Polarity in the European economy

Polarity in the European economy, German economy improves while further deterioration is recorded in the French economy.

Europe's composite PMI (preliminary estimate) dropped unexpectedly in February to a level of 47.3, compared to 48.6 in January and expectations for a rise to 49.0. The decline, following three months of increases, signals the expectations for further economic contraction in the first quarter of 2013.
France's composite PMI continued to decline to a level of 42.3 (42.7 in January) and it indicates a further quarterly contraction of the second largest economy in Europe. Germany's composite PMI declined to a level of 52.7 (compared to 54.4 in January), but its relatively high level is still encouraging.

More in Germany, The ZEW and IFO surveys also indicate the expected recovery of the German economy during the first quarter of 2013, following a quarterly sharp drop of 0.6% during the fourth quarter of 2012. The Business Climate of the IFO survey rose for the fourth consecutive month to its highest level in ten months. The IFO survey examines managers’ expectations in the manufacturing and services sectors. The ZEW survey, which examines investors' assessments of the economic situation in six months, jumped to its highest level since April 2010.

To summarize our comments regarding the European economy, we note that the European Commission lowered last Friday its forecast for growth in 2013 to a level of 0.3%, compared with the previous forecast in November 2012 to an expansion of 0.1%. According to the new forecast, the German economy will grow in 2013 by approximately 0.5% and the French economy by 0.1%. The Commission expects the French deficit will be higher than the government's target (3.7% of GDP compared to a target of 3.0%), another indication for the growing concerns of the developments of the French economy.

Fed signals a possibility for a sooner than expected end of QE3

Is the Fed changing its approach? The Fed's January interest rate decision minutes indicated the committee members’ change of approach. According to the protocol, "many participants also expressed concerns about potential costs and risks arising from further asset purchases". Moreover, the minutes revealed that some participants argued that it might be time to reduce the volume of purchases, regardless of the pace of recovery in the labor market, while examining "the efficacy and costs of such purchases". Until recently, markets assumed that the Fed would continue the program of bond purchases until the unemployment rate drops to a level of approximately 7.0%, but now there is a big question mark around that assessment. According to the minutes, the Fed will examine the asset purchases in its next meeting in March, with hopes that Fed Chairman, Ben Bernanke, will provide more insight regarding the move next week, during the semi-annual Congressional testimony. We note that immediately after the publication of the minutes, U.S. stock indices fell sharply, the dollar strengthened and Treasuries yields actually declined. All that in light of the risk increase in the markets and despite fears that the Fed will reduce the volume of U.S. debt purchases.

U.S. politicians continue to wrestle on the issue of the automatic cuts ("sequester") which are supposed to apply at the beginning of March. If no compromise is reached soon, some transverse automatic cuts will take effect, totaling at approximately $85 billion in 2013 and approximately $1.2 trillion over the next decade.

President Obama held a press conference last week to increase the political pressure on Republicans. Obama required the approval of Republicans (who control the Congress) to postpone budget cuts. Obama stressed that these cuts “are not smart, they are not fair, they will hurt our economy and they will add hundreds of thousands of Americans to the unemployment rolls". Recall that the U.S. Budget Office estimates that the U.S. economy will grow this year by 1.4%, mainly due to taxes increases in the beginning of the year and the expected spending cuts.

Economic releases and events of the week

• Sunday: general elections in Italy on Sunday and Monday
• Monday: U.S. Conference Board Consumer Confidence for February
• Tuesday: Fed Chairman two-day semi-annual congressional testimony starts, U.S. Durable Goods New Orders for January
• Wednesday: Eurozone Consumer Confidence Indicator - final estimate for February, Eurozone Economic Sentiment Indicator for February, ECB's president Speaks in Munich
• Thursday: second estimate for U.S. GDP growth in the fourth quarter of 2012, expectations for a growth of 0.5% vs. -0.15 in the preliminary data
• Friday: U.S. Personal Income and Personal Spending, both for January, U.S. ISM Manufacturing PMI for February, Germany Retail Sales for January, Eurozone Unemployment data for January, Manufacturing PMI in the Eurozone and China - final estimate for February

Gold in cyclical low

GOLD should be completing a cyclical low in February

Over the past 5 calendar years we have seen GOLD either complete an intermediate cyclical top or bottom in each February.  My forecast was for February of 2013 to be no different and for Gold and Silver to make trough lows this month.  With that said, I did not expect the drop in GOLD to go much below $1,620 per ounce at worst, but in fact it has. Where does that leave us now on the technical patterns and crowd behavioral views?

