Japan following suit of developed economies by heading towards negative interest rates

In an unprecedented move the Bank of Japan announced the decision to drop interest rates to below zero for the first time in an effort to curb low inflation and encourage spending amongst consumers as it battles to fuel a lagged economy which has thus far failed to deliver on expectations to produce the goods in terms of economic growth.

BOJ's governor Haruhiko Kuroda said this latest move signals the bank's commitment to lift demand in the economy and if need be was prepared to continue decreasing interest rates until such time that it feels comfortable that it is meeting its policy objectives. This sent markets surging in Asia as market participants hurried back in to find greater returns as there will no longer be shelter in bank accounts offering interest to depositors.

The greatest dilemma being presented to the developed world economies is an over reliance on central bankers to provide the stimulus to buffer these economies through prolonged periods of low inflation and lack of growth. The real issue is more a structural one that requires active policy making decisions by government in dealing with a segment of the economy that is seemingly having adverse impacts on the nature of progression.

We're entering a new era of economic thought where the scope of thinking will turn towards venturing along new terrain never experienced before but will definitely draw the attention of many academics who will try to understand,explain and possibly present a solution to the pressing problems that is being encountered.

Bank of Japan stuns markets with move to negative interest rates https://t.co/HUzOU3MPhf pic.twitter.com/0slWw22kvM

— BDlive (@BDliveSA) January 29, 2016

Japan has long suffered from the ills of deflation and a deep rooted culture of saving en masse that has plagued the economy to such an extent that its sent policymakers scattering in all directions for an answer. This is certainly not the only problems the Asian nation is grappling to contain with an aging crises threatening to create fiscal calamity of mammoth proportions.

As much as the Japanese nation has prided itself on technological innovation that has led not only to a dramatic decrease in fuel usage by cars but also the capabilities of computerware able to perform the tasks of millions of people who offer the same skill set but at a premium to that of machinery, we should not forget the negative impacts these strides have on a nation as a whole.

Although machines might be faster, they don't have the propensity to spend money. Instead the profits accumulated from switching on these marvellous contraptions feeds it's way into the pockets of the rich and remain there for intergenerations.

Japan has been shielded from much of the inequality created by this phenomenon by the fact that their education levels remain amongst the highest in the world which has aided it by matching these individuals to high skilled jobs that pay well. However we've seen a number of Asian nations gearing up their own industrial sector at a fraction of the cost meaning Japan has priced itself out the market due to higher labour costs.

This translates into less trade of goods between Japan and foreigners, a segment that once benefited it hugely in growing its economy to the size it has. As a result it has slipped down the ranks and conceded its place as number two biggest economy to its rival China.  In fairness the Chinese have over 10 times more population to that of Japan but it still doesn't excuse the dismal affair of a stagnate economy.

It's clear that the argument that central bankers don't have the appropriate measures to aid the reformation process of the economy hold quite strongly amongst critics. The actions taken by them may provide short term relief but not necessarily an elimination of the chronic ills being faced by its citizens.

The Fed tapers off on tough talk

The Fed delivered much of what was to be expected last night and decided against a move to hike rates further pointing to the risks posed on the US economy following the last month of financial market turmoil stemming from China. The FOMC said that they were "watching developments closely" as the implications of such turmoil had the ability to unhinge their economic outlook.

We saw in Davos last week a number of policymakers on the charm offensive in a veiled attempt to flatter the market with an abundance of confidence that has been lacking for a number of weeks now. The Fed's move yesterday just confirmed what the market believed that their is a degree of anxiety amongst those in decision making positions as to the direction the world economy may be taking after a failure to kickstart growth to levels that would be required by falling below par.

Although still early in the year it would seem that the Fed's optimism in lifting rates at a "gradual" pace would have the market think that may be overtly positive on the condition of the US economy and should such an interest rate pathway be pursued it may lead to an undoing to the little good that has come from the Fed's most recently departed dovish era of low interest rates accompanied by vast amounts of dollars being flooded into the market.

In all realism, this simply won't happen as the Fed understands how the role of stimulating world economic growth has shifted from China to the US as investors seeks out any little growth they may find as the effects of those who have favoured globalisation in bias towards the "Sleeping Giant" are now suffering the consequences of over reliance and subsequently contracting at a dismal speed thus causing further panic in the sphere of emerging markets.

But not without harm being done after a protracted period of "free money" coming to an end and beginning its journey back home aiding the strength in the US Dollar which has as many knock on effects as the crisis happening in China.

Inasmuch as the Fed tries to abate the negative effects of interest rates on the global economy it is unable to control those sectors that fall outside its realm of control. One that comes to mind is the price of oil sinking below $30 for the first time in 13 years. The impact of lower energy costs hurt inflation forecasts tremendously and as a result will tie the Fed's hands up when it comes to crunch time with the likelihood of a resolution in that market looking ever improbable of finding settlement anytime soon.

The result means we could see a bleak 2016 with market skittishness remaining for most of the year until some sort of certainty can be found in terms of a strong enough economy able to stabilise the entire mix of problems currently being experienced in the market.

Fed Closely Watching Developments; Interest Rate Path Still Gradual. #FOMC https://t.co/kPHnvtbISR

— Ersin Şenel (@senelersin) January 28, 2016

Facebook flexes its muscles as the leader in social media

The world's biggest social networking site Facebook blew the market away with its fourth quarter results that indicate growth remains strong, really showing its pedigree amongst its competitors, The internet based giant reported that it hit a record 1.59 billion users of the service becoming a preferred outlet for advertisers to place their marketing campaigns in an effort to maximize the benefit to the full.

The figures speak for themselves and it would seem the company is taking things in its stride to stamp its authority on it competitors. With exciting new features coming in 2016 the future looks bright for Facebook.  

Facebook reaches 1.59 billion users https://t.co/Z8BWMLmkaR

— TechCrunch (@TechCrunch) January 28, 2016

Does Apple run a risk of falling behind the curve?

The stock of the last decade has to be Apple Inc. who has made phenomenal inroads in the field of technology with products such as the iPod and iPhone that has revolutionized the market for how consumers interact with those around them adding a touch of style to go with that and in a relatively short period of time built a brand that everyone wants to get a piece of.

From the iconic apple logo with a bite taken out of it to the creativity of the infamous ad campaigns calling for its users to "Think Different", the company has gone through a remarkable turnaround of yesteryears after a number of unattractive product lines and management changes almost deemed the company bankrupt of its ingenious started in a garage by co-founders Steve Jobs and Steve Woznicki.

The world mourned the day Steve Jobs tragically passed away after a brave fight against cancer in 2011 and the questions began to circulate whether his successor would be able to fill the void left by behind. I think its fair to say that Steve Cook has done a good job in steadying the ship but his no substitute.

Apple's first forecasted revenue drop in 13 years is quite significant in the sense it marks the end of an era that has been nostalgia for the company but it also highlights a much pressing problem that could persist in the years to come...creative inability to excite the masses like it had done before.

When the iPod and iPhone were released it was agreed that these products were way ahead of their time which gave the company a distinct advantage over its competitors whereby they had a number of years head start on them to effectively capture the market with no disturbance. They fixated their customers with awesome features that dazzled and surprised most and eventually created a loyalty to a brand which has fed the demand for Apple products ever since.

But we haven't seen the same hype for iWatch as we did for those products and perhaps customers are becoming bored by the constant regurgitation of the iPhone (the company's most successful product) that slightly changes with every passing year or the lack of any new technological development that sticks out from the rest.  

