Consumer Confidence in Europe Drops as Deflation Takes its Grip
Last week was a tough one for the Markets as the U.S. Dow lost 2.7%, the S&P had the worst weekly loss in two years and wrapped up the Friday session 3% lower at 62 points. With stocks selling off, the VIX, (measures volatility and can be traded) jumped a whopping 62%. All of this on good news data coming from the States! A lot of the big boys are rethinking their positions. Monday is a partial holiday, Banks closed but Stocks and electronic trading will be as usual.
The European economy continues to decay and will affect US Stocks causing the dreaded word contagion as Germany, France, and Italys economic growth are all slowing down as deflation starts to take its grip and consumer confidence dropping like an anchor. Germanys Finance Minister, Wolfgang Schaeuble was in Washington last week (IMF annual meeting) and did not receive US criticism very well on the German economy, called spin doctoring by the Yanks. German newspapers have had a field day reporting all this which leads to this weeks meetings in Berlin where Germany may have to revise their budget details. He threw some of his own arrows towards the American administration saying, Writing cheques is not the right way to spur economic growth!
The US Dollar actually had a slight loss over the week hurt by the FED Minutes regarding interest rates, but did finish Friday on firm footing. The Euro held its own and won the battle against the Dollar by about a 100 pips and has opened the Asian session with some strength. There are numerous red tag economic reports coming out this week and Draghi the eternal optimist has a major meeting in Frankfurt on Wednesday where his comments will surely move the market. So lots of currency volatility is lined up for the week ahead. Volatility brings opportunity!
Gold had a positive week and is showing some up momentum upon the Asian open, after hitting a low of 1182.97 five days ago, it has had a remarkable bounce of 50 Dollars sitting at 1230.19 with resistance seen at 1240 area. As Europe falls apart Gold should rise. The weekly chart shows an amazing triple bottom dating back to June 2013.
A note of interest for October 26, the ECB is doing stress tests on 130 of the largest banks around Europe to help restore some confidence by showing transparency in their internal business. A lot will be riding on how the markets interpret these results.
Japan spends an amazing 25% of its Central Government tax revenue just paying interest on debt that it has accumulated over the last twenty years with the future not looking any brighter. Deflation has been an absolute nightmare there.
The big news out of China over the weekend is that their chief economic advisor said they will not stimulate the economy with false printing of money every time there is a slowdown, and letting companies go bankrupt will be healthier for the future climate of business in China. Now that is a statement that the US should have used when the Global Financial Crisis hit as they would be far better off now than they are. On the outside the US economy looks good, but inside there are many dark bubbles looming and waiting for a connecting incident to burst and therefore dramatically changing the investing landscape.