I find this chart fascinating. It is based on something heard on Fox Business I think. One of the folks being interviewed said that there was a particular order in which markets tended to roll over. I’ve expanded the idea little bit. IIRC, he listed copper, emerging markets, Germany, and then the USA last. (The claim being it typically did this).
Here’s a 5 year weekly tick mark chart of some selected things. JJN is Nickle, JJC is copper, USO is oil.
The main ticker is FXI – the large cap widely traded China stocks. Also on this chart is the much harder to trade Shanghai Index stocks. These are compared to three basic inputs, oil, nickle and copper. Also we have EWG Germany and SPY the main 500 USA stocks, along with the EEM Emerging Market fund.
First, lets get the odd China behaviour out of the way. China was in a nice steady slide down until middle of 2014. Then Shanghai, the green line, pops up dramatically. A smaller jump is seen in the big 25 in the FXI fund. That, then, rolls over into our present market slide. As I recall it, China loosened the limits on who could trade / buy the lower tier China stocks then. The chart looks like a flood of new money causing a rapid parabolic bubble. This link seems to confirm what I remembered:
Hong Kong and Shanghai stock exchanges open trading link
Stock Connect platform gives individual investors outside mainland China access to its stock market for first time
Stock exchanges in Hong Kong and Shanghai kicked off trading on a cross-border stock trading link that will allow foreigner investors wider access to mainland China’s tightly restricted equity market.
Officials in Hong Kong banged a gong on Monday morning to mark the start of trading under the Shanghai-Hong Kong Stock Connect platform, which will let investors buy and sell shares through each other’s exchanges.
C K Chow, the chairman of Hong Kong’s stock exchange operator, told guests at an opening ceremony: “Today we are going to witness history.”
The stock connect will give individual investors outside mainland China access to the stock market in the world’s number two economy for the first time.
So that explains some of that astounding bubble and pop. Now a bit more on the pop part…
First off, look back at the start about February 2011. Copper was rising (that reddish plum JJC line) while just above it, the golden JJN Nickle line has popped up. Nickle is needed for all sorts of specialty steels including some stainless steels. Copper is needed for everything from electrical wiring to electronics to electric motors. It is just after that point that both metals roll down. Nickle a little earlier. ( I think I remember noticing before that Nickle moved first and farther). But by February 2012, JJN has started to break out to the bottom of the stack. Copper holds up a little better, but by Nov 2014 is 2nd from the bottom, dropping fast, and would stay 2nd were it not for oil (the black line USO) also breaking down then, but much harder. Clearly commodities were starting to talk a couple of years back saying demand for some raw materials was getting light. But really bit it about Summer of last year, 2014.
Now back at China. As a major consumer of materials these days, they showed the roll down next. In 2012 both China markets are just dribbling down with the metals. Only that burst up at the end on an influx of new foreign money lifts things.
This is probably a good time to remind that all these are priced in $US, so some of this ought to be $US strength. I’m not worried about detangling this confounder for the simple reason that it helps the indicators work better. The added demand for, or lack of demand for, $US in commodities trading can help amplify the shifts of demand. For China, they have mostly been in a peg to the $US, with minor adjustments.
So back at the chart…
EEM the egg yolk yellow line, does a long slow wobble down from the start. A big part is China, but Brazil and others are in there too. Brazil being a large minerals and metals producer. EEM tends to amplify what is happening in the major demand economies of USA and Germany along with production demand shifts for commodities. Oil wobbles slightly downward with it until the complete collapse in about October of 2014. It is still dropping now and is under $40 / bbl on and off. Another sign of not much demand.
EWG Germany, the bright orange line, shows a bobble like all the others about October 2011 (we had a market drop then) but generally is floating along on top of the other lines rising in parallel with the SPY from about mid 2012 to summer of 2014, when it hits the skids. Again, I’d have chalked it up to Greece and all but for the Talking Head on the TV saying it happened in that order before. Not on this chart: the EZU Europe Monetary Union basket also follows a similar path, but likely due to being heavy on Germany. EWU the UK and EWQ France follow similar movement and timing, but at a lower level on the graph, topping about the +40% line just at the Germany inflection downward. Since those were all so similar, I’ve left them off the graph.
