MSCI non-committal to Chinese stock inclusion

During the height of volatility in Chinese equities that occurred in September 2015, MSCI CEO Henry Fernandez had stated that Chinese mainland stocks could be included in their portfolio of indices much sooner than many had expected and volatility would not play a role in deciding whether or not the inclusion of these stocks would happen.

But in an about turn stance, the index tracking company has now said that the interference by the State in preventing a financial market crash could hamper the inclusion of Chinese equities into its global indices and stressed to authorities the importance of ensuring that the errors of the past do not happen again thus reinstalling confidence into the financial system.

At the time of Fernandez's comments I said that it was a rather unbalanced opinion given the developments that had unfolded in the preceding weeks which at the time didn't feel stable by any degree. These concerns were confirmed by the summer long support by the Chinese government of equities.

Where to from here?

Well it must be said that the government's decision to remove CSRC Chairman Xiao Gang and replacing him with Liu Shiyu was a step in the right direction following the mishaps of Gang's tenure which included failure to properly implement circuit breakers to create an orderly market that proved to be the last straw for authorities.

Shiyu takes over after having served in a similar roles throughout the Chinese financial system but perhaps the biggest vote of confidence comes from his involvement in developing the bond market in China, the one half that forms part of the capital markets with the other being the equity market. Having participated in one part of the capital market gives Shiyu a sense of the longer term responsibilities that need to implemented in order to attract foreign investment.

It's vitally important that China heeds the call from MSCI if it wants to complete its transformation from an ineffective system that fails to work for its citizens into a fully fledged global financial system that's interconnected to the world's biggest financial markets. The final step in its completion of this goal requires free flowing foreign investment that isn't hindered by meddling from third parties, something that doesn't feel anywhere close to being reached.

MSCI is not quite ready to let China into the fold - yet https://t.co/Sd1ln1SGpA pic.twitter.com/V5uPSS7FIj

— Bloomberg Markets (@markets) March 31, 2016 

Yellen's dovish comments spells over optimism to hike rates by Fed officials

You would think that the hype built around the anticipated interest rate hike the market had been expecting from the Federal Reserve in almost ten years that consequently caused the US Dollar to strengthen way beyond thought would've provided certainty to markets but instead has brought on more worry and concerned that's fuelled the flames of unpredictability.

This after Fed Chair Janet Yellen spoke at the Economic Club of New York yesterday during a speech striking a more dovish tone than most had expected.

The problematic situation the Fed finds itself in at present falls squarely on the fact that it had delayed the process of the inevitable interest rate hike and fallen into the trap of leaving it too late by implementing constrained policy in times of great distress throughout the world. Things become worse when you look over the oceans to neighbours Europe and Japan who both initiated negative interest rates due to unresponsive economic activity.

Divergence between policy direction amongst developed economies suggests a decoupling of a common agenda to drive world growth in harmonious tandem. The Fed has committed itself to the normalisation process whereas other central bankers have opted to continuing pushing the extremes of monetary policy stimulus. This effectively deems the Fed's current stance void of any chance at succeeding as alignment has become a frequent feature in deciphering the types of measures used to revive or pull brakes an economy.

Janet Yellen's comments that the Fed is looking to "gradually"lift rates to a reasonable pace are signs that the decisiveness that once stood firm at the central bank is beginning to shake with doubtfulness over whether the current view of tightening policy is the correct decision and perhaps an indication that the over optimistic nature of FOMC members may have created expectation that the US economy could fend off more than one interest rate hike.

However its a double edge sword because the more the Fed holds off on hiking rates the more concerned the market gets as the bleakness simply reaffirms the calamitous outlook many are believing to occur.

Yellen's super dovishness creates confusion https://t.co/EC855KAhaT pic.twitter.com/sehG11jN9V

— CNBC International (@CNBCi) March 30, 2016

In fairness to Miss Yellen, the normalisation process cannot be seen as an ordinary event that takes place during the normal course of economic activity. The situation the world's found itself in is not ordinary and the measures applied so far highlight the extent policymakers have gone too to prevent the worse financial devastation since the Great Depression.

My greatest fear at the moment is it may be too late in the game for radical policy shifts from world governments that have been called for from many corners of the economy and as a result of the inaction a new economic catastrophe may emerge. If this were to happen there would be considerable less room for governments to fix the problem and even less leverage from exhaustive monetary policies.

This allows for very little maneuvering space to be flexible and would force politicians to finally confront the structural issues their economies having been facing for a number of years that keep getting delayed due to unpopularity amongst ordinary citizens. The unfortunate truth is you cannot reap the benefits of the system for which you haven't laid an ounce of work towards and the reality is going to come down particularly hard on those who have found commonplace in these conditions.

Observing the rhetoric from key figure in the central bank world would suggest that the tone once used to bring excitement back into the mixed is starting to wear thin with critical examples of that coming from the ECB and BOJ. Added stimulus measures have yet to drive markets forward with the latest statement by Yellen being the bone of contention between those who believe monetary policy still has the ability to add kick to the economy and those who believe the clock is ticking towards the next economic implosion.

Whether the latter or the former proves true will form the importance of our assessment of markets over the next month with much attention needed to be pointed in the direction of riskier assets and their ability to produce returns they've failed to generate thus far this year.

Travelling Technicals with Global Indices: Amsterdam AEX Index

When thinking of the basic function of a stock exchange you're mind is sometimes invaded with thoughts of greed or perhaps a place where chaos reigns supreme yet if you think for a moment that although the movies may have dramatised what we believe to be the only purpose of an exchange it represents just a part in the wider scheme of things.

We forget that companies become party to a contractual obligation that makes them responsible for using the funds raised from the general public in the best possible way and at the same time produce a profit for its shareholders. Over the centuries we've studied many different types of businesses having been injected with ordinary individuals savings that maybe amounted into firms that have since stood the test of time or simply fallen from glory.  But if we were to pinpoint a particular time in history where the foundations of such processes were forged it would've started in Amsterdam in 1602. 

The Dutch East Indies company became the first company to issue stock on a public platform and ably allow its stockholders to buy and sell stakes in the company to other willing participants, thus creating what we formally believe to be the first stock market in the world, the Amsterdam Stock Exchange, being born into the history of finance. 

Although much has changed since then, Amsterdam will always been seen as the starting place of a mechanism that provided a choice to channel savings directly into the hands of companies instead of banks intermediating themselves between the lenders and the borrowers, it thus evolved into a new form of financial freedom for individuals to take an active interest in the return of their wealth. One only appreciates the enormity of the moment in history when they weigh up the economic size and contribution of the financial industry to the world economy. 

Much of the attention that was once drawn to the Amsterdam Stock Exchange may have escaped through the years it must be said that it still hosts an array of companies with distinguishable brands that have made a mark. Following its buyout by the the Euronext group it remains a prominent player in the European equity scene with the AEX indexing the 25 biggest companies listed on the exchange. 

Companies that feature in the AEX 25 

• Phillips
• Royal Dutch Shell
• Unilever
• Heineken 
• ING group
• TNT Express
• Air France-KLM

Monthly

Peaking at the height of the I.T bubble of 2000 the index hasn't made much ground in reaching those levels again with the 2008 Financial Crisis producing a lower high that helped enforce the downward bias that's been experienced in this stock market. It must be stressed that the low registered during the beginning months of 2009 was slightly lower than the previous low but it wasn't deep enough to trigger an extended slide to the downside. 

