the data gets really bad….. If the econ data gets good, yes QE gets tapered and stock sputter. But if the econ really does get better, eventually it will create a better jobs picture and create demand and drive into earnings which will cause stocks to eventually go higher. What will actually happen…? As traders no need to answer this question now, let it sputter for now and trade the chop. As an investor, it would be prudent to get a little more liquid, to take advantage of any minor 5 to 10% pull back.

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lui fortui —

ONLY A SIDENOTE (I will read the Friedman post and then comment later here)

Thats in line with this paper:

Since the financial crisis of 2007-2009, policymakers have debated the need for a new toolkit of cyclical “macroprudential” policies to constrain the build-up of risks in financial markets, for example, by dampening credit-fueled asset bubbles. These discussions tend to ignore America’s long and varied history with many of the instruments under consideration to smooth the credit cycle, presumably because of their sparse usage in the last three decades. We provide the first comprehensive survey and historic narrative of these efforts. The tools whose background and use we describe include underwriting standards, reserve requirements, deposit rate ceilings, credit growth limits, supervisory pressure, and other financial regulatory policyactions. The contemporary debates over these tools highlighted a variety of concerns, including “speculation,” undesirable rates of inflation, and high levels of consumer spending, among others. Ongoing statistical work suggests that macroprudential tightening lowers consumer debt but macroprudential easing does not increase it.

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