Apple sees first sales dip in more than a decade as super-growth era falters - https://t.co/u9N6zDbilv

— Investing.com News (@newsinvesting) January 27, 2016

Technology has become more integral to our lives as we had seen before when the television was first introduced and as was the case with the radio all those years ago. The only difference with the current status quo is technology is but a finger touch away at the distance of  reaching into our pockets and starting the engagement of our attention.

Who knows where the next frontier of technology goes from here?

The people and companies who make it their business to profit from pushing the envelope of progression and drive the needs and wants of the consumer in the direction that satisfy them the most with the least amount inconvenience. Apple is one of those companies but the lack of any distinguishable products since the death of Steve Jobs does paint a sorry picture for what the company stands for.

It suggests that the advantage that had given them the edge over their competitors over all these years may be drifting apart from the reality on the ground and it runs the risk of becoming just another large multinational corporation that churns out profit to shareholders year in year out but lacks the spark of genius that makes the true difference between a company that changes things to one that smacks of mediocrity.

Does this mean Apple stands the chance of going through another phase in its life where it once again faces the possibility of bringing uninspiring products to market with management that don't possess the right strategy to maximize the brand that has captured the fascination of the world in terms of innovation? The answer is unequivocally yes

Travelling Technicals with Global Indices: S&P/TSX Composite Index

Welcome back to another edition of Travelling Technicals where every week I dissect some of the most well known indices from around the globe and attempt to unravel what the future could hold for these markets and what is to be expected in the weeks and months to come. Today our focus will be the TSX Composite Index which is a basket representing 240 of the largest listed companies in Canada listed on the Toronto Stock Exchange.

The close relationship between neighbours Canada and the United States of America has always come down to the fact that the former is in abundance of resources and the latter requires surplus to demand , its as simple as that. Canada's economy has grown largely due to its strong ties with its American counterparts and as a result of such, has elevated its stature amongst some of the world's largest economies with it currently sitting as the 11th biggest and its worth to mention not too far behind Russia.

But I was interested in the geographical location of this country taking into consideration that China has shift up the demand for resources however with the slow down you would think they would be one of the many casualties, but as things stand the world's focus has turned to their neighbours as the driving force behind world economic growth in years to come. This would suggest that perhaps they may be much better off than their distant commodity driven competitors.

Coming back to the composition of the index, Financials make up the largest component of the stocks in the baskets representing a staggering 38.3% which isn't surprising given the fact that their economy is largely influence by the US. Furthermore Energy and Materials combined make up 28% showing the prominence of resources in their economy especially exporting gas and liquids to the US.

The Top 10 Largest companies are;

1. Royal Bank of Canada 
2. Toronto-Dominion Bank 
3. Bank of Nova-Scotia Halifax 
4. Canadian National Railways 
5. Suncor Energy Inc
6. Bank of Montreal 
7. BCE Inc 
8. Valeant Pharmaceutical 
9. Manulife Financial Corp.
10. Enbridge Inc

As found on S&P Dow Jones Indices McGraw Hill Financial http://us.spindices.com/indices/equity/sp-tsx-composite-index#

The one that sticks out for me has to be Valeant Pharmaceuticals who have had a run in with shady business practices that may be in contravention with accounting standards and possibly open them up to criminal charges against those trying to fix the books. The company is being backed by hedge fund manager Bill Ackman who has faced a barrage of attacks on his credibility following the scandal. 

Let's get down to those charts; 

Quarterly

I've decided to take a quarterly view as I found the structure of the uptrend to be steady. I also converted the price from the standard linear scale to logarithmic to cater for the longer timed nature of the chart which goes back to 1988. The trend in question started at the end of 1992 heading into 1993 and produced rich returns for a number of years that followed. The first retest of the uptrend came in 2008/2009 in conjunction with the Financial Crisis. It's important to note that minimal damage had been done with an optimistic bounce off the 50 SMA (Yellow Line) back to the highs. 

It can be said that the returns produced in the years after the Financial Crisis have not been as fruitful as they had been previously which does suggest slower momentum to the upside. Presently the price has come back to the 50 SMA and it would seem as if the uptrend is within sight once again. The levels to be watched is 11 000. I highlighted in a blue circle the extent to which volatility could drive the price away from the 50 SMA only to bring it back into the trend. 

My thinking is we could see the same being exhibited with the current candle all the way down to 11 000. I've also circled the oversold condition of the stochastic with levels last seen almost 15 years ago suggesting relative far value.  On the whole a good looking chart and one to be looking out for. 

Monthly

The softer returns I spoke about after the Financial Crisis is clearly seen as the uptrend that stemmed from the lows of 2009 produced a flimsy uptrend that has been broken late last year which confirms my belief that there is a lack of stronger momentum to the upside. However in general terms the economy hasn't fully returned to normality after that shock and this index isn't an isolated case. 

What I'm interested in is the situation that has been developing over the past 6 months or so with the price being wedged between the 50 and 200 SMA (Yellow & Blue line respectively). Since price remains above the 200 SMA I still see a degree of bullish sentiment hanging around this index and it would put the bias in favour of the bulls. We could see consolidation taking place with the buyers trying to find stable ground to launch a fresh attack on the all time highs. 

The Head & Shoulder pattern formed on the stochastic is suggestive of a weaker hand from the bulls which has been the case so far and I would think they would need to put in a better effort in the months to come which is very possible given the US is in an election year and policy changes in regards to infrastructure programs could provide the boost needed to get things started again. 

    

That's the end of another exciting week of Travelling Technicals be sure to catch us next week as we delve into probably the most watched chart at the moment, the CSI 300 from China. If you have any questions you can post them to us at cadetrader@gmail.com, we loved to hear your feedback. Until next time folks... 

A shake up for a shape up at Twitter

Social media problem child Twitter announced over the weekend a major shake up in its management team saying that four major executives will be leaving the company. This comes in the wake of newly installed CEO Jack Dorsey's effort to help the company rise from the ashes by attracting new users with better features so as to increase the user base that has seen stagnate growth for quite some time. Dorsey, who was formerly the CEO and left the company to start a new venture, hasn't won over investors confidence just yet with many becoming impatient with the ailing social media company.

On the face of it, the move was to be expected after former CEO Dick Costolo left the company following mounting pressure that led to his resignation. The individuals leaving formed part of Costolo's team, who had they succeeded on their strategy would likely have still stayed around on account that shareholders wouldn't want to throw away good management.

As much as the hype happening around Twitter about the exodus filters through, I think its a necessary step needed and although Dorsey may be faced with questions over whether dissent within management remains, if a requirement to restore faith in the company means the need for them to become a leaner, meaner and sustainable outfit, it needs the appropriate changes that would fall in line with the rejuvenation of brand Twitter.

Speculation is rife that Rupert Murdoch's company, News Corp may be interested in buying a stake in the company but thus far rumours have been swept away for the time being by the media conglomerate. The move would certainly be advantageous for both companies as the synergies would allow for each one to benefit significantly with Twitter holding the key for News Corp reaching audience in an outlet that is becoming a dominant player in the sphere of  news and entertainment.

As an avid user of Twitter, I really hope that Mr Dorsey has the right strategy in place to help deal with the problems facing the company at present. I believe there is still much potential to be found within the social media space and this could be Twitter's chance to take the lead and show its competitors how much further social media can be expanded too, which ultimately could define the uniqueness that has escaped the company's grasp for some time. Here's to hoping...