The support offered here has allowed the index to slowly creep its way up towards the long term downtrend with the result of having been broken in late 2014 not without its own complicated circumstances. Observations show that a possible uptrend was formed from the 2009 lows till present with no degree of being broken however I use the word possible because I can't be confident in the trend having assessed the interval between the time price retests the trend line. 

We see that the latest retest took place a while after the previous and although the retest proved effective it could be fatal because the lack of sturdiness in the trend line. 

Another great directional gauge I've posted on the chart is the 8 (Yellow Line) and 21 (Blue Line) SMA which gives us a clue to what to expect with the current indication signalling a drop off in price as the 8 is falling below the 21. The gauge has been accurate over the past 25 years with the only one crossing producing a false signal. This together with what looks like a cup and handle formation that'll need to be closely assessed in a smaller timeframe, it does look as if there is some weakness in the index. 

If we were to assume that the bullish trend could persist further we'd need to see a break upwards from the level of 480 from there we could feel hopeful that the price wouldn't have much resistance going higher but the price is somewhat subdued currently and in need of positive sentiment for it to produce the move higher. Right now it feels like a 50/50 situation. 

Weekly

Magnifying the cup and handle technical pattern spotted on the monthly into the weekly, we get a clearer picture of how things have gone over the last year or so. Once again we spot the possible uptrend but question the strength of its support by observing the price action during the first 3 months of 2016. 

It appears as if the pattern was formed accordingly but has shown a temperament not to compile with what many are expecting to happen. As a result we see untidy price action taking precedent over orderliness in the current year of trade. From a general standpoint, a chartist would prefer to see smooth transitory movements taking place to be confident of the trend. 

The large oscillatory moves between the 50 and 200 SMA is indicative of what we've witnessed on most stock markets around the world this year with no clear direction. It can be said that we've become familiar with these patterns developing which does give them correlative feel. Its important to note that the cup and handle pattern is active and will only be nullified if the level of 480 is taken out. 

With the RSI drifting below 50 the momentum is clearly to the downside so a degree of caution should be heeded when trading in this market. 

What Credit Suisse losses say about the fate of the banking sector

After 9 months as the new head of Credit Suisse, Tidjane Thiam has made a frightening concession surrounding his oversight of the company by indicating that traders within the firm had ramped up their positions of illiquid and distressed debt holdings without the knowledge of their seniors going as far to say that even he had no knowledge that such activity was happening right under his nose.

This comes as the banking firm looks set to report another quarter of losses following a dismal previous quarter where Thiam announced a major restructuring program that aimed to trim off fat and focus the company in the direction of wealth management.

Following these new revelations Thiam looks set to deepen his restructuring program by cutting more costs one of which proposes an additional 2000 jobs cuts on top of the planned 4000 taking the the tally to 6000. One does get a sense of eeriness when a CEO of a major financial institution makes such statements that you begin to wonder if banks may be headed for troubled times.

The reason for such thinking is supported by the fact that the dawn of negative interest rates has beckoned on many in the financial system to re-think or adjust their strategies so as to align the current interest rate environment with that of a profitable financial institution business model. However having never experienced a situation where interest rates are below zero there's no common theory to apply their minds too that would aid these financial houses of the appropriate measures needed to be taken.

What Thiam has revealed is precisely what we will see coming through from other major banking firms as the months pass and the effects of negative interest rates take their full toll on the economy.

Credit Suisse CEO says traders ramped up distressed debt holdings without his knowledge https://t.co/KUbTFzvudq pic.twitter.com/LPxhRzTYMw

— Bloomberg TV (@BloombergTV) March 24, 2016

Conventional thinking would suggest that for a bank to make money it needs to make loans available to those who require the funds. In return the bank receives interest which contributes to the profitability of the business. However banks are now burdened with the reality of receiving no interest for loans made available but instead pay the borrower to loan the money.

This can't be the case as the majority of  banks profits come from interest earned on loans which would decimate banks earnings. Banks have so far resisted this practice as it would mean that they would be entitled to charge depositors interest for having their money in the bank. This would lead to many depositors removing their savings from the bank thus shrinking the size of the potential loans that could be made available.

We can see from the above paragraphs that the landscape of banking has dramatically changed due to the onset of negative interest rates but it hasn't stopped shareholders of these companies expecting profitability. It's this exact point why we've seen a drive by management to attempt to seek out profits over and above what is considered the norm resulting in the business taking on more risk than would be necessary.

But as the global economy becomes a curveball of uncertainties nobody really knows when we'll see healthier economic times creating a financial storm of volatile proportions with just the right mix of fearfulness that triggers off the most violent financial market moves causing deep declines in asset valuations.

 Perhaps they could turn to the mainstay of good returns found in emerging markets but even their risk profiles have markedly increased over the past year following a bleak Chinese outlook that's left many uninspired, dejected and more so burdened by huge debt piles that require faster growth to pay them off yet not finding any joy in it.

It feels as if the financial market space is becoming claustrophobic with avenues of return wearing thin as the benchmark rate of return in the economy drops below zero and further downwards. This circus will only end when policymakers realise what the error of their judgement is causing and feel the urgency of shifting the extremity away from the edge and bring normality back into existence. Until then the world financial system will walk a tightrope in the hope that logic eventually prevails but hopefully by then it isn't too late.

Brussels Attack highlights the importance of cooperation

Days after the only Paris Attack terrorists alive was arrested in Belgium, the state capital Brussels was hit with a series of explosions detonated by suicide bombers at Brussels Airport and further on in a metro train station in Maalbeek. Some believe the attacks may have been triggered off as a retaliation response to Salah Abdeslam arrest by showing up the vulnerabilities in European security detail suggesting that more terrorist attacks may be on the horizon.

These attacks heighten the level of tension hanging over Europe after debate has raged on how to deal with the Syrian refugee crisis that's propelling the region quickly into an emergency situation. What it also intensifies is the argument of those politicians who are in favour of tighter border control to restrict free movement as has been the case for many years now.

The problematic circumstances the European Union finds itself in currently is as a result of whimsy following of conformed motivation from participating nations that's unhinging the safety and security of European citizens. We've seen the government's of these member nations strike a tone of dislike amongst each other in attempting to reach something as feeble as agreeing to austerity measures to save face in the eyes of creditors.

I wrote a piece a while back about Europe's unwillingness to find common ground relating to immigration control and how it was putting the region at risk to terrorist attacks as we had seen in Paris in November 2015 but having the spotlight shone markedly on the issue, it brought politicians to the attention of the dangers to their indecisions. Once again the divisiveness of nations to share information amongst each other is having disastrous effects on stability in the region and exposes a weak point from which enemies could target.  

After Brussels, Europe's intelligence woes revealed https://t.co/btFzX8CNrY pic.twitter.com/edGv6S1MGJ

— CNBC (@CNBC) March 23, 2016

It's certain that the key to keeping ISIS out of Europe in the short term will be Russia's ability to eliminate the terrorist group from places like Syria but at what cost to Europe? We heard last week that Russian President Vladimir Putin had decided to begin the process of pulling out of military action in Syria with not too much given away to the reasoning behind this decision. Some believe it could be a political play that would push European leaders to cut away the sanctions imposed on Russia in return for containing the risk of further terrorism, a deal that hasn't materialised.