Finally there is the SPY USA top 500 companies, showing an almost identically shaped ‘go flat’ into a down spike as Germany, only a year later. Hmmmm….
Makes a fella wonder
It all makes me wonder. Does it really take 4 years for a slowdown of demand to reflect first in the raw metals, then into the maker economy of China, finally 3 years after that, into Germany and the EU, and another full year to reach the USA? It sure looks like it.
It does take time to work down a raw material stockpile, and China is not as much of a “just in time” buyer of metals and materials. Then shipping to ROW and inventory can build and take time to draw down. Even longer for the economic damage of mercantilism to reflect into the EU and USA structural economics. A couple of years for economies to slow, unemployment to build, demand to slacken?
Now we have that odd China Bubble. Rocket ride up to parabolic, then the inevitable return to trend…
FXI looks to be very close to back on trend (slightly down) while Shanghai still has quite a ways to go. That implies a bloodbath in the domestic China stock markets. And ripples from that. No wonder the Chinese Government are throwing pension money at that bubble…
But the continued dive of metals, oil, and EEM all argue for ongoing contraction globally and a disinflationary (or even deflationary) global economy. Normally Central Banks would ease Monetary Policy and cut interest rates to help keep things just a touch on the side of inflation. Maybe even reduce bank reserves requirements (so more bank money creation could happen). But at this point, from Japan to the EU to The Fed rates are already near zero. Not a lot of room to cut.
Shows Sweden and Switzerland with negative rates, so I guess one can cut to below zero… and pay people to take money. Only 2 central banks are shown with the direction of interest rates being rising: South Africa and Brazil.
So if things go deflationary, it will be very hard to manage from this base. Also, Euribor rates for less than 6 months are all negative:
Euribor maturity / rate 08-21-2015 08-20-2015 08-19-2015 08-18-2015 08-17-2015 Euribor interest rate - 1 week -0.142 % -0.143 % -0.143 % -0.143 % -0.142 % Euribor interest rate - 2 weeks -0.130 % -0.131 % -0.132 % -0.131 % -0.130 % Euribor interest rate - 3 weeks - - - - - Euribor interest rate - 1 month -0.092 % -0.091 % -0.089 % -0.089 % -0.088 % Euribor interest rate - 2 months -0.054 % -0.054 % -0.054 % -0.053 % -0.052 % Euribor interest rate - 3 months -0.031 % -0.030 % -0.029 % -0.028 % -0.027 % Euribor interest rate - 4 months - - - - - Euribor interest rate - 5 months - - - - - Euribor interest rate - 6 months 0.042 % 0.042 % 0.042 % 0.043 % 0.044 %
Libor too. (Must be nice to be in a business where people pay you to take their money…)
EUR 08-21-2015 08-20-2015 08-19-2015 08-18-2015 08-17-2015 Euro LIBOR - overnight -0.18000 % -0.18000 % -0.18000 % -0.18000 % -0.18000 % Euro LIBOR - 1 week -0.16143 % -0.16571 % -0.16714 % -0.16714 % -0.16571 % Euro LIBOR - 2 weeks - - - - - Euro LIBOR - 1 month -0.10500 % -0.10429 % -0.10429 % -0.10429 % -0.10000 % Euro LIBOR - 2 months -0.05929 % -0.06143 % -0.06143 % -0.06143 % -0.06000 % Euro LIBOR - 3 months -0.03000 % -0.02643 % -0.02643 % -0.02643 % -0.02571 % Euro LIBOR - 4 months - - - - - Euro LIBOR - 5 months - - - - - Euro LIBOR - 6 months 0.05200 % 0.05200 % 0.05271 % 0.05271 % 0.05271 %
So what does all this imply to me? That things have been rolling over, if a bit slowly, for about 4 years. That it is due to a fall off in consumption. (And given what I know of humanity, given any income at all, most folks spend all of it, so I suspect this strongly implies that not enough people have jobs and can buy things). Given the youth unemployment rates in Europe, the complete lack of functioning economies all over the “Muslim World” ( Libya, Egypt, Lebanon, Iran, Iraq, Syria, …) and the very high youth and minority unemployment in the USA, that all fits.
