Is Kuroda trying desperately to stall the onset of "Helicopter Money"?

Although much anticipation had been built into today's announcement from Bank of Japan governor Haruhiko Kuroda to deliver an extra boost of stimulus it wasn't to be. Needless to say Kuroda spun a new surprise on the market by stating the central bank is placing the current stimulus program under review with research into the impacts it's having on the Japanese economy.

The announcement might have not thrown the right punches but it does indicate the BOJ is contemplating the use of "helicopter money" which so many expect to be the next policy to be introduced.

Just last week Kuroda had told a journalist in a radio interview that the possibilities and need for "helicopter money" was not necessary and couldn't provide Japan's economy with the requirements to meet its economic goals.

However the markets reaction to his statements told a different story following previous statements made by Kuroda where he had shared the bank's opinion and sentiment concerning the implementation of policy measures skewed largely to the side of pessimism to the markets view whilst abrupting changing his tone not long afterwards by implementing what the market had expected while wreaking havoc in financial markets.

It's this kind of action that leaves market participants with little space to verify the authenticity of central bankers integrity to communicate honestly regarding matters of the economy whether they be prosperous or grave. The crucialness of this is only being seen now with the consistent to and fro motion of indecision as well as the indulgent back pedalling from policymakers when making an endeavouring effort to step away from supporting their economies that have become somewhat comparable to a mischievous child ignoring his parents instructions.

A lack of boundaries during childhood can lead to a problematic outlook later on in life which is certainly what many feel is inevitably happening amongst the developed world's economies with little confidence to say the least. The problem is once you've fallen back on a decision there's little stopping you from doing whatever it is you shouldn't be which is why the notion of "helicopter money" is no a last resort but a necessary evil that merely shifts the extremism of global monetary policy just that much further away from rationality.

"...the BOJ is running into operational challenges as the Kuroda era of massive stimulus wears on". https://t.co/t2zHU1bk5k via @business

— David Kudla (@David_Kudla) July 29, 2016

Is Facebook proving to be the darling of social media?

In showcasing contrast to Twitter's horrendous earning call on Tuesday Facebook outshone its competitors by beating analysts expectations with a superb set of numbers that cemented the foundation for the future of profitability.

Recording revenue of $6.24 billion for the second quarter of 2016, a significant portion of the total global advertiser spend on social media, Facebook is disproving Wall Street's doubts over ways the industry sees itself monetising the social media business model by drifting into the territory once dominated by television and radio.

What distinguishes Facebook from the rest of its competitors is the enormous accumulation of users on a diversified portfolio of social networking platforms that grants it first pickings to lucrative advertising deals due to the high concentration of active users with a wide exposure to choose from.

Monthly active users

• Facebook:  1.7 billion 
• WhatsApp: 1 billion
• Messenger: 1 billion
• Instagram: 500 million       

Facebook trounces Wall Street estimates with sharp ad sales growth https://t.co/BGd31egmU3

— Reuters Top News (@Reuters) July 28, 2016

With numbers like these no wonder they're reporting rapid jumps in revenue. If you compare the users of Instagram to its closest competitor Twitter who reported dismal earnings on Tuesday the gap between MAU (Twitter has 313 million) is quite staggering. Needless to say a strong opposition from the likes of upcoming Snapchat barely moves the dial in terms of Facebook with 1/6 th of its users.

Facebook's position in the sphere of social media means its unique to its competitors which plays favourably in the bigger scheme of things. It's certainly planted itself as a sustainable business we'll continue to follow with relevance in the next 10-20 years.

But just as Facebook clears the benchmark definition of continuity it's opposition searches desperately for ways to imitate the success of it with little luck so far. What will be needed from its competitors is an unwavering belief from investors that its model and management have what is necessary to successfully upend Facebook's dominance as well as a willingness to fund the business throughout the period of reaching this point.

Both these requirements don't look certain to be found in the medium term offering Facebook a chance to cash in on a once in a lifetime bonanza thus building a strong cash reserve for future endeavours. From where I stand it looks as if Facebook is going to be the darling of social media for the next few years.    

Twitter's quarterly earnings disappoint...again!

Hope in management's turnaround strategy at troubled social media company Twitter is fading fast with yesterday's earning call falling hopelessly short of analysts expectation in reporting an almost flat growth rate in monthly active users and revenue misses that leave investors pondering over CEO Jack Dorsey's plan to reinvent the company he started back in 2006.

MAU of 313 million as opposed to 500 million from nearest competitor Instagram suggests the company is falling behind in terms of relevance amongst users as new rival Snapchat comfortably overtook the worrisome news feeding outlet in the month of June.

Some might argue Twitter's target market could be the reason for the company's stagnancy with the market leader Facebook together with its ownership of WhatsApp messaging service tapping into a youthful audience less reluctant to engage fully with its services. Whereas Twitter feeds the new community, a rather small amount of social media users, its rivals have leaned their platforms towards interaction on a personal level which clearly is working.

This in effect leads more users to be drawn to the platform, leading advertisers to showcase their products where they get the greatest exposure. Twitter haven't enhanced their platform enough to encourage more users to join leaving revenue growth prospects bleak and advertisers less willing to place their marketing campaigns on their platform.

So much promise had been made at the start of Dorsey's second tenure yet we haven't seen the fruition of ideas come to light. Probably the most disappointing measure that was reported yesterday was the drop in research and development costs. It's as if