The urgency with which European leaders need to press forward in its own responses to IS will be tested again if it turns to the Kremlin to find military support as it had done previously. If Europe is able to hit back without increased cooperation from Putin, it would show the world that perhaps EU leaders have found a common goal in defeating terrorism however if they were to ask for further assistance it only serves to warn us that a dire situation has developed in Europe where the indecisiveness of leaders places more risk on the future of the EU.

It's not merely enough for world leaders to condemn these heinous and cowardly acts on innocent people, to have full confidence in the government's ability to handle these crises we need to see action which stresses an important point. Terrorism cannot be defeated by a single entity but rather the cooperative effort from all parties in rooting out this evil that plagues society, an issue that Europe will needs to find itself working harder towards.

Travelling Technicals with Global Indices: Nikkei 225

Among the world's top stock markets as measured by market capitalisation is the Tokyo Stock Exchange with 2292 listings, it certainly lives up to its hierarchical standing with plentiful multinational corporations having all started in Japan and expanded outwards, conquering new business landscapes and winning over global consumers with products that has seen them become some of the most trusted, reliable and technological brands of our time.

It's not difficult to understand why the Nikkei 225 has formed part of a common index following throughout the world. If one thinks of just a select few companies that can be found in their day to day lives that reside in the index you sense that they are the appropriate gauge for world economic outlook;

• Toyota
• Nissan
• Sony 
• Fujitsu
• Panasonic 
• Komatsu 
• Yamaha 

It's evident to see how Japanese products have influenced the way the global consumer utilises their purchases and in saying that has set the benchmark in terms of standard of quality that should be expected.

But as much as the Japanese businesses have successfully captured profits from their export endeavours, the pathway with which the Japanese economy is along has been troubled for the past two decades with a risk of continuing to deteriorate if long term solutions aren't found to pressing issues. One particular dilemma facing the Japanese is a crisis of having a shrinking population or put more plainly a situation where there are more old people than young people.

As a result the Japanese government is finding it extremely hard to tap into revenue sources that would produce sufficient taxation to fund an increasingly demanding fiscal budget that requires more priority on the health of the elderly and as such needs to tackle restructuring their economic activity that would be prosperous over the long term. Thus far that goal looks too distant for many to begin being hopeful of the future yet with every passing year the need to deliver is growing ever constant.

This is just one of the many problems facing the Asian nation but makes a worthy case study for other developed economies to pay attention too. We've seen parallel policy implementation when it comes to a monetary easing between the Bank of Japan and the European Central Bank which is seemingly causing the world to ponder what trajectory both these nations are on.

However because the generous helping of monetary easing has made the need to find suitable returns ever greater the Nikkei 225 index has seen a dollop of resilience coming through that's assisted the index to challenge long term resistance with potential to go higher.

Let's get down to the charts:

Quarterly

The chart we looking at has a considerable length of time spanning as far back as 1987 which would date the preceding rally before the asset price burst that has held financial markets back in Japan for over two decades. The highs made during the late 80's early 90s have never been registered again since the huge declines that sent it into a secular downtrend. 

That downtrend was completed in 2005 with an initial break out producing a good rally but falling short of the resistance level needed to see a resurgence of buyers joining the trend upwards. It seems as if the trouble started around the same time as the Financial Crisis and sent prices back down to the lows of 2003/04. But surprisingly prices were able to hold support steady without plunging further which would have reaffirmed the continuation of the downtrend. 

Prices remained subdued after the shock of the Financial Crisis which is something I found unfamiliar compared to other major indices that registered fresh lows then made a courageous effort to reach for the highs last seen at the peak. In this case there seemed to lack directional movement which would suggest a disconnect between this index and other major indices. 

In came Abenomics together with the BOJ on a crusade to rid Japan of the evils of deflation by putting together a string of stimulus measures that helped get the index moving once more in sight of the overhead resistance that had yet to be broken. 

However it must be mentioned again that another disconnect became known and that happened between the Japanese GDP growth rate and the Nikkei 225. Where the GDP growth delivered far below par performance, the Nikkei continued its flight to the top which begs the question, who's buying into the Japanese recovery story? 

It turns out that the amount of bonds available for the BOJ to buy isn't sufficient enough so Governor Haruhiko Kuroda found it necessary to buy Japanese equity ETFs that has caused the BOJ to own roughly 50% of all equity ETFs listed on Japan's stock market. 

Back to the aspects of the chart and we see that the resistance around 18 000 has been broken but subsequently fallen back below that level which shifts the risk into the hands of the buyers. If we assess the overall price action that has taken shape over the last 15 years it resembles that of a double bottom formation suggesting that we could've found a solid bottom. With the price having broken upwards activating this pattern with big potential. 

But with the price hovering below 18 000 it does leave traders a little skittish over the prospects of going higher. A general rule of thumb would be to say if the price were to close below 14 000 (roughly half the measured move) it would nullify the pattern. We saw a dramatic drop in the first quarter of this year but a strong bounce shows that buyers have strong interest at those levels.     

Weekly

The uptrend we spoke about earlier on is seen clearly on the weekly chart with a distinct topping pattern having formed, the Cup and Handle with a break to the downside. The progress of the move indicates that we've reached a level that hasn't satisfied the full target of the move which means there could be further downside before we see any resolve of the price.

Two scenarios could enact themselves in reaching the final target price that lies just below 14 000, a level we established to be critical in previous paragraphs. Either the price falls to reach the target and bounces strongly back to shield it from anymore technical damage or the price falls below 14 000 and becomes stuck underneath nullifying the quarterly Double Bottom pattern which would be a real nuisance had you been following it for the past 15 years!!!

Current market conditions don't bode well for a bullish case in this situation so it should be accepted that the bias lies to the downside however if the BOJ were to up its stimulus measure we could see a strong rally pursue but this is becoming unlikely with the markets sentiment around the use of such measures being frowned upon.

Obama makes a historic Cuba visit as US tries to restore lost ground

A historic moment dawned American politics when President Barack Obama became the first sitting US president to visit Cuba in 88 years after landing in Havana yesterday at the start of a two day state visit to the communist island. Although the two nations have often butted heads in the past, the diplomatic gesture of re-opening borders to one another does contain more of a strategic move than it does as a symbolism of peace between the nations.

It must be said that President Obama's foreign policy during his term in office has promoted restoring the image of the United States in the eyes of the most discontented nations who face the harshest sanctions imposed on them by the leader of the Free World, the balance of power in terms of world order has begun to shift away from the empire built on the American dream and into the hands of an ever-growing economic giant purported to overshadow that of the former with the sheer scale of its population.

China has gone on an extensive mission to win over the friendship of nations that have otherwise been left outside in the cold in recent decades in order to capture the necessary guarantees to access some of the world's largest reserves of mineral wealth in continents such as Africa. Chinese dealmakers have the added advantage of digging deep into their pockets to strike handsome payoffs after having accumulated vast amounts of wealth in a short period of time knowing very well that capital injection into undeveloped countries grants them a considerable leverage point to build good relations.

As these inroads have steadily accelerated with ambitious vigour, it hasn't gone unnoticed by the US who seemingly feels more and more threatened by an "Asian Invasion" in reference to its measure of political power in the global village. The United States relations with Africa and South America have been strained at the best of times however this latest trend has the potential to allow these continents a negotiating tool to acquire the best possible deal in wagering the benefits of one super power against the other.