Twitter CEO @jack Dorsey announces departure of 4 top execs & major management shake-up https://t.co/eqcl58IWkL pic.twitter.com/MMnd3yuXcZ

— Standard City (@standardcity) January 25, 2016

After a turbulent few weeks stocks begin to raise

I wrote in a blog last week that most world indices were flirting with bear territory after investors had made a frantic flee to the sidelines over concerns over the deflationary risks the drop in oil presents to the global economy and the slowdown in China. However I did mention that the levels being reached were last seen in August last year when the same worries bothered the market. I was interested to see how they would react to those levels and said if they bounced strongly we could see a resurgence of bulls coming back into the fray.

It would seem as that this has now materialised and there is a feel of confidence in the air following the move which now opens the door to see whether this good run can be sustained over the short term in the closing days of January. It hasn't been a good month overall but a bounce of this magnitude may change the perspective of things and could lead to bullish optimism entering the market.

Asia's stocks rise again as new trading week begins https://t.co/9OhwxmjXoM pic.twitter.com/WlaxfViIFq

— Bloomberg Business (@business) January 25, 2016

Davos helps yield confidence for ailing markets

Every January the small town of Davos in Switzerland becomes the focus of much of the attention as heads of state, business leaders and even celebrities pushing an agenda come out in their droves to gather around to discuss the state of the world with this year being no exception. Judging by the last 6 months of uncertainty hanging around the future of Chinese economic growth and the volatility it has reverberated throughout the entire global financial system, this year was going to be much more challenging for delegates to simply brush worries aside and campaign lesser priority issues.

As much as things do turn into a political promenade for leaders to rub shoulders and a networking opportunity for the rich and famous, the real business of the day came down to what the various role players in charge of stimulating their respective economies had to say about the outlook and how they plan on dealing with the problems.

Chinese vice president Li Yuanchao went on the charm offensive by reiterating the point that China remains in the driving seat of world economic growth and has now entered a new stage he called "the new normal". He added that the government intended to continue supporting the equity markets to ensure stability is once again secured and that there was no further devaluation foreseen in the short term providing some relief for the time being.

The boost has shone the spotlight on what Chinese authorities can do to ensure confidence in their financial system however it doesn't take away the problems that remain. I don't at all think that China should be underestimated in terms of their power to shift trends, we've seen that emerge over the past few years but this doesn't necessarily mean that we in the clear when it comes to financial stability.

For a government to actively pursue the objective of supporting its own market does showcase a financial system under strain and that will still remain the key to investing and trading in the year 2016.

China’s Vice President Li Yuanchao seeks to reassure Investors over country's economic slowdown https://t.co/vPpLUdwbe8

— Wall Street Journal (@WSJ) January 21, 2016

Draghi tries to right the wrongs after surprising the market

Having spurned a surprise on the market with lower than expected stimulus measures to be implemented in the EU that sent markets tumbling in early December, the tone of ECB president Mario Draghi has changed somewhat to a more dovish one where he said a move to increase stimulus measures could take place as soon as March but again reinforcing the idea that interest rates will remain low for a protracted period of time.

The dip in oil prices has sent inflation hovering above the flat line as the economic trading bloc tries in vain to kickstart an economy that lacks the political desire to change its socialist policies that have destroyed value creation by government interposing itself between jobs and living off benefits which is clearly unsustainable in the long run.

Markets jumped at these suggestions as a positive move which they were looking for in December but never received and I think if the Fed comes through with a dovish statement in the weeks to come it could trigger the start of bullish sentiment coming into the market.

With less than a day left before the curtain falls on the pomp and ceremony it clear to see that these two events have reignited market interest apart from the two previous days of dialogue showing that when the market is concentrated on a theme or topic that takes centre stage it is very difficult to deviate that attention away unless the impact is of such profound importance that it demands attention.

The moral of the story? Don't be bogged down by the smokescreens, focus on what matters the most.

ECB may boost stimulus in March but rates will stay low for some time, Mario Draghi says https://t.co/7pKrGFonUY pic.twitter.com/yb7wOE5thK

— Bloomberg Business (@business) January 22, 2016

Most World Indices flirting with Bear Market Territory

In the midst of a frantic scramble to liquidate positions into cash, investors and traders alike have been able to push major global indices into bearish territory with some big name nations adding to the list of those indexes that have fallen 20% from their peaks.

The markets fears have turned from China to the next step the Fed will take in its aggressive interest rate policy hike program which many believe have sparked concern from all corners of the globe. I don't think there's reason to be alarmed as the Fed knows what can happen if it oversteps the mark but the response we receiving from the market is as if it were a deer in the headlights after the Fed had taken a sneaky decision to raise rates late in December.

If we cast our minds back to August 2015 you'll recall that most of these indices had reached these levels as pandemonium had set fire to market bears with financial media rushing to be the first to call a 20% sink from the peaks. This was short lived as Chinese authorities implemented new measures to boost markets.

However the game has changed somewhat since then, for one instance the team set up to inject billions of dollars into the market must feel defeated seeing the Chinese markets collapsing into a heap after a courageous effort to heed off any bad stench left behind from the worrisome bubble created by Chinese retail traders that had left many with zero in their accounts and staring down bankruptcy.

But I think the true nature of worldwide markets at the moment is the feeling of sobering up from the elated feeling of being feed with trillion of dollars of "free money"used to artificially fuel the market and lead the belief that the situation in the world economy is all good and well when in fact policymakers were dealing with a much deeper problem of battling with lower growth and tepid inflation suggesting lack of any demand.

If people believe that US economic growth is sufficient to steer the world in the right directions they'd be very mistaken. The health of the US economy is anything but good and it's going to need more than a cosmetic makeover that politically figureheads are so famous for doing. It will require government to think about a strategic growth plan going forward that involves renewing investment in the economy through capital expenditure projects which is why I'm so hopeful after the a bill was passed that would allow for $300 billion in upgrades to US highways.

It's these kind of projects that create true value by spreading the wealth among many instead of a few as has been the case with Quantitative Easing. . .  

Global shareholders have $27 trillion locked in bear markets https://t.co/rlT60WBIGT pic.twitter.com/2HBSEY2KNB

— Bloomberg Business (@business) January 21, 2016

The battle of the bulls and bears takes a volatile turn

Admittedly seeing US stock indices being plunged 3% at one stage during yesterday's session did send a fraction of worry about what the situation we are seeing could be developing into but seeing a late intraday session bounce of over 2% upwards did leave much more to think about than merely plunging markets.

I do believe that the market is feeling exhausted from such heavy blows inflicted on it but it's wise to remember that before calm assembles back into the fray there's an exhibition of high volatility brought on by both the bulls and the bears as they tussle for supremacy over one another with the victor walking away with the bragging rights to the next move.

The bears have been in possession of most of the moves we've seen this year so it wouldn't be surprising to see a little complacency beginning to show from their camp and I think yesterday's massive bounce proved exactly that point. Stunned and shocked the bears will need to work hard to keep things on their side instead of being fuelled by the natural flow of information of the news.

Obviously we can't say what may or may not trigger the next market move but we do know that extremism doesn't last with the most likely outcome being one being caught on the wrong side while the other taking full advantage of the weak point in state.

There go U.S. futures again... pic.twitter.com/WKnkKf4paB

— Joseph Weisenthal (@TheStalwart) January 21, 2016

Travelling Technicals with Global Indices: Bovespa Index

Welcome back to another edition of Travelling Technicals where every week I dissect some of the most well known indices from around the globe and attempt to unravel what the future could hold for these markets and what is to be expected in the weeks and months to come. Today our focus will be the Brazilian Bovespa Index or otherwise known as Ibovespa which represents 50 stocks listed on the the Sâo Paulo Stock Exchange in Brazil.  