First let’s examine the last 5 years and you can see how I noted tops and bottoms in the chart below:

That brings us forward to todays $1,573 spot pricing and trying to determine where the next move will go. To help with that end, some of our work centers on Elliott Wave Theory, along with fundamentals and traditional technical patterns of course.  In this case, the recent action around Gold has been very difficult to ascertain, and I will be the first to admit as much.  With that said, one pattern we can surmise is a rare pattern Elliott termed the “Double Three” pattern.  Essentially you have two ABC type moves, and in the middle what is dubbed an “X” wave, which breaks up the ABC’s on each end of the pattern.  For sure, if we add in traditional technical indicators along with sentiment, we can see very oversold levels coupled with the potential Double Three pattern and probably start getting long here for a trade back to the 1650’s as possible:

Obviously this chart shows oversold readings in the lower right corner using the CCI indicator. That said we would like to see 1550 hold on a weekly closing basis to remain optimistic for a strong rebound.

Article contributed by David A. Banister of Market Trend Forecast

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Gold and Silver Nearing MAJOR Long Term Support

Gold and silver along with their related miners have been under a lot of selling pressure the last few months. Prices have fallen far enough to make most traders and investors start to panic and close out their long term positions which is a bullish signal in my opinion.

My trading tactic for both swing trading and day trading thrive on entering and exiting positions when panic trading hits an investment. General rule of thumb is to buy when others are extremely fearful and cannot hold on to a losing position any longer. When they are selling I am usually slowly accumulating a long position.

Looking at the charts below of gold and silver you can see the strong selling over the past two weeks. When you get drops this sharp investors tend to focus on their account statements watching the value drop at an accelerated rate to the point where they ignore the charts and just liquidate everything they have to preserve their capital.

Gold Bullion Weekly Chart:

The price and outlook of gold has not really changed much in the past year. It remains in a major bull market and has been taking a breather, nothing more. Stepping back and reviewing the weekly chart it’s clear that gold is nearing long term support. With panic selling hitting the gold market and long term support only $20 - $30 dollars away this investment starts to look really tasty.

But if price breaks below the $1540 level and closed down there on a weekly basis then all bets are off as this would trigger a wave of selling that would make the recent selling look insignificant. And the uptrend in gold would now be over.

Silver Bullion Weekly Chart:

Silver price is in the same boat as its big sister (Yellow Gold). Only difference is that silver has larger price swings of 2-3x more than gold. This is what attracts more traders and investors but unfortunately the masses do not know how to manage leveraged investments like this and end up losing their shirts.

A breakdown below the $26.11 price would likely trigger a sharp drop back down to the $17.50 level so be careful…

Gold Mining Stocks – Monthly Chart:

If you wanna see a scary chart then look at what could happen or is happening to gold miner stocks. This very could be happening as we speak and why I have been pounding the table for months no to get long gold, silver or miners until we see complete panic selling or a bullish basing pattern form on the charts. We have not seen either of these things take place although panic selling is slowly ramping up this week.

There will be some very frustrated gold bugs if they take another 33% hair cut in value…

Precious Metals Trend and Trading Conclusion:

In short, the precious metal sector remains in a cyclical bull market. That being said and looking at the daily charts the prices have been consolidating and are in a down trend currently. Until we see some type of bottoming pattern or price action form it is best to sit on the side lines and watch the emotional traders get caught up and do the wrong thing.

The next two weeks will be crucial for gold, silver and miner stocks. If metals cannot find support and close below the key support levels things could get really ugly fast. If you would like to receive my daily analysis and know what I am trading then check out my newsletter at:


Article contributed by Chris Vermeulen 
 www.TheGoldAndOilGuy.com

Recession in Europe and Japan, improvement in the U.S.

The improvement in the U.S. economic data continues

Most of the data released in the past week regarding the U.S. economy were encouraging. We negatively note that the industrial production declined in January by 0.1% (versus expectations for +0.2%), however December and November data were revised upward. The Empire State manufacturing expectations survey of the New York area rose unexpectedly to its highest level in 9 months (+10.0 versus -7.8 in January). We emphasize that the positive indication from this survey is compatible to the increase recorded in the last two months in the manufacturing purchasing managers’ indices in the U.S. (ISM Manufacturing and “Markit” PMI), an evidence for the expected improvement of the American manufacturing sector in the coming months.