The highlight of Obama's visit to Cuba so far: this cool picture https://t.co/uwzfkxIXrO pic.twitter.com/XvwDU4G0RA

— MarketWatch (@MarketWatch) March 21, 2016

Cuba is no exception when it comes to this competitive political power play when one thinks of the beneficial value that will be created from the trade embargo being dropped after 60 years in presence. The existence of these sanctions have for long been a political battleground for expressing the West's anti-communist views yet affirm that the fall of the Berlin Wall and subsequent demise of communism no longer pose a threat on world domination but rather the ascendency of a new imperium created from the very fabric capitalism subscribes to that deem these actions necessary to decelerate or put a halt on this influence of power.

Such drastic reversal in steadfast political thinking highlights a willingness by the US to evolve with an ever-changing political landscape if it wishes to remain in the upper echelon amongst the sphere of nations. I cannot envision seeing a departure from this standpoint as we've witnessed in the presidential election campaign's where certain candidates have stood out brazenly with their obscure ideals of how they'd operate foreign relations should they be elected to office.

If such ideals were implemented it would only open up further ground to be gained by the Chinese as refusal to accept new norms would certainly hurry away old enemies and possibly open old wounds.

The United States economic restoration of ties between Cuba provides the communist nation with a gateway of opportunities that could add more value to its economy than any other of its trade partners, an image that could bode well with other South American countries who currently don't hold a good view of the US but could be swayed into thinking there may be more to gain from future deals than American self-interest.

Don’t expect U.S. companies to follow Obama to Cuba en masse any time soon https://t.co/9acBMYxf04 pic.twitter.com/1QjHZDzJ4K

— Bloomberg Business (@business) March 21, 2016

Russia's credit rating agency dilemma signals further pressure by the West

Russia is making headlines again after it announced it would be forming its own rating agency to assess the credit quality of local Russian debt after Moody's and Fitch's both said they would be pulling out of the country due to heightened regulations wanted to be imposed on them from the Russian government. The move was sparked from an ongoing dispute that international rating agencies are deliberately downgrading ratings to sabotage capital inflows into Russia.

A move away from rating assessments done by international rating agencies could spell disaster for Russia as the likely outcome to come out of it would be even more dissuasion to foreign investors who require unbiased and impartial evaluations of investment grades pertaining to foreign investments.

This latest spat highlights the increasing pressure the West are piling on Russian President Vladimir Putin to restore order in Ukraine following the annexation of Crimea as well as lighten up his support for Syrian dictator Bashar al Assad who remains in power five years after civil war broke out in the Middle Eastern country. Putin has hoped that his military involvement in Syria may sway his Western counterparts to have a change of heart and possibly use his fight against terrorism, namely ISIS, as a negotiating tool to have sanctions dropped.

But the oil rich economy has had no such luck with the most recent statement made by Putin detailing Russia's retraction of airstrikes in Syria as a sign that the beleaguered state of affairs may be pushing Putin's government to scale down to save costs or either Putin holding the West's need to fend off terrorism seeping into the EU as a ransom note to grant him more freedom.

Anyway you want to look at it the situation on the ground remains tense and with little resolution taking place it will only serve to make things worse in the coming months which makes it vital for world leaders to suspend the petty political cat and mouse game and concentrate on the priority of Syrian civilians caught in the crossfire.

Vladimir Putin starts his own credit-ratings firm in Russia https://t.co/Fe6D2k2VpZ pic.twitter.com/jdtkoh3GQE

— Bloomberg Business (@business) March 18, 2016 

Valeant's stockholders face the most severe price valuation shock

If there's ever been a time to highlight the importance of corporate governance it today's era of business you don't need to look further than Valeant Pharmaceuticals who faced claims in late 2015 of falsifying sale records to inflate numbers opening a can of worms and possibilities of executives being charged of manipulation of accounting records following the explosive report made by Citron research firm who made the accusations.

The intensity of media hype around the story led CEO Michael Pearson being declared sick and unable to continue with his duties until such time he had recovered which quite frankly sounds like a distraction away from the main issue. Pearson has subsequently returned to office but not without less scrutiny than what was afforded to him when the story broke. The company dropped its 2016 guidance and raised the alarm that it could breach debt agreements if it couldn't publish its annual statements causing the stock to tumble over 50% on Tuesday.

News of the calamitous outcome placed billionaire and significant stockholder Bill Ackman in a difficult position in explaining to investors in his hedge fund why the fund continues to stick with the company after such a poor showing in terms of governance. The hedge fund owns approximately 9% of Valeant.

The situation now forces Ackman, which must be said has defended the company to the hilt, to take on a more active role in management in an attempt to save it from going bust. The self proclaimed investor activist who tried to tarnish the reputation of Herbal Life faces his own worst nightmare with this latest move signalling his own concession that all is not well inside the boardroom of the firm.

It goes to show that people in glass houses shouldn't throw stones and boy has Ackman landed himself in the stew with this one.

Bill Ackman says Valeant is a problem he knows how to handle https://t.co/fFTnWlrmA1 pic.twitter.com/0mCYEc7Q91

— Bloomberg Business (@business) March 18, 2016

Oil producing nations to meet in Doha to discuss production freeze

Scouring through social media this morning my eye got a glance of an interesting chart that caught my attention with much thought over the developing situation happening in OPEC after selected members announced an output freeze. The chart in question is that of the Oil Volatility Index (OVX) spanning back to July 2014 when the rout began with an evident uptrend in place that surprisingly took a crucial step in defining a bottom for the commodity.

Although 2016 didn't start off on the best footing for oil we've seen a subsequent bounce following a number of developments happening from both OPEC and US shale gas producers. The responsiveness of US producers to a declining oil price can be seen in a stronger trend downwards in the number of wells in operation. A significant part of the uncertainty stirred up last year surrounded the ability of firms to service the debt they had accumulated during their expansionary phase years earlier.

This risk remains on the table even though with every dollar the price inches upward deep sighs of relief can be heard, troubling signs that renewed oil strength might encourage producers with stagnate wells to once again begin turning on their taps negating any positiveness found in this current rally.

Then you have to consider the ructions happening inside OPEC concerning members acceptance to bring about a production freeze that's been agreed upon so far by Saudi Arabia, Venezuela, Qatar and non member Russia in an effort to curb quantities being delivered to market. However there's been heavy disinterest in partaking in this endeavour from Iran due to sanctions being recently uplifted added to the already fractiousness relationship between Tehran and Riyadh.

In saying this we cannot neglect to note the significance of this turning point of volatility in oil price, it's something that might suggest that the developments around these issues are starting to produce positive sentiments from market participants who feel a little more confident than what they were three months ago.

Its Post-2014 Up Trendline pic.twitter.com/C0ogQHw8W4

— Dana Lyons (@JLyonsFundMgmt) March 16, 2016

News of a meeting between major oil producers from both ends of the spectrum next month helped spur the market on indicating Saudi's preparedness to sidestep Iran in its quest to see higher oil prices. Such a meeting if concluded successfully would all but seal the fate for oil and there's a desperate need from both sides to see some sort of stability.

By including Non-OPEC members Saudi Arabia has conceding to the fact that oil competitors are here to stay for the long term, a scenario it had refused to envision by implicitly driving up oil output to eliminate these high cost producers. This plan has resulted in the Arab oil empire haemorrhaging extensive government leverage only to see it fail miserably.

For US shale gas producer this might be the lifeline they were looking for and would do well to see some conclusive deal reached if they're wanting to succeed over the long term. They would need to stress urgency in the execution of such a deal as time is running out for them as cash flows tightening further and creditors coming knocking at the door.