The name Ibovespa stands for Bolsa de Valores do Estado de Sâo Paulo and is a total return index which means that capital appreciation/depreciation and reinvested dividends are accumulated to calculate the index value.

We've seen a very troubling picture being painted over the economy of Brazil over the past year or so with political instability causing protests calling for the resignation of president Dilma Rousseff. Added to this the commodities slump has exacerbated the country's woes as it is dependent on the sale of these goods to ensures a stable trade balance which hasn't been the case resulting in a depletion of foreign reserves, creating even more worry.

Some well known companies listed on the exchange and who also fall into the index is AB Inbev (the largest brewer in the world) , Petrobras (state controlled petroleum and gas company) and Vale SA (the third largest mining in the world). It's quite evident from the preceding two companies that the exchange is largely influenced by commodity producers so we expect that tone to come through in our analysis.

Monthly

The first thing that I noted when looking at the long term chart is how the price levels made a decent effort in breaking higher after the sudden drop off after the Financial Crisis. The immediate return to those levels provided for confidence going further which has had wider implication on the index. From 2011 commodities have been slowly grinding down and so has been the case here with a gradual series of lower highs and lower lows firmly in place. 

The period between 2014 and 2015 was an interesting one where it seemed as if the downtrend had been broken after confirming this fact in late 2014 however a reversal in sentiment sent the index screaming back down to support found at 45 000. The price action during this period does resemble that of consolidation which proved true with the last ditch attempt to save face from the bulls ending in a less than impressive performance and forming the final phase of the bearish pattern of Head & Shoulders. 

The price seemed to grind between the level of 45 000 for a number of months before becoming fully committal in December 2015, all but setting the stage for what could come in 2016. The fact that price was lying underneath the 50 SMA increased the chance that this pattern would work and also increases the likelihood that it will reach its target price of 30 000.   

But there will be a fight put up first at 35 000 as there has been in years gone past with two occassions being used as support in its ascent to all time highs and then again when the Financial Crisis was in progress. The bulls found stable ground in this region and will likely defend the level with much vigour. 

We are seemingly approaching that support and given that we've seen a move from roughly 55 000 to possibly 35 000, a move of that proportion would represent a drop of 35% and upwards. The smart money would be willing to feast on their profits while normalisation takes place and the bears once again readying themselves to continue the trend. 

Overall I think it does highlight the difficulty we are going to find in emerging market economies this year and does show that we are far from the bottom , so a level of caution should be heeded if analysts begin to call the end of the drop. Keep in mind the highs and lows at all times and note any specific breakthroughs of either.

Weekly

The weekly confirms the belief that the selloff that is currently being experienced may have run its course and we could see the beginning of a pullback that would provide the opportunity to short the rally should it arise. The level of 44 000 will be important as that is the mark that has shifted sentiment into extreme pessimism with medium term bulls who resided there now being fully shaken out of position. 

Price has diverged far away from the 50 SMA which adds impetus to perhaps seeing a resurgence from the bulls however we need to see a base being built and solid ground being made but assessing the general mood in global markets at present there is quite a bit of volatility lying around so it will be telling to see which side has the form to take things forwards. 

That wraps up another edition of Travelling Technical, hopefully it was insightful and provided you with some ideas of what we could see in the weeks and months to come in the markets. If you have any questions you would like to send you can drop me an email at cadetrader@gmail.com, I value your input and new ideas that may help. Cheers for now folks!!

The true value of money is found in the wealth of experience

A few weeks back I met up with a person in the legal fraternity and we got stuck into what drew us into our respective careers. Taking into account that this person was almost twice my age I thought it would be wise to listen in to some perspective when building a career that would not only serve you as a measure of success as a person but how much difference you make to those around within the sphere you work in. 

I told this particular person that growing up in a big family , being one of five children , was a tough experience, particularly when it came to seeing other children my age receive things for which my parents could not afford and how disheartening that I could not relate in any way to the happiness they felt having not receiving the same tokens of being a child.

I think for any child it can be a traumatic experience not being able to understand why you aren't able or do not have the means to buy every item you see on the shop shelf but it's a reality that so many people still battle with today even as adults.

I went on further to say that it was this feeling of dissociation that was the catalyst for me to say that no matter what was required of me to do , I would do everything I could to understand what the concept of money meant and how I could transfer that knowledge into wealth that would one day secure me the comfort of knowing I wouldn't have to live is despair.

I told of my journey thus far delving into the world of financial markets and seeing how perception has the innate ability to switch human emotions of greed into fear or vice versa.  How billions could change hands at the click of a mouse and how fortunes had been lost to the addiction of seeing money oscillate as if it were a casino slot machine. 

But then it struck me that all this time this person had been listening attentively to what I had been saying, not barring the fact that they had years of experience cross examining witnesses for which they would wait for the right moment to swop in and draw out the necessary points they found relevant to strengthen their case.

And suddenly the verdict was delivered

"Don't make money the centre of your universe. Life has so much more to offer you than simply counting the figures in your bank account. If you want to chase something do it on your dreams"

I was taken aback for a second , until I thought about it and suddenly I realised that there's an incredible sense of financial liberation that comes when you place yourself at the freedom of choosing your financial destiny, especially when it involves you actively following the ebbs and flows on a continously basis , making quick decisions , finding opportunities and managing your emotions.

However there still remains a degree of misconception when it comes to the usage of leverage which implicitly makes the user believe he has more power than what he really holds.  It allows you to find orbit amongst those who possess such wealth physically and able to participate at a fraction of the capital outlay but not without fail. It's never yours , you simply return it once you've completed the expected move for a profit or loss. The larger the exposure the more critical the demand on your attention becomes , one wrong step and it's numbers...quite literally.

And whilst the wealthy may simply shrug off such moves in favour of waiting it out , you aren't afforded that luxury. Instead you're walking on a tight rope trying to balance for your life hoping not to misstep along the way.

And although money might be a means to make things easier as is the case above , it doesn't contribute to the real value that's been created from the experiences you've encountered and accomplished , the moments that can't be bought with family and friends that are attached with genuine emotion and the process of endurance , resilience and determination needed to reach the point you stand at now.

And in concluding I thought it was fitting that after being told to;

"Never forget to be honest with yourself"

Erected up on the wall of the lounge is an enormous mirror that serves of a reminder that everyday when walking past don't forget to look at it and see who appears back because if it's someone you don't recognize then you've found the wrong person.

Sanctions lifted on Iran sends oil bulls scattering

Sanctions which have been placed on Iran for almost a decade have been lifted following an announcement by the International Atomic Energy Agency that an inspection had been conducted in the country and has received thumbs up which gave oil bears added momentum in their latest ditch to bury all hopes of seeing a price recovery this year in "black gold."

The deal allows Iran to begin trade relations with the world once again after a hiatus that saw them being shutout and foreign reserves drawn down to the point of extinction. The nation's main contributor to the trade balance equation is oil which makes up a large amount of exports highlighting the reliance Tehran has in sourcing foreign receipts to fund payments.

However policymakers will have their hands full with how the plan to deal with the situation which I'm sure will start developing on the ground , mostly amongst foreign companies who have had their profits locked up waiting for a deal to be struck. Given the amount of companies waiting to repatriate, it will still be a while before we see any significant capital flow beginning to materialise as the nation would need to replenish reserves which does take time, probably buying some time for policymakers to think of a strategy going forward.

Since the price of oil is much further than what it was a year ago, it requires more barrels of oil to fund the same amount of foreign reserves meaning that the glut being experienced may become worse if the Iranian government wishes to pursue an accelerated program of allowing capital to flow out. I can't envision this to be the case because no country, especially one that has suffered from 10 years of economic suppression wants to see money flowing out at a rapid pace.