In reference to the American consumer, we positively note the rise in the University of Michigan consumer confidence index for February (which rose to its highest level in the last three months), the decline in the initial jobless claims, and the increase in U.S's retail sales in January. A slowdown was recorded in the volume of private consumption: retail sales rose in January by 0.1%, following an average monthly rise of 0.5% in November and December. Nevertheless, the figures are still encouraging, especially when taking into account the concern that the taxes increases (in the beginning of the year) significantly affect the volume of private consumption.

On the negative side, we shall note that an internal email of a senior in Walmart from February 12th leaked to a Bloomberg journalist last Friday. That email revealed that the net sales recorded in early February this year were the lowest in the last seven years, probably as a result of increasing the U.S. Payroll tax.

The U.S. earnings season is coming to an end (about 79% of the companies included in the S&P 500 index have already reported their results), and the summary so far points to a recovery in the U.S. business sector. Nevertheless, we note that the volume of growth in revenues (year-over-year) remained relatively moderate compared to the level recorded in late 2011 and in the first quarter of 2012.

Growth figures for the fourth quarter indicated the recession prevailing in Europe and Japan

Europe: last week's biggest news was the publication of the fourth quarter's growth data. We briefly note that a sharper than expected contraction was recorded in Germany (-0.6% in quarterly terms), France (-0.3%), Spain (-0.7%) and Italy (-0.9%). We note that the Eurozone economy shrank for the third consecutive quarter, and by the sharpest rate recorded since the first quarter of 2009 (quarterly rate of -0.6% in the fourth quarter, compared with forecasts to -0.4%). Regarding the Eurozone's future growth, the expectation surveys published in the last two months indicate a slight improvement in companies and consumers' assessments of the future growth, though the level of the expectations surveys remained relatively low, and still points to expectations for further contraction of the Eurozone economy.

Japan: the negative trend recorded in the global economy during the last quarter of 2012 affected the Japanese economy as well, which shrank, for the third consecutive quarter, to a level of -0.1% (quarterly rate) compared with a quarterly growth forecast of 0.1%. World leaders turned to the new Japanese government to stop trying to weaken the Japanese Yen, after it weakened by 15% against the dollar since early November 2012. However, the recession prevailing in Japan will probably continue to support a continued aggressive monetary and fiscal policy of the Japanese authorities, in order to accelerate the growth rate of the Japanese economy.

Emerging markets: the economic contraction recorded in most of the developed markets during the last quarter of 2012, led to the slowdown in the growth rate of emerging markets. The GDP data of Poland and Russia pointed to a more moderate pace of economic growth, while in Hungary and the Czech Republic a relatively sharp economic contraction was recorded.

Economic releases and events of the week

Tuesday: ZEW Germany assessment of current situation, NAHB Housing market Index in the U.S., Both expected to increaseWednesday: U.S. Housing Starts and U.S. Building Permits for January, Fed's Minutes from Jan. 29 Federal Open Market Committee (FOMC) Meeting, Eurozone Consumer Confidence Indicator for February, slight increase expected
Thursday: Eurozone February's Preliminary manufacturing PMI, U.S. Existing Homes Sales for January, Philadelphia Fed Business Outlook Survey for February
Friday: IFO Germany Business Climate February

IMF 2013 global economic growth forecasts

The International Monetary Fund (IMF) slightly lowered its forecast for global economic growth in 2013 to 3.5% (versus 3.6% forecast in October), and in 2014 to 4.1% (vs. 4.2% in October). The growth rate in 2012 stood at approximately 3.2%. In reference to the expected moderate growth in the next year, said the chief economist of the IMF: “It’s clear that financial markets are ahead of the real economy. The question is whether they are too much ahead or not… What we know is that it always takes some time for financial markets’ optimism to feed to the real economy and at this stage there are still obstacles to it.

The IMF economists estimate that the Eurozone's economy will contract in 2013 by 0.2%, compared to the previous forecast (October) of a 0.2% growth. The IMF warned that the Eurozone still poses a major risk to global economy. Nonetheless, they predict that the economic situation will improve and that in 2014 the Eurozone's economy will grow by 1%.

The IMF economists slightly cut their forecast for the U.S. economic growth in 2013 to 2% (vs. 2.1% forecast in October), but, at the same time also raised their economic growth forecast for 2014 to 3% (vs. 2.9% forecast in October). The fund said: “U.S. politicians have to insure that the country gets through the debates regarding raising the debt ceiling without severe fiscal restraints. Politicians must agree on a credible medium-term fiscal consolidation plan, focused on entitlement and tax reform.
The IMF did not change their estimates regarding the Chinese economy - a growth of 8.2% this year and 8.5% in 2014. The fund's chief economist said that "It’s not the rates that we saw before the crisis, but these rates are long gone”, but added that things are generally fine.