Overall I think the world consumer may have not participated as much in this current price decline as one would've expected due to the strong dollar amongst all the world's currencies. It can also be said that the effects of lower oil prices on US consumers haven't economic growth either with many begging the question, what will happen next?

OPEC, non-OPEC oil producers plan to hold their next meeting to discuss output freeze pact on April 17 in the Qatari capital Doha- sources

— Rania El Gamal (@Rania_ElGamal) March 16, 2016

Fed expected to keep rates on hold as tone closely watched

There's been a level of mutedness that has lay around global markets awaiting the Federal Reserve's decision on interest rates with expectations that hiking will be held off during this FOMC meeting after its European counterparts, the ECB spooked markets last week by painting a bleak economic outlook that could see deeper negative territory for interest rates in that region.

We heard yesterday that the Bank of Japan voted to keep measures in place fearing that any deviation might trigger a global selloff on the back of desperate actions needed to be taken by central bankers to save their respective economies from distress.

Today's Fed announcement doesn't possess speculation over whether there will be a rate increase or not but rather the pace being set. FOMC members expected to initiate four rate hikes during 2016 which many had thought to be an optimistic number that has subsequently proven true as world markets are being faced with tougher economic climates and little leeway allowing policymakers to maneuver.

I've said over the last few days that I expect the market to be tuned in to the tone Yellen strikes when it comes to the issue of negative interest rates. So far we've seen adverse reactions to what policymakers believed would spur markets on but failed to ignite the passion to drive optimism higher. These moves are leaving central bankers confused over whether to continue exploring the effects of negative interest policy or perhaps start seeking support from their fiscal partners in crime...governments.

Nonetheless we are moving closer to what I believe to be the edge of a cliff in terms of market valuations and I don't envision seeing much more support for the current bull run that recently celebrated its 7th year of existence. Unless the true facts are placed in front of the markets eyes instead of constantly being distracted away with artificial monetary stimulus that seemingly helps fade away the responsibilities by those elected to manage economic affairs in the interest of its people.

More hikes may be coming... your guide to Fed decision day https://t.co/LyydTaQ8Z0 pic.twitter.com/mQmUpst7co

— Bloomberg Business (@business) March 16, 2016

This chart of the Dollar Index provided by Jeroen Blokland puts things into context really well. Up until the Fed has implemented an interest rate hike of 25 basis points, nothing stood in the way of upside momentum in Dollar strength. Fast forward three months after the rate has had time to work itself through the system and the Dollar is trapped in a consolidatory price range that refuses to budge.

The irony of it all is it took one rate hike of 25 basis points to halt its march upwards, hardly the kind of penetrative action expected to place a drag on the economy. One would've expected a series of hikes before any kind of headwinds begin to be felt. This highlights the fragility of the US ecconomy is dealing with that just can't kickstart the growth engine so many have hoped would've eased up on the hard landing experienced by China.

#USD strength is now a far less(!) compelling reason for the #Fed to postpone rate hikes. $DXY pic.twitter.com/3fwYHnBn1K

— jeroen blokland (@jsblokland) March 16, 2016

Travelling Technicals with Global Indices: Nifty 50

If you're an avid fan of kung fu movies you'll recall the title "Crouching Tiger, Hidden Dragon" that became famous world over in 2000. But apart from the name of the film I've always thought it to be an appropriate way to describe the economical growth spurt we are seeing amongst two of Asia's fastest growing economies namely China and India. I've dealt with Chinese equities a while back so today's focus is going to be on the Nifty 50 of India.

India has roughly the same population size as China however the steadiness with which they have grown in terms of economic development is world's apart from their counterparts who have set the new benchmark with the speed and adaptability of progression in less than 25 years. However there remains pockets of opportunity for India to be had as the Sleeping Giant battles to regain the height of the growth percentages it once amounted pre and post Financial Crisis.

Probably the most recognisable brand to foreigners listed on the National Stock Exchange of India and featured in the Nifty 50 is the Tata Company that lists a number of different enterprises such as Tata Motors, Tata Steel, Tata Mahindra, Tata Power and Tata Consultancy Services. One of the objectives when listing a company is to gain international reputation with foreign investors which I think Tata has done well. With that said more needs to be done with other bigger companies listed to expose themselves to foreign investors in an effort to raise more capital and diversify the sources of funding, a lesson that can be learned from the likes of Tata Co.

Besides Tata there is also the likes of Bharti Airtel, a global mobile telecommunication that has amassed a large base of subscribers locally in India as well as across the Asian continent. The need for communication has grown rapidly throughout emerging markets with India being no exception.

Let's get straight into the charts:

Monthly

An exceptional bullish charts that looks close to touching the support line of the long term uptrend, the index has followed the wider trend experienced globally of retracing back some of the mammoth gains accumulated in yesteryear. The prominent feature that separates this chart from the rest I've done analysis on is the fact that price has exceeded the highs made in 2008, 2010 and 2013 that formed solid resistance. Just this fact alone has the potential to open the upside to new all time highs being recorded with the latest occurring in early 2015 not so long ago.

An ascending triangle formed over a protracted period of time with the breakout happening quite some time ago meaning that the current trend has a degree of continuity in it if it hasn't been broken up yet. Both the lateral and uptrend support may provide the confluence needed to get the bulls fired up to surmount a decent effort that could see the previous highs of 9000 being surpassed with an ultimate target 10 400. The stochastic has been skirting along the oversold region for some time now with signs that its looking ready to bolt upwards which could be the cue for the bulls to enter the fray.

The RSI has trended downwards for a number of months and appears to be breaking the downtrend signalling the end of the downward momentum, added evidence that the buyers are coming to the party to take things higher.

Daily

On the daily we see a downtrend firmly in place since October 2015 perhaps even longer if you consider the lower highs towards the left of the chart. The price lies underneath the 50 SMA with the recent retest of 7600 being critical for taking things higher. As you can see that hasn't happened with the stochastic currently pointing down.

My thinking here is we could begin to see the formation of the right shoulder of an inverse Head & Shoulder pattern forming. This plays into my previous bullish analysis of the monthly chart by lining up the price movements that could occur before we see the next up move. If we were to see a pullback on the chart I would speculate that it would be limited to the lows of the left shoulder which isn't that far from where we are presently.

We would then need to see a rally back to the top of 7600 that is suffice to breakthrough overhead resistance and onwards towards the next resistance level which I think would be the 50 SMA. Overall it feels as if the chart is building into something explosive but we can't be for certain yet so its best to monitor it on an ongoing basis.

That wraps up another interesting edition of Travelling Technicals, I hopefully get to hear from you soon as I really appreciate all the feedback I've gotten so far. If you would like to contribute or comment on the blog please contact me on cadetrader@gmail.com

Markets become fearful that Central Bankers aren't in control anymore

Yesterday I went into detail over the speculative move by the ECB to stimulate the European economy and said that Mario Draghi had a number of considerations to think about before answering questions after the announcement was made. We saw markets initial reaction quite buoyant with most European indices making a dash for the highs of the day but only to take a steep plunge once Draghi got talking.

The market somehow didn't appreciate Draghi expressing his belief that there was no longer a requirement to lower interest rates further, implying participants shouldn't expect additional measures to be put in place anytime soon. Considering the wave of stimulus the ECB added to existing measures, its understandable why such a statement like that was made yet it still didn't give the market impetus to set forth on a rally.