Basically, it is hard to sell a whole lot of low priced bicycles, dishes, shoes, and TV sets to the very top tier who benefited from all the cash being slushed into paper assets via Central Bank Easing. There’s only so many yachts a fellow can own. Meanwhile those of use being displaced by a flood of H1b Visa folks, factories moved to China and Mexico, and working only 1/2 time due to Obummercare are not able to buy all the stuff we would love to buy, if we only had a job. Ditto the “Nini” folks in Spain and across Greece and…
From about that 2011 onset:
Nini and the European Dream
Barcelona— From Saturday’s Globe and Mail
Published Saturday, Jul. 17, 2010 5:00AM EDT
Last updated Saturday, Jul. 17, 2010 10:28AM EDT
Estudias o trabajas?” When young Spaniards gather around the bars and patios, that’s their traditional icebreaker line: “You study or work?” In the past year, it’s become almost mandatory to answer, with a self-effacing smirk: “Nini.”
It is half a joke, for nini is a way of saying “neither-nor,” and NINI is the Spanish government acronym for “Not in education or employment” – that is, lost to the economy.
But it’s not really a joke, because now almost everyone is NINI. The under-30 unemployment rate in Spain has just hit 44 per cent, twice the adult rate. Italy also has passed the 40 per cent mark, and Greece has gone even further. If you count all the people who’ve given up looking, it means the number of people between 20 and 30 who have any form of employment in these countries is something like one in five.
An entire European generation is leaving school to discover they have no place in the economy.
Oddly, I find myself realizing that I, too, am a “NINI”. Neither in education nor employment. Who knew? I have a label! AND it’s a bit of a “hip” one ;-)
Guess, given my new ‘trendy’ status, I need to move to more “trendy” links… like maybe even someone who “tweets” and has a cool name like “Claire” or “French” and can even name drop about cultural amabassadors…
The Spanish cultural ambassador asked for my take on the nini generation a few months ago. Nini is used to refer to a young person neither in education nor employment. A generation thought to being doing nothing, nada, nini. Or NEETS (not in education, employment or training, to be precise), as the less loving Labour government called them.
NEETS was the naughties category used to define those not in work or education by national and local government,. Their chronic media depiction represents the same as the hoodies that Dave envisaged that giving a hug would help. But this pool of people is backing up. They are the ones who are fresh out of school, they are also the recently out of university or just out of a job.
Spain’s youth unemployment sails high at around 40 per cent – the highest in Europe. But this isn’t just ‘our’ problem. The nini generation is everywhere. Tunisia’s ‘jasmine revolution’ is said to have sparked off after a young unemployed man, Mohamed Bouazizi, set fire to himself. Tunisia’s unemployment figure too is concentrated to the under-24s, of which around 30 per cent don’t work.
Egypt, where 50,000 people have joined the Facebook page for a protest organised for Wednesday has seen a number of people set fire to themselves in recent weeks. As reported in the Observer today, a UN report described Egypt’s young people as being in “waithood” – forced to wait for their lives to begin.
Oooohhh…. I can even be a “Neet Nini!” I think I’m beginning to like the sound of this… Not liking the idea of everyone from North America through Europe and into Africa and the Middle East having economic collapse and social breakdown, but hey, what can I do about it? may as well go party… ( I think I’m getting the hang of this…)
Can it really be that it has taken 4 years of steady erosion to oh so slowly reach the USA? Have we reached the point where China has so many of the jobs that there Rest Of World is becoming a “Nini World” and just not buying enough?
I have often said geology, climate and economics all moved slowly, but that slow? Hmmmmm…. Maybe.