To summarize the global economic situation we note the phrase that the IMF managing director, Christine Lagarde, has coined: "We stopped the collapse, we should avoid the relapse, and it's not time to relax".

Positively, we should note that most of the economic data published this week in the U.S., Europe and China were encouraging. We mainly note the rise in the Purchasing Managers indices in January (PMI).

Regarding the European economy, we note the significant improvement recorded last week in most of the expectation surveys. However, expectation surveys continue to show the expectations for further contraction of the European economy in the coming months, even if at a relatively moderate pace (compared to the anticipated contraction in the fourth quarter).

Highlights regarding Global economy

The U.S. Congress voted last week in favor of a temporary increase of the U.S. "debt ceiling", which will allow the government to continue to operate until May 19th. However, the debate about the future fiscal adjustments that has raged between republicans and democrats may increase uncertainty in the financial markets in the coming months (towards the decision to raise the debt ceiling permanently). In addition, if U.S. politicians will do not reach an understanding regarding the automatic budget cuts (sequestration), then transverse cuts of $110 billion will take effect in early March.

More on the positive side, the ECB announced last Friday that the volume of loans repayments granted within the Long-term refinancing operations (LTRO) auctions was higher than expected, further evidence for the improvement in the liquidity of the financial system in Europe. European banks have decided to return to the ECB 137 billion euros, out of a total of 1.04 trillion euros that the ECB lent in two LTRO auctions, compared with estimates for a repayment of 84 billion euros.

Economic releases and events of the week

• Monday: U.S. durable goods new orders
• Tuesday: January U.S. conference board consumer confidence, expectations for a slight decrease
• Wednesday: U.S. GDP for Q4 Quarterly rate (expectations for +1.2% vs. 3.1% in Q3), U.S. Fed rate decision, U.S. Personal Income and Spending (both for December), Eurozone Economic Sentiment Indicator and Consumer Confidence Indicator (both for January)
• Thursday: December Germany retail sales for, expectations for an annual decrease of 1.3%
• Friday: Eurozone employment data (expectations for a slight increase in the unemployment rate), U.S. employment data (expectations for stability in the unemployment rate and an addition of 160 thousand jobs in January), Purchasing managers' indices (PMI) of the manufacturing sector in the U.S., China, and the Eurozone

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Precious Metals & Miners Making Waves and New Trends

The precious metals sector has been dormant since both gold and silver topped in 2011. But the long term bull market remains intact. As long as we do not have the price of gold close below the lower yellow box on the monthly chart then technical speaking precious metals should continue much higher.

Large consolidation periods (yellow boxes) provide investors with great insight for investments looking forward 6-18 months upon a breakout in either direction (up or down). The issue with investing during these times is the passage of time. One can hold a position for months and sometimes years having their investments fluctuate adding extra stress to their life when they really do not need to.

Once a breakout takes place a powerful rally or decline will start putting an investors’ money to work within days of committing to that particular investment compared to money invested waiting months for the breakout and new capital gains to occur.

Gold Price Chart - Monthly

Gold Price Chart - Daily

The chart of gold continues to form a large bull flag pattern with a potential 3 or 5 wave correction. If price reverses this week and breaks above the upper resistance trend line then it will be a 3 (ABC)  wave correction which is very bullish. But there is potential for a full 5 wave correction which is still bullish, but it just means we have another month or two before metals bottom.

Gold Miner Stocks – GDX ETF Chart – Daily

Gold miners do not have the sexiest looking chart. It was formed a strong looking bull flag but has continues to correct and is not nearing a key support level. This level could act as a triple bottom (bullish) or if price breaks below then it would be breaking then neckline of a massive head and shoulders pattern which points to 50% decline. I remain bullish with the longer term gold trend until proven wrong.

Silver Price Chart – Daily

Silver remains in a long term bull market much like the monthly chart of gold shown earlier in this report. Silver continues to work its way through a large bull flag pattern with a positive outlook at this time.

Silver Miner Stocks – SIL ETF – Daily Chart

Reviewing the precious metals sector it seems that silver miners have the sexiest looking chart. All price patterns are showing strength and are in proportion to one other. If this chart plays out to what technical analysis is pointing to then we could see the precious metals sector put in a bottom and rally within the next week or two. And if this is the case then silver miner stocks should provide the most opportunity going forward.