Perhaps the bleak economic forecasts made during yesterday's announcement gave a heads up to investors that the central bank didn't expect an improvement soon and it was implicitly introducing additional measures to avoid calamity. The sentiment shown during the ECB press conference exudes an incurring fear that maybe central bankers don't have control over the direction of the economy and negative interest rates spell disaster.

Embed from Getty Images

So no matter what course of action is taken the market will use such an event to sell off exposure instead of creating euphoric rallies that last for months on end. This was clearly evident a few weeks back when the Bank of Japan lowered interest rates to below zero for the first time in its history. Again the first reaction to this was positive as has been the case when stimulus is announced but then the market had second thoughts and dragged global markets lower.

What we witnessing here is a clear indication by markets that they no longer trust central bank's' ability to steer their economies in the right direction, partly the reason we've seen an amazing winning streak in gold lately but more importantly why stock markets around the world have taken a backseat while the focus has shifted to bonds.

I have said it in the past and will continue to emphasis the point that negative interest rates don't mend a broken economy. What is needed is structural reform from government's but this is becoming harder to come by as is becoming evident in the ECB decision to expand its instruments in use to corporate bonds due to the insufficient quantity available in EU government bonds. European governments have mounted up hordes of debt piles that has not only caused distress amongst credit rating agencies but severe austerity measures in place needed to cut back on the payment burden and shrinking tax base.

With government's forced to implement a contractionary fiscal policy which is in direct contrast to the expansive monetary policy set by the ECB you find defeating ends in the sense that one cancels the other out that looks to keep the EU locked in a mess for some time to come.

It's clear that policymakers have plunged worldwide markets into disarray following the waves of stimulus introduced after the onset of the Financial Crisis. What isn't certain at this point is how they are going to reverse the adverse impacts these effects are having on the sentiment of market participants and economies alike that could send an even bigger shock through the financial system than we saw in 2008. All I can say is fasten your seatbelts, we're in for a bumpy ride...

Mario Draghi throws the kitchen sink at Europe’s economic distress. Again. https://t.co/E4c0iXiwl7 pic.twitter.com/fQAjP0MwW7

— NYT Business (@nytimesbusiness) March 11, 2016

Mario Draghi under pressure to deliver extra stimulus

Much of the interest around this week's trading calendar has been set around the decision by the ECB pertaining to additional measures of stimulus that's being expected to be made today when ECB president Mario Draghi makes his announcement later this afternoon. A lot rests on his shoulders with major expectations for the central bank to use every possible weapon in its arsenal to arrest deflation and return the European economy back to growth.

But Draghi hasn't drawn the perfect picture for market participants to grasp onto with a shock decision made in December 2015 that came across more hawkish than dovish which was the counter to what was expected. However the tone changed somewhat when Draghi appeared at the annual World Economic Forum held in Davos in January where he said that the ECB was considering upping the ante on its stimulus program as early as March as well as placing emphasis on the line "lower for longer"in reference to the interest rate set by the central bank.

These mixed messages have placed a great degree of nervousness around today's announcement with many fearing an unexpected surprise that could alter the entire course of the Euro currency against other major currencies and as a result we've seen a weaker Euro building up to today as the stakes remain high on the outcome.

There are a number of points participants have said they will be watching closely for, such as the level of decrease it sees the interest rate to be dropped to, whether the amount of bond purchases will remain the same or be increased and Draghi's forecast to how far the current QE program will be in existence with some looking for further extension past 2017.

5 things to look out for when Mario Draghi announces ECB's latest decisions https://t.co/dKNeQi4tUE pic.twitter.com/nMvqwqZnI3

— Bloomberg Business (@business) March 10, 2016

Draghi will be under pressure to deliver accordingly or else face further setbacks in an effort to prove that the measures put in place are sufficient to reach the ECB goals of defeating deflation. Partly to blame for the lack of confidence in the central bank have been a number of international issues dragging down global investor confidence such as China's failure to reignite growth and the US gradual but slow recovery that has yet to inspire much faith in worldwide stability.

This chart found in an article on Bloomberg expresses the belief that the efforts by the ECB have failed to spur on European equities with the chart representing the Stoxx 50, the largest 50 companies in the EU. Although Europe has much more listed equities than the selected few exhibited in the index it does serve as a gauge of investors mood to investing in European equities. 

The ECB is not only fighting against external economic matters that press it to take corrective measures but of the four events highlights three resided in Europe adding further weight to the downbeat conditions experienced over the past year. It suggests that investors need to place greater pressure on the government's within the EU region to form a common consensus over the direction it is headed too instead of finding continual resolve in the ECB expanding monetary stimulus. The longer disunity in the EU remains the less effective ECB policy measures become as the timeframe of any economic policy is limited. The notion of extending specific policy further away from the intended time lapse only adds additional risk to an eventual ending. 

Draghi will also be reluctant to pass on negative interest on excess reserves to banks who have seen a dramatic selloff recently following concerns that the debt taken on during the shale gas boom might be close to implosion if the oil price doesn't recover fast enough. The ECB is partly to blame for the situation developing in the way it has as interest rates being so low has squeezed banks margins significantly prompting them to find better returns in riskier assets. 

However the added risk has exposed these banks to more potential damage than they would be use too and thus any further decrease in the interest rate would place grave consequences for banks in the medium term. This is why participants will be on the lookout for how Draghi will implement NIRP (negative interest rate policy) with the current trend set by the Bank of Japan recently who applied a system of tiered excess reserves that determined which reserves would be obliged to be pay over a charge for storing cash. 

Having this amount of considerations to apply thought too does leave open the possibilities of Draghi slipping up which can be sensed in the mood of the market currently. One does hope that Draghi comes into this announcement prepared but we can never be certain especially after the events of December that shocked the markets. The best course of action would be to wait on the sidelines and wait and see how the market responds as this does have the potential to move markets globally. 

Resurgence in commodities are only short term in nature

Colossal; the best way one would be able to describe the movements that's been witnessed in mining counters over the past year with the present bounce making no exceptions when pulling off hair raising moves that would frighten even the most experienced trader. The perception around this relief rally is that it was a response to a rather dramatic selldown and should only to temporary.

I found this chart tweeted by the World Economic Forum which shows the net exports/imports of various nations around the world in terms of commodities as a percentage of GDP. The resource abundant countries make up the usual supply force that determine the amount of quantities available to the market however the most interesting shades on the geographical chart are those that are resource dependent or otherwise the part of the market that stimulates demand for quantities.

The most distinctive areas that we are able to identify are countries such as the United States of America, Japan, Europe and China. I have mentioned these countries specifically for a reason because if we think about the economic commentary that's dominating the news flow currently we'd find that all these countries are suffering from economic inaptness.

Japan and Europe have both implemented negative interest rates that has the world flummoxed about whether these extents to monetary stimulus is either a hinderance or a necessity to the financial system. The inability to abate a deflationary price environment has meant that central bankers are pressured to pick up demand or face dealing with an inactive economy that refuses to budge.

China has gotten stuck in a transitory state between transferring between that of an industrial based economy to a consumer services oriented economy. Investors are hopeful that government may indicate that it intends on lending a helping hand to the economy that has stumbled along but the role of government is slowly diminishing as increasing debt piles continues to prevent them from executing radical infrastructure programs that would boost the economy.

The US looks like the only nations that has the capability to steer the world economy in the right direction however if we look at economic indicators being reported they would suggest less than needed activity showing that it may not be the saving grace the world's looking for.      