But at the same time it wouldn't help boost confidence in the Arab nation who would do well attracting foreign investment coming off the constructive negotiations with the UN and the rest of the world in making concessions to scale back its ability to produce nuclear weapons. These negotiations have proven to the international community that Iran is serious about changing negative perceptions that may have been formed after previously defying international protocol.

The most likely option taken by Iranian authorities would be to allow funds to flow outwards in a piecemeal process so as to allow a level of stability to be found but wouldn't be too pleasing for foreign owned companies.

The next few years ahead will be a difficult and bumpy road for Iran but if they survive this period it could prove fruitful for them going forward. By this time the oil price may have reached a better price for which it can be sold and the nation can continue on its road to prosperity hopefully to the betterment of all.  

As oil plunges, hedge funds boost bearish bets to all-time high https://t.co/YA1BaX9fLK pic.twitter.com/8VbntthtX1

— Bloomberg Markets (@markets) January 18, 2016

The US Fed find it seemingly harder to implement a solid interest rate hike pathway

Following on from the story mentioned above and going back two weeks ago when I had written what the implications of an interest rate hike meant for the entire global financial system I think what we've seen unfolding in the trading days gone past so far is exactly why I don't believe that the Fed will be steadfast on their forecasts on lifting interest rates at such an ambitious pace as they had laid out at the December meeting when the first rate hike in ten years had been announced.

The reliance on the US economy to produce the beacon of light for the global economy is gathering momentum as the world grapples economic crises that don't seem to be stopping as the list grows longer and new situations appear, showcasing the weakness within the entire world economy.

The question of the steadiness regarding the transition between swapping roles as leading economy between the US and China had always been on the top of everyone's mind however given such lacklustre growth stemming from the US and the severity in the contraction in China's growth activity the world now faces greater problems with one being emerging markets. These economies had found favour with the developed world's investors but have since left much to be desired as their mainstay remains under economic difficulty.

The Fed is now placed in the position where they don't want to let out the little flame that they have created from the trillions of dollars created but at the same time try normalize the state of the interest rate market so that they don't form a trend of having to use low interest rates in years to come. However at the same time, the stronger dollar is hampering emerging market economies who have built up copious amounts of debt over the years and thus a bubble of substantial proportion is building that could trigger a new financial crisis.

When those praising the good quantitative easing had done in saving financial markets were heard making such statements, it was a rather short sighted approach in their assessment with only one phase fully being implement, the next stage has begun and the dark clouds on the horizon that will truly test the validity of such a measure.  

Here's why Fed feared a quarter-point hike https://t.co/uB2nxDfLyZ pic.twitter.com/pFCvdlr3uv

— CNBC (@CNBC) January 18, 2016

Shanghai Composite down 20% from highs as the bears are back in town

Chinese stock markets have entered bear territory once again following a troubled start to the New Year that has seen close to $3 trillion being wiped off from global stock exchanges on the back of concerns that the slowdown in demand in China is worse than initially thought sending investors frantically to the sidelines.

The levels that were registered today were last seen in August 2015 when Chinese stocks briefly entered a bear market only to reverse misfortunes and stage a mammoth rally after the Chinese government boosted confidence by placing a number of measures to cool off fears, one of these being an injection of billions of dollars into the market through a team assembled by officials known as the "intervention squad".

But we've seen a resurgence of volatility entering the fray when a deadline for the restriction placed on large shareholders in Chinese companies was set to expire prompting participants to dump their holdings in a frantic panic. This in effect put newly placed circuit breakers under tough scrutiny having only started to be fully operable from the beginning of the year and causing a halt to two trading sessions in less than 4 days.

The removal of these by Chinese regulatory authorities hasn't saved much face in terms of confidence in being able to appropriately respond to the need of creating orderly market conditions.

The big test from here onwards will be whether these levels are able to hold or if they may go lower which would set the trend for 2016. Should we see steadfast support of these levels I think it's fair to say that we might be encountering a market with a large range coupled with a high degree of volatility, however if prices do go lower it may trigger off another continued selloff with current support at risk of becoming resistance.

BREAKING: Shanghai Composite enters bear market after 20% drop from high https://t.co/RQGSTcgAyW pic.twitter.com/LgPF6Yk6DJ

— Bloomberg Business (@business) January 15, 2016

Reality Sets in for World's Biggest Miner

BHP Billiton is set to take a $4.9 billion writedown on its onshore shale gas assets as the world's largest minerals and mining producer battles to contain losses that have resulted from an extended siege on  global commodity prices. This after the price of oil went below $30 per barrel for the first time in 12 years highlighting the severity of the rout.

Analyst expect the next move by the Australian company could be to scrap or even halve its dividend in an effort to prevent further leakage seeping out of their balance sheet. The company has also recently been involved in a mining disaster in Minas Gerais, Brazil where a dam wall holding contaminated water from extracts of an iron ore mine burst and found its way down the rivers and coastline of the South American nation raising doubts over whether the company would be able to find stability in the near term.

It's peers, namely Glencore and Anglo American, have faced a much tougher battle in persuading investors that plans made for restructuring the company's balance sheets to cut back on debt and relieve demand on profits from expectant servicing of debt will be implemented to improve the outlook of the future of both these companies.

But these campaigns haven't been met with much vigor as many analysts have called into question the sustainability of such measures and whether the tight timeframe they wish to execute such a strategy may result in further letdowns to investors which has driven many to sell in heaps and put pressure on stock valuations.

We are in the midst of one of the biggest commodities crises of our time and I think the levels to which valuations have sunk too do set the stage for a grim story that lies ahead. The abnormal negative returns will place a much more demanding strength in case should an investor be convinced of investing in this space.

BHP Billiton expects a writedown of $4.9b on value of its U.S. shale assets due to tumbling #oil prices I https://t.co/DcVyOsp8u6 #mining

— BN Commodities (@BNCommodities) January 15, 2016

Russia looks likely to cooperate with OPEC as oil prices continue to fall

Yesterday I spoke about the troubles plunging oil prices are having on many nations with one in particular being Saudi Arabia, the leader of OPEC, whose government is finding it difficult to source income to alleviate the losses it has been bleeding from such a dramatic drop that some investors are getting worried.

Going one step further we know Russia is another big player in the oil market who holds a significant amount of reserves but at present finds itself in a tight spot not only by a lower oil price but also the fact that it's been sanctioned by the US and the European Union over its annexation of Crimea in 2014 after a number of political turning points raised tensions between Russia and the West renewing fears of a second "Cold War"scenario playing itself out.

However as we fast forward a year and a half later the economic implications of sanctions imposed on Russia by the West have now taken their course and we see an economy struggling to find a cosy place to cushion a hard landing. The latest measures announced by finance minister Anton Siluanov envisions government departments cutting a further 10% off spending after the same figure was shaved off fiscal spending last year alone.  

The dramatic fall in oil prices leaves Russian president Vladimir Putin in a difficult position with the likelihood of his government cooperating with OPEC looking seemingly possible given the severity of the oil glut that won't stop.

Russia on war footing leaves finance minister to scrape by: TV interview @olyatanas @AndrianovaAnna @ryanchilcote https://t.co/2HvRaQirWj

— Emerging Markets (@BloombergEM) January 14, 2016

 In September last year Bloomberg published an article (Why Vladimir Putin Won't Be Helping OPEC Cut Production) stating reasons for Russia's lack of interest in OPEC after Venezuela suggested that the Kremlin join in cooperation with the oil body to bring about a significant halt to production.