Precious Metals Trading Conclusion:

In short, what you need to focus on is the yellow consolidation box on the monthly gold chart. A breaking in either direction will trigger a massive move that should last 6-18 months. Until then long term investors can simply sit back and watch the sector while they put their money to work in other active sectors.

From a short term traders point of view, that f mine. I am looking for a signs of a bottom on the daily chart to get my money working earlier to play the bounce/rally that takes place and actively managing the position until a breakout occurs. The charts overall are not that clear as to when a breakout will take place. Metals could start to rally next week or in a few months and all we can do is wait for a reversal to the upside before we get active.

Knowing the big picture trends and patterns at play along with major support and resistance levels (breakout levels) is crucial for success and piece of mind.

Article contributed by Chris Vermeulen from www.TheGoldAndOilGuy.com


 

Wrangling of debt limit continues

Republicans and Democrats continue to wrangle regarding raising the long-term debt limit. President Barack Obama called the Republicans in congress to increase the country’s debt limit without preconditions, and emphasized that another conflict regarding fiscal issues, may lead to an extreme response of the financial markets. In addition to that, Obama said that the Republicans shouldn’t expect a "ransom" in the form of spending cuts for their agreement to raise the debt limit. The White House stated that it has no backup plan to pay the government's bills so the meaning of the congress not raising the debt limit is leading the nation into default.  During the weekend, Republicans announced that on Wednesday they would vote for a temporary increase of the debt limit, and emphasized that raising the long-term debt limit would be possible only if the government performs an equivalent amount of spending cuts.
Rating agency Fitch has mentioned this week the importance it attributes to the way they handle the crisis. More they mentioned is that it seems like Washington elites haven’t yet learned the lesson of the last fight over the debt limit in August 2011, when the Republicans and Democrats hesitancy eventually damaged the business confidence.
Most of the data published this week was quite encouraging. The recovery trend in the real estate market continues, jobless claims fell sharply, and private consumption increased at a sharper rate than expected in December. Nevertheless, we negatively note the rising pessimism reflected by the expectation surveys regarding the future of the American industry and the drop recorded in the Consumer Confidence Index.
Regarding U.S. monetary policy, Fed Chairman Ben Bernanke spoke at the University of Michigan and did not say that the Fed intends to terminate or slow down bond purchases. Bernanke emphasized that the double role given to the Fed (stabilizing inflationary pressures while supporting the labor market) justifies using aggressive monetary measures.

Economic data from Europe and China

Europe: Eurozone economic data point to the contraction of the European GDP in the fourth quarter. A third consecutive monthly decline was recorded in the volume of industrial production in the Eurozone, the German economy contracted by 0.5% in the fourth quarter, and the volume of bad debts in Spain keeps breaking the record. Positively, we’ll note the increase in the Eurozone's exports in November (+0.8%). The relatively sharp appreciation of the Euro could harm the recovery of the European exports, as marked by the Eurogroup chairman, Jean-Claude Juncker, that the Euro currency is dangerously high. On the other hand, one of the ECB members said he believes the current level of the Euro is not expected to threaten the European economy.
China: the batch of data published over that past week indicates an increase in the rate of growth of the Chinese economy. GDP in the fourth quarter rose by 7.9% year over year, compared to expectations for +7.8%, and a growth of +7.4% in the third quarter. The recovery in the growth rate in the fourth quarter was driven by a jump in infrastructure spending by the government, which began to grow in mid-2012, when concerns regarding the depth of the economic slowdown started to grow. Exports stabilized towards the end of the year, and china's large trade surpluses contributed to the positive momentum.
Additional data released on Friday pointed to an increase of 20.6% in the investment in fixed assets in 2012, compared with an increase of 20.7% (annual rate) on the first 11 months of the year. The industrial production rose by 10.3% in December and retail sales rose by 15.2% in December, vs. 14.9% in November.

Economic releases and events of the week

Monday: Eurozone finance ministers Meet in Brussels.
Tuesday: EU-27 Finance ministers meet in Brussels, ZEW Germany Assessment of Current Situation for January, U.S. Existing Homes Sales December (both expected to slightly increase). Draghi speaks at in Frankfurt.
Wednesday: IMF to release world economic outlook update, Eurozone Consumer Confidence Indicator for January, expected to increase slightly.
Thursday: Preliminary manufacturing PMI for January in China, Eurozone PMI (expected to increase from 46.1 to 46.6), Eurozone Preliminary services PMI for January (expected to increase from 47.8 to 48.0).
Friday: Germany – IFO Business Climate for December, which examines the economic assessments of the business sector; current expectations are for a slight rise in business confidence.

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