Could the commodity crisis be an opportunity for #Africa? https://t.co/68Fwchtviw #commodities pic.twitter.com/wtN0GRhlM2

— World Economic Forum (@wef) March 8, 2016

All these nations have pertinent issues that trouble their outlook but more so the fact that each one has been place in a trend of slowing economic activity at the same time makes for a bigger implication for the global outlook as a whole.

We've seen commodity stocks radically improving after last years onslaught brought on by supply glut fears however the rally that has evolved does not feel as if there is a steady trend of long term buyers entering the fray but rather that of a short squeeze. It would be dangerous to think that we've seen the end of a disastrous time for commodity stocks because there remains issues yet to be resolved.

Iron ore prices spiked 19% on Monday 7th March 2016 to record the largest one day jump ever but Australia's steel trade port was shut down due to a hurricane that halted operations together with a bolstering demand for steel following the end of holidays in China have all played a part in helping prop up prices in the short term however a supply glut looks likely to remain in place for the next 2-3 years if demand doesn't pick up significantly.

Oil remains a key component in deciphering any direction. With OPEC on its knees and shale gas producers drowning in debt, its quite evident we are far from the resolution required to allow prices to begin its ascent.

Then there's the big issue of debt that seems to be haunting many mining producers. Although fears may have faded for the time being, the increase in commodity prices we've seen so far this year isn't sufficient to generate cash flow to pay away these liabilities quickly enough to chase away credit ratings agencies from downgrading them further. While the market has become intoxicated with optimism they've forgotten these issues that haven't gone away.

Before we see a return of investors in the mining sector companies will need to show steady demand for its products and with supply gluts on the scale we've seen so far as well as the lack of response to stimulus measures from the four nations I mentioned above I don't envision seeing this happening anytime soon.

Travelling Technicals with Global Indices: The Hang Seng

A few weeks back I did analysis on two Chinese indices that represented a number of stocks listed in mainland China and discussed what impact financial market reforms were having on the valuations by driving up prices due to the speculative nature of the participants involved. I also said that the lack of significant interest in Chinese financial markets had made both fundamental and technical analysis very difficult until recently when government took the decision to liberalise the stock market.

Today's chart focuses on a market that forms part of China yet was absent of communist rule during the height of the political system. The region of Hong Kong was occupied by the British for many decades but has subsequently been returned to China with a great degree of autonomy attached to it. The region provided Britain a trade port to access to Asian economies and has grown its relative importance amongst the world's prominent financial centres to one of the most closely watched.  

Hong Kong's strong links to the West has meant that its financial markets are sturdy and well regulated allowing Chinese policymakers the chance to examine the blueprint of how these types of markets should be run. The Hang Seng Index has a long history spanning as far back as 1969 with many Chinese companies opting to list on the established Hong Kong Stock Exchange. 

Quarterly

Since the index has a long history I decided to take advantage of that by gauging the movement we've seen happening over the last 28 years. This gives us a much clearer picture to how things have panned out over almost three decades but more importantly how the handover of authority in 1997 back to the Chinese government has translated into better or worse returns for companies tracked by the index. 

If we look at the high of 16 000 made in 1997 and immediately look at the highest point to date which happened in 2007 with a level of 32 000 that's double the valuation in 10 years. Up to this point things were looking good for the index until 2008 when it all went pear shaped. 

I also noted a steady uptrend starting from 2003 and still remaining in place with a recent retest at 20 000 in this quarter. The confluence between this support and the 50 SMA gives the bulls some space to manoeuvre however the fact that price attempted to break away but was stopped abruptly in its pathway leading to even bigger declines suggests the sellers are on the prowl.  

There was a period between 2009 and 2015 where price seemed to hover around and failed to register new highs or low which is why the failed attempt to break higher is so critical in our analysis. The compressive nature of price action over an extended period of time meant that the direction in which price moves would guide us over the medium term. 

Monthly

A common theme I've found with most global equity indices is the uptrend formed after the lows of 2009 were put in with this chart not being the exception. Observing the compressive environment made me pay particular attention to the space I marked out in the previous chart with a square. By zooming in I was able to find an ascending triangle with a projected 50% upside potential. 

Had this pattern worked its way through we might have seen new highs being put in by the Hang Seng however this wasn't the case as the retest proved all too fatal for the formation with price piercing easily through the long term uptrend indicating intention to change sentiment. 

The fall that has occurred over the past year has wiped out a good amount of gains made but I wouldn't be surprised to see price regaining some lost ground over the medium term, possibly testing the underside of the uptrend which should provide stiff resistance. The stochastic confirms this views by lying in oversold territory 

Should that happen it is unclear what direction the index could be headed to but because the long term timeframe would suggest a failure to break higher my suspicions would be to the downside. The level of 16 000 could be the support you ought to look for in this scenario. One thing is clear from the first 10 weeks of analysis, the year 2016 looks likely to be a grim one.   

Another financial house looking to move out South Africa

A new week another dent in the South African government's plan to inject confidence in its financial and banking system as news overnight reported that insurer Old Mutual Plc is considering splitting its entities into separate companies leaving investors wondering if the longer term implications of President Jacob Zuma decision to fired Nhlanhla Nene in December, after a fallout between the pair, could be setting in motion a deafening vote of no confidence in his or his cabinets capability in keeping foreign investors at ease with reckless actions that potentially open up avenues to tougher economic conditions.

Actions taken by Zuma in early December 2015 caused gyrations throughout the South African financial system calling into question the independence of Treasury and sending the local currency, the Rand to all time lows of R18 to one US Dollar. The Top 4 Banks suffered major devaluations following the announcement in concern that Zuma might be wrestling over control of Treasury for his own gains, inherently implying a much greater risk when considering the height of bribery and corruption charges that were levelled against him before his tenure as president.

This is the second financial institution in less than a week to make such a move with many expecting more to knock at government's lack of trustworthiness. Barclays Plc announced last week that it intended selling down its 62% stake in local and African exposed Barclays Africa Group but at the same time not giving away too many reasons why it planned such a move.

As Barclays exits Africa; Old Mutual considers splitting operations https://t.co/UfD7aGr5eY Watch @cnbcafrica's interview on Friday with CEO

— CNBC Africa (@cnbcafrica) March 7, 2016

Old Mutual is said to be looking at unbundling Nedbank Group, the asset that strikes the most interest at present as well as its wealth management in the UK and surprisingly its emerging markets business that resides in South Africa.

We have seen a steady decline in sentiment favouring investment into emerging markets over the last year after the interconnectedness of world economies to the activity of China has caused a knock-on effect that has seen a slowdown in global growth but more specifically these nations as they have geared themselves up towards driving Chinese growth.

However we should not be led astray by international economic issues affecting the world although they play a significant part in the whole equation, we should scale down into the country specific factors that have contributed to the sell off and resultant capital flight as there are wider implications that lie ahead for the health of South African financial markets instead of falling in the trap of believing that the country has been simply placed in the same basket with other poor performing economies.

The ruling party's hastened reaction to the decision made by Zuma and subsequent about turn stance of support for Zuma or rather lack of after affording him sufficient space to sow the seeds of discontent in South Africa shows a lack of interest in segments of the economy that do not translate immediately into severe financial market volatility that sparks the interest of the international media.