Some of the reasons given for the reluctance to work with OPEC pertained to issues surrounding Russia's inability to turn off its oil supplies due to differing geographical climates making it difficult to work in tandem with proposed production cuts as well as Saudi Arabia's strong ties with the US.

The article went further to say that the threshold needed for Russian producers to break even sat at $60 per barrel, a number which wasn't too far off from the prevailing price of $47 at the time of publication. The number also represented a much lower level than that of higher cost producers within OPEC who were seeking a price of $100 and upwards to put their head above water.

However the price has now fallen below $30, a 50% decline in price from September last year which does indicate the seriousness with which the Russian government needs to treat such a drop as it will require them to prioritise a sector of the economy that plays an important role and could possibly be the derail economic activity if a sustainable solution is not found soon.

This places Russia in trying times where it will need to make a tough choice of exerting more short term pain on its citizen who have already felt immense pressure from economic sanctions. It certainly erodes the confidence in voters that previously thought it wise to place Putin & Co in power but ultimately questions the instability created from a government whose policies incite defiance of those world powers who hold greater rank in the order of things.

Are the cracks finally starting to show in Saudi Arabia?

As the news flow from China begins to settle itself the intensity of focus that has been placed on OPEC member nations after a stalemate meeting held in Vienna last month seems to be gathering momentum as "black gold" prices continue to plunge on concerns of excess production.

In the latest twist to the tale, Nigerian minister for state petroleum resources Emmanuel Kachikwu said that OPEC may be close to calling an emergency meeting in early March, bringing forward the planned meeting that would be held in June after members, according to him, had expressed their grievances about ailing oil prices on their economies. He went further on to say that Saudi would approve of such a meeting if there was a consensus by all members for the need to hold one, a sign that perhaps the collusive oil body may be dealing with much more than just broken economies.

Calls have already been made by the likes of Venezuela and Nigeria to curb the production of oil but what seems to have intensified the urgency is the sudden change in diplomatic relations between Saudi Arabia and Iran. The former had stated explicitly at the bi-annual meeting in Vienna that it would not follow the organisations instructions should any be made for production to be cut as the nation was close to having sanctions that were imposed on it from the rest of the world for almost 10 years finally lifted which would put relief on a long suffering trade balance.

With no firm conviction from Iran, Saudi was left holding the baton with other members voicing their dissatisfaction at the move which would add roughly 1 million barrels per day to an oversupplied market battling to find storage.

Departing from the usual stance of cooperation would hurt OPEC in the long term as other nations may find the need to satisfy their own needs first before that of the organisation, a fact I have often eluded to a number of times on this blog and one that would ultimately make OPEC ineffective in manipulating world oil prices, a big plus for the world consumer.      

Nigeria says OPEC may meet as oil hurting even Saudi Arabia https://t.co/OYtL8Yl6hP

— Bloomberg Africa (@BBGAfrica) January 13, 2016

I've also said on a number of occasions that if we were to see an end to the oil rout we would need to see the bigger players suffering as a result rather than the smaller ones. The reason for this is the big players tend to hold more weighting in the decision making process and hold sufficient capacity to move the market on its own.

We've seen a number of stories materialising about US shale gas producers battling a debt crisis that has the possibilities to halt a copious amount of production being brought to market but so far we haven't seen too much concern yet. I say that because anything can develop in a short span of time so we can't simply write off those possibilities.

However it has been OPEC that has drawn much of the attention over the past few months with its squabbling between members and lack of cohesion providing a field day for those looking for a weakness in the system that may prove fatal enough to break the strenuous battleground that besets world oil markets with cheap oil but bankrupts oil producers and destroys jobs.  

Saudi Arabia has become known for its prudent approach to finances especially when you consider that 70% of government revenues come from the sale of oil. One can only imagine the devastating impact that's had on the budget as it now looks like investors who hold the very little debt the Arab nation has issued are willing to pay a higher premium for insurance for cover of default.

It would suggest that the financial implications of Saudi's actions are finally being felt at home and not only abroad amongst other member nations of OPEC. The worrying statistics reveal that Saudi has been on an active path of drawing down reserves to fund the shortfall created from lower oil prices but the rate at which these reserves have been leaking out the system has gotten to the level of unsustainable and now it turns to the international and local debt market to raise money to fund its budget.

Saudi Arabia finds itself in a precarious position where it may be forced to consider what priority holds more importance to the well being of its economy. Do they abandon expansionary production measures and begin the process of allowing the world economy to mop up the excess supply but risk conceding to alternative energy forms which may come back to haunt them later on as the oil market shrinks with new technology hot on the heels of sustainable renewable energy that would drive the world forward or do they continue their offensive against such producers and dominate the world oil markets for many more decades to come?

Anyone wanting insurance on Saudi Arabia's debt must pay as much as they would for Portugal https://t.co/UJuVoah13F pic.twitter.com/EFwuKpEsPC

— Bloomberg Business (@business) January 13, 2016

Travelling Technicals with Global Indices: ASX 200

Welcome back to another edition of Travelling Technicals where every week I take a well known international equity index and use technical analysis to forecast what movements we could be expecting in the weeks and months to come. Today we are going to be looking at the ASX 200 which represents the 200 largest companies listed on the Australian Stock Exchange by market capitalisation.

According to website Market Index the top 10 Biggest stocks on the ASX 200 are:

1. Commonwealth Bank of Australia 
2. Westpac Bank Corporation
3. Australia and New Zealand Banking Group
4. National Australia Bank
5.  Telstra Corporation
6. CSL Limited
7. BHP Billiton 
8. Wesfarmers Limited
9. Woolworths Limited
10. Macquarie Group Limited 

It's safe to say that financial services make up a sizable chunk of the constituents making up the ASX 200 with 48.8% followed by Materials which involve that of mining coming in at 11.9%. With the global commodities rout having been firmly in place for a while now we can expect to see a grim picture being painted for the index. Although mining only makes up a smaller weight of the index the economy is reliant on that part of the economy to create jobs, something which became evident with the boom and subsequent bust pertaining to the Financial Crisis. 

Based on Information found on S&P Dow Jones Indices-McGraw Hill Financial

Let's get charting: 

Monthly

The index has performed very well from the lows of 2009 but the latest pullback we've seen happening from 2015 when it reached multi year highs has left a cloud over whether it has the ability to return to all time highs and test its strength at those levels. The level of 6000 does seem to have marked the line of polarity with the first time it being surpassed an exhaustive rally taking place followed by the successful break downwards that ultimately led to a collapse after a prolonged period of market gains. 

It came into play again with very strong resistance that reinforces the notion that the bulls have become weak and not able to take things higher. 

We haven't seen a steady start to 2016 which does place the long term trend line in jeopardy of breaking. The price is grinding along the uptrend, a similar situation we saw last week on the Global Dow as well as the fact the price is also underneath the 50 SMA. The RSI, an indicator of momentum is seemingly turning bearish with a retest of the 50 mark and turning downwards shifting things in favour of the bears. If the trendline breaks I would expect to see a quick move materialising. 

Weekly

The price has been stuck between the 50 SMA (Yellow Line) and the 200 SMA (Blue Line) for a while now with the most notable point being August 2015 when the price touched the 200 SMA for the first time since November 2012. Price however didn't simply collapse and we've seen choppy action ensue as market participants make up their minds over whether the best returns might be find in better markets. 

I've marked four points that I thought were of interest to me, the first set being represented by the pink circle when price broke below the 50 SMA and 50 was rejected on the RSI. We had the same thing occur when the RSI attempted to break above the 50 after breaking down on the 200 SMA but a clearly rejection once again. These points I marked with a lime green circle.  