Profound support of controversies such as the Nkandla debacle, nepotism in government departments and blatant spending abuse from officials have propped up Zuma's political strength that meant the decision he took was based on his confidence of overall support from the party up until now. The party only has themselves to blame for what has transpired and any measure put in place to try undo the negative externalities caused by such event will ultimately fail because investors have lost their faith in the government and ruling parties ability to govern South Africa.

In stark contrast to the daily protests we see on the streets filled with millions of dissatisfied voters, the silent yet disastrous move by foreign investors to leave the country indicates the steering force money has over those in power.

Brexit highlights the problems in the EU

David Cameron's quest to negotiate a better deal for Great Britain in terms of a Eurozone agreement has been met in stark contrast to what he initially thought would settle well with the British public. Political heavyweights such as London mayor Boris Johnson have expressed their intentions to campaign to leave the trading bloc leaving Cameron and the Conservative Party in a compromised position.

Cameron know's the beneficial value added to the UK economy in trade relations with the European Union and is fully aware of the risk on his own economy should the public decide to opted out. Who could argue for staying put when you have issues such as the Greek debt impasse last year highlighting the difficulty with which members are finding it to mitigate the risk of a breakup of the trade zone by continuously moving the goalposts in terms of rules set down. 

However the British prime minister saw these weaknesses as a strength in his argument over why the terms adhered to by the UK needed to be revised and improved so as to not allow the debt contagion or any other issue of crisis to spread further than its border. But the need for these revisions do show the seeds of doubt that has deteriorated the EU's united front for quite some time.

The current agenda lead by the UK on Brussel's could tip the scales and other member nations might consider their chances when assessing the vulnerability of the EU and perhaps think closely at what issues their governments are faced with from the public.

A good example of this would be Sweden and Denmark where the former had adopted the common currency and the latter deciding to keep its own currency in place. The result has seen a divergence between economies with Sweden suffering an insignificant devaluation in the Euro that would make its own goods cheaper, thus forcing them to trade within the EU but remaining the most expensive producer of goods due to the highly skilled nature of its workforce.

Denmark has however resorted to trade with other nations besides those in the EU agreement partly due to low demand within the region but also because of a depreciation in its currency, providing much more flexibility than their counterparts.  

Britain's in-out EU referendum will be on June 23rd. The arguments for and against #Brexit https://t.co/7icyqm0oGr pic.twitter.com/GPrF81QhCi

— The Economist (@EconBizFin) March 3, 2016

The UK is seeing the same dilemma with its economy and wishes to abate the closer integration of member nations that it envisions happening due to the debt crisis that's unravelled itself as it gigantic mess. The EU wants to conglomerate members on a sovereign level that would see a common government overseeing the roles of each member.

If one were to judge of the strength of the British economy to the EU they would recognize that the greater degree of autonomy allowed to Britain has helped policymakers steer the UK in the right direction without suffering the impacts from the shenanigans going on in Europe. The political belief in the UK, although parallel to their EU members leans greatly towards the right, business orientated side of running an economy as opposed to centre, socialist ideals.

Another flaw that will trouble the trading bloc as the queue of nations wanting to join swells up, the existing members cannot settle on common ground as their different political ideologies don't match up. The consistent tugging and pulling in separate directions will inevitably cause nations to drift so far apart that they may find themselves no longer fitting the definition of a member, a situation the UK finds itself in.

But the biggest upset such a move would cause to the British economy would be trade relations between themselves and EU nations as the majority of the Top 10 nations that British goods are exported lying in the EU region and accounting for 50% of all exports. If Brexit were to occur these nations might be tempted to introduce red tape that hinders business between each other.

These issues I've highlighted are only a few of the many that are up for debate but one thing is certain in the coming months. As we get closer to the 23rd June voting day the public's stance will become clearer and we will see emerge the true intentions of the people. For now what we have are a set of potential scenarios that are worrying the market.      

BHP Billiton lands a settlement that unlocks certainty again

Mining giants BHP Billiton and Vale have signed an agreement with the Brazilian government to cover the damages incurred after a tailings dam wall burst in the province of Minas Gerais late last year that left 19 people dead and many more displaced. The settlement will occur over a period of 15 years with contributions from both joint partners as well as mining company Samarco. The agreed upon settlement value came in at 20 billion reais ($5.1 billion) a figure lower than what was expected in months preceding the agreement.

A relief for BHP Billiton who faced a barrage of attacks from environmentalists over the long term impact such a disaster would cause for the region, the company has promptly closed this eerie chapter of its history escaping this event with a few grazes in what could've been a financially draining exercise as has been seen in the past with the BP oil spill in the Gulf of Mexico that proved detrimental.

With management having wrapped up a settlement it is now able to focus on its core business instead of concentrating on containment of further damages materialising. It can be said that the Brazilian government having been under severe economic strain mostly due to the downturn in commodity prices, the company got away lightly considering that the disaster was the worst mining catastrophe in Brazilian history.

But this is not the end of the tale for the world's biggest miner as its commitment to the communities of Minas Gerais is vital in building up its reputation as a mining company that cares for the lives of those it impacts upon as well as delivering profits to its shareholders, a balance which is often contested in the media but an important balance that sets it apart from its competitors.

Through clear strategic planning, management has been able to steer the company through a difficult period where scrutiny was at its highest and brought the company's focus back into line with where it wants to be headed too. If one looks at the wobbly backdrop that commodity producers have been faced with over the past two years, this current outcome showcases the value edge an investor would attain if the investment choice was based purely on management credentials and abilities, an aspect one needs to pay particular attention to when looking for good value at the extremes of pessimism.

BHP Billiton, Vale's Samarco to pay $5 billion in damages for Brazil dam disaster https://t.co/BNV2HSX12F pic.twitter.com/NIYHDzqj2y

— dna (@dna) March 3, 2016 

Moody's slashes China's outlook from stable to negative

Moody's rating agency has slashed China's outlook from stable to negative as it cites growing debt piles as a concern that could possibly send the Asian economy into turmoil if more isn't done to prevent it. The rating agency says that the government's reliance on fuelling demand with credit growth as well as the dependency by state owned enterprise to plug seeping holes could haunt them in the future if they aren't careful.

We've seen an outpouring of supportive statements from policymakers particular those involving the matters of the economy in an effort to get reforms back on track after volatility spread an ugly mess throughout the financial system late last year.

Part of government's promises was to overhaul the system whereby their currency is traded more freely however this has been mired with uncertainty as a recent devaluation cause a tremendous wave of doubt rippling through the global economy which was subsequently placed on hold so as to not cause further harm.

The PBOC has resorted to drawing down foreign currency reserves to protect the currency from external pressures that would require it to devalue more than what would be desired pushing authorities into a corner over what decision needs to be made.

I think China will be unable to sustain the rate of drawdown it is currently experiencing in its foreign accounts although there may be a hefty sum on hand it certainly won't last if the situation were to spin out of control, a scenario Moody's sees as possible. China's alignment to global standards in terms of financial markets means that it cannot meddle the way it is use to deeming their efforts worthless if not worrisome.

Hinderance of a financial market by any institution equates to the same outcome, a distortion that skews the picture away from reality that eventually ends up in tatters. Chinese authorities recent effort to bolster confidence in its ability to reform did show signs of integrity however that is not the end of the line of communication with more transparency is needed in relation to the timeframe with which policymakers intend on implementing a change to a more open market platform.

#China's credit rating outlook cut to negative over debt concerns https://t.co/nIMSNKj3o0 pic.twitter.com/0SsN8DHBTn

— CNNMoney (@CNNMoney) March 2, 2016