It does suggest a good degree of weakness currently being felt within the ASX 200 which doesn't surprise me much since its close ties to China has meant that its economy has shrunk significantly as trade between the countries have dramatically dropped over the past year. I think the key level here is going to be 4900, if that level can be taken out convincingly there's a chance we'll see fresh lows being put so I would put that level on my radar screen. 

That wraps up another exciting edition of Travelling Technicals for this week, be sure to catch us next week where I'll be charting the Bovespa of Brazil , a country that seems to be in a spot of trouble and facing political anarchy at the moment so it will be interesting to see how that's weighed up on financial markets that side. 

Remember your input is valuable to me and much appreciated so if you have any questions send them through to cadetrader@gmail.com and I'll gladly get back to you or even if you'd like to discuss financial markets from a different point of view I always like seeing things in various perspective. Till next week folks!!! 

Iran stands a lot to lose over tensions with Saudi

With much of the talk last week dominated by China not a lot of attention was drawn to the increasing tensions between Iran and Saudi Arabia that had seemingly developed after the latter had executed a prominent Shiite cleric causing the Saudi's Embassy in Tehran to be torched in protest.

The condemnation received by Iran after a breakdown in diplomatic ties with its Middle Eastern neighbour was too such an extent its own trading partners for which it has become reliant on for foreign reserves after the onset of sanctions from the West indicated that it may not be winning over many nations sympathy.

Considering that oil prices look set for another dismal year ahead, it doesn't look likely that the oil rich nation will contribute any positive development to the desperate situation oil markets find themselves in with a prolonged suppression by major production players, one of which happens to be Saudi Arabia who has led OPEC into producing copious amounts of unneeded oil.

With the removal of sanctions from the world looking set to be dropped sometime soon, it's not quite the optimal place Tehran would want to start things off once again. It also makes the ground with which both parties, the US and Iran, were able to reached an agreement to the upliftment of such sanctions in exchange for inspection of nuclear facilities more likely to be done on shaky ground with those in the decision making process perhaps having second thoughts over whether it should be granted if Iran's behaviour leaves a lot to be desired.
 

2016 was supposed to be Iran's breakout year. 4 things that could put that in jeopardy: https://t.co/594kKIUyHM pic.twitter.com/WnBwIUo36Z

— CNNMoney (@CNNMoney) January 11, 2016

The South African Rand takes another beating this time from Japanese retail traders

Africa's second largest economy is facing the possibility of a currency crisis that could have a devastating impact on economic activity after months of being sold down with this morning's sudden drop during a thinly traded time of day taking the beleaguered emerging market currency to fresh all time highs against major currencies such as the dollar, pound and yen.

It would seem that expectations in the market is the need for a pullback should materialise however with retail traders continuing to bet for a stronger Rand in the months ahead serving as a means to fan the flames further as stops get taken out by the load as the currency weakens with no mercy.

Earlier in December South African president Jacob Zuma shocked financial markets by firing finance minister Nhlanhla Nene and replacing him with an unknown back bencher sending the Rand plummeting. The moves seems to have set debate alive within the ruling party, the ANC, whether they could be faced with a ticking time bomb should they allow Zuma to continue his economical buffoonery.

The political situation serves the appetite of sentiment as the nation falls within the confounds of an emerging market economy, a sector of the world's economies currently facing huge fears and uncertainty after the slump in China's lack of sufficient demand.  

More on the #rand flash crash - Japanese investors are taking flight https://t.co/Ny95pqeEdh via @business pic.twitter.com/go0t3ehVvr

— Paul Dobson (@paul_dobson) January 11, 2016

Removing circuit breakers proves China lacks the expertise

I must admit that the whole debacle around Chinese equity moves that have dominated world headlines has got me frustrated by the problematic situation I find myself in by being unable to find alternative themes to report on. However I don't think we're in the full swing of things yet and with the crucial importance of China to the health of the global financial system at stake, we shouldn't stray far away or else we may risk failing to see the whole picture to a story of epic proportions.

 Late yesterday (early morning US) the Chinese regulatory authority announced that it would be scrapping the system of circuit breakers for the time being after it had caused two trading halts in a 4 day period which does highlight the extent of fear spreading in China's equity markets.

Incredibly the system has only be in place since the beginning of the year and would in all likelihood take away a huge chunk of confidence in Chinese authorities ability to deal with the situation on the ground. Earlier in the week I had said that China had failed miserably in its attempts to liberalize its financial markets which was quite concerning given that in a relatively short span of time they have shot up the list of important financial markets to be followed.

Embed from Getty Images

This latest move along with a renewed effort by the so called "national squad" whose objective thus far has been to support equities from a complete collapse that would make policymakers look amateur compared to their developed counterparts has left many confused as to what measures are being taken to prevent further haemorrhaging.  But here's the thing, are they risking the well being of the entire global financial system because their egos have been dented by their lack of expertise and experience?  Possibly yes

What does this all mean?

Given the sudden about turn stance that has happened involving similar situations less than 8 months apart from each other means that 2016 is bound to produce extended periods of speculative volatility which may hamper trading in the short term. The difficulty will be determined by the markets measure of confidence in the action taken by Chinese regulatory authorities and if they do not harm the transparency of what would be expected under normal trading standards.

The fact that no clear and defined rules have been set in concrete opens up the possibilities for uncertainty to enter the fray that could distort reality and ultimately damage the image of financial markets in China by drawing comparisons closely to that of a dysfunctional market doomed to fail in attracting much needed foreign investment due to the lack of proper systems that support investor confidence.

This certainly doesn't fit into the goals of the Chinese government which does tend to sway the sentiment towards finding a longer term solution to deal with these problems but until we see active discussion or any kind of acknowledgement by those in high office we will continue to witness the unsteadiness as we have seen this week.

Such as the global bubble is, normal it appears for a central bank to pump share markets https://t.co/xZpyFOg8fs pic.twitter.com/9iZJxJPDk0

— Yoda (@JediEconomist) January 8, 2016

The perfect storm has swung into financial markets

Seeing the flow of twitter posts increasing dramatically overnight as concerns over China were heightened this morning following the shortest trading session in Chinese stock market history caused by a 7% drop in the CSI 300 and halted due to newly installed circuit breakers does make one wary that 2016 may just be a difficult year for financial markets around the globe.

But my mind fades back not too long ago, perhaps less than a few weeks when the Fed decided to sneak in a little rate hike while most participants were building up into the festive season. I think that had to be the best decision the Fed had made in 2015 and here's why;

Every time a suggestion was made to hiking rates the market would kick up a volatile temper tantrum and throw it's proverbial toys out the cot and the Fed would become wary of their decision to lift rates. They would appease markets by finding some obscure reason as to why they couldn't hike which would please the market and let them feel that the comfort of complacency wasn't about to end soon.

But reality is action needs to be taken and markets cannot become dependent on central bankers to fuel their demands at will. So when Fed chair Janet Yellen and her merry band of FOMC members saw their gap they took it without questions which is evident in the unanimous decision.

The "free money"madness had gone so far there were some calling for QE 4 which obviously has now burnt itself out with no chance of it happening with the Fed's plan of lifting rate to a target of 1.4% before the year is out. Whether this is sustainable for the US and global economy is another matter altogether but the fact that we are now certain of a shift in policy does help many to begin thinking forward and what strategies would work best in those kind of environments.

$30 #oil Just Got Closer as Yuan Highlights China Turmoil https://t.co/gOG7HGVZeI via @business #ChinaMeltdown $OIL pic.twitter.com/y4qKE2yzih

— Andrew Barden (@abarden) January 7, 2016

 I thought the funniest thing the market did after the announcement was to take things higher and spread a bit of Christmas cheer to all. You'd think that the first moment the market becomes cognisant of a trend change it would weigh in on the market but not so with many analysts suggesting the certainty of knowing was a relief and the market had been expecting an interest rate hike which I can believe but find hard to wrap around my mind when most eyes were away from the screens and fixed on the holidays.

This isn't to say that markets shouldn't have gone higher after the announcement, in fact there's data to the contrary that shows that markets can and are able to continue trending higher until interest rates eventually catch up with the economy but we in a very different time and judging by the lack of buoyancy after the Fed had finally tapered off the last bond purchase and put a stop to QE, the fireworks display didn't look likely to happen.

When China entered the fray in the middle of last year the true strength of the bulls were tested as there was no more ammo to fall back on from the Fed and the market began taking the heat which continued until it reached its peak in late August when the contagion had all but crippled financial markets around the globe.

The Chinese government had started implementing drastic measures to stop the rout but it finally came to a head when government stepped in and started flooding Chinese equities with fresh liquidity in a hope to prop up momentum to the upside and boost confidence which had worked , the only dilemma is the problem was kick down the road.

With Beijing artificially feeding the market and the Fed forced to abandon a rate hike, the market found its form once again pulled off a superb run to quash fears that their was a global stock market meltdown imminent...little did they know.

Intervention has its limitations in the sense that authorities have a set amount of leeway to work with until it all dries up. Once all monetary means have been exhausted (and believe me these markets are hungry for freebies) policymakers are left with very little to support the upward drift in stock valuations besides seeing things through, even if that means finding it out the bottom of the barrel.

We're now faced with the reality of China still being in the pickle it was in last year or perhaps worse and the Fed marching forth on its path to lift rates to its projected target. This makes for very volatile times in 2016 which begs the question if the Fed will allow a degree of flexibility when deciding the next rate hike. My personal feeling is the projected target may be too aggressive and the Fed wouldn't want to stall things so soon after finally reaching its goals.

But the most crucial is will Beijing finally allow the stock market to crash and begin its corrective phase or will they continue to feed the market with magic tricks that hold no substance to the true sentiment in the economy?

Chinese policymakers look set for a tough 2016 as global issues weigh heavily

It's often thought that a country's true reflection of both political and economic power is tested in adverse times where the status quo isn't complacency but rather one in which the depth of leadership quality within an organisation or government is put under pressure to execute the right measures at the exact moment when needed and still be able to have conviction in those decisions.

We've seen how the ascendancy of China's relevance to global affairs has rapidly taken shape over the past decades much to the surprise of the West who had always seen the nation as populous yet poor not only in terms of its people but also that of proper economic policy needed to fully realise the potential of its "sleeping"economy.

However with the collapse of communism and lack of any strong allies, the spotlight shone squarely on Beijing as to what economical solution they would produce in the face of oncoming questions after the death of a political ideology it had followed for many a year.

So far we've seen pockets of opportunities metamorphosize into huge growth engines that made even those in the West salivate in awe of such a tremendous achievement on a scale the world has never witnessed before stemming from one nation. It lifted the prominence up the ranks of hierarchy and placed more weighting on the thoughts coming out from China.

But as much as the rise of the next known empire of the world leaves humanity with a few questions surrounding the way the globe is set to change it also places more pressure on leaders from within China to respond in a way that would be deemed suitable or that of a higher authority, something which has never been tested in an ever changing world with a backdrop of issues piling up waiting for an appropriate stance or position.    

How can regulators prevent China's difficulties from precipitating a global disaster? https://t.co/ZCtHaRgQVZ pic.twitter.com/3yvBywjYSF

— Bloomberg Business (@business) January 6, 2016

Case in point, the  Chinese financial market meltdown that led to a dramatic $5 Trillion being wiped off stock valuations in a matter of days and subsequently drawing worldwide attention especially those involved in shifting trillions of dollars on a daily basis who hold the power at the fingertip of  a mouse button to halt financial market progression at a whim.

Government had embarked on a strategy aimed at liberalizing financial markets so as to draw parallels with their capitalist counterparts but in all honesty failed horribly in their quest as millions of naive greed driven Chinese middle class began taking their bets of which way the market direction would go. We saw a number of stories starting to surface at the beginning of 2015 of many who had blown away family savings in an attempt to grab a quick buck and it's safe to say we should've seen the rest coming.

At first seen as humorous but later certified contaminous to the entire global financial systems, worry really starting setting in at the point when the Chinese government decided to intervene to prevent any further reputational damage suffered from such an embarrassment.

In all fairness, Beijing wasn't properly fitted to suit up this kind of task and given the growth its economy had seen since 1990 from being a smaller player in the scheme of things to becoming the second largest economy in the world did perhaps lift the difficulty level to an extreme no one had ever seen.

One thing is for certain though, the way in which the Chinese government was scrutinised in their intervention efforts did place a larger expectation on them, something that hadn't been seen before and maybe a signal that they no longer reside amongst those who merely blow a puff of smoke into the air but of a nation whose actions are constantly under surveillance.

We are only 6 days into the new year and China has already filled the headlines, once again with questions raised over the certainty to whether they will lift the ban they imposed on large major shareholders of Chinese stocks in July last year in the hopes of injecting some sort of confidence into the stock market or will they extend it further and send jitters through the financial markets by suggesting that they don't feel equity markets are strong enough for support to be taken away.

This chart found on Bloomberg shows the exact extent to which Chinese policymakers face in making a tough decision that is consequential not only to themselves but also the entire global. Considering the US has come off the back of Quantitative Easing, valuations are high but not as much as China's. If government continues to intervene they simply kicking the can down the road and thus forking out billions of dollars to save something that needs to resolve itself. The bubble is in the system and there's no way of deflating it besides popping it.
   

UPDATE: North Korea calls hydrogen bomb test an act of "self-defense" from its enemies https://t.co/RdQS1GIZfs pic.twitter.com/QKHNzopfRS

— Bloomberg Business (@business) January 6, 2016

On the foreign relations front, although China featured somewhat in talks with world leaders surrounding the terrorist attacks committed by ISIS over the past number of months , it struck a soft tone which hasn't resonated as loud as some of its counterparts. The reasons for such a stance is unknown but it's not unfamiliar for the West to frown upon the allies China takes up with.

One of those allies is chief agonist North Korea under the leadership of Kim Jong Un who has so far sown seeds of bitterness followed by a veil of empty threats with the rest of the world after taking over the helm from his father Kim Jong il.

China understands the importance of keeping peace in the strategic region of Asia where any disruption caused by conflicts between North Korea and other Western alliances such as Japan and South Korea could result in a major negative impact on trade, a sector of the economy policymakers have become heavily reliant on.

However the recent developments this morning coming out of North Korea testing a "Hydrogen Bomb" came as a surprise to Beijing who immediately came forth and stated that war served no one. This would fly in the face of a recent visit by Chinese Premier Xi Jinping to Pyongyang late last year to calm down the communist state.

Kim wants to test the leniency of his Chinese counterparts, something the West will be looking closely at to see what response Beijing takes to threats on peace which could in itself heighten tension between them and the rest of the world.

 It'll be interesting to see how China deals with Kim, especially after trends of defiance and mistrust have started to emerge that seemingly put China in the spotlight. China wants to position itself in the best possible light when it comes to world peace but with its support for dictators such as Kim, it's proving a very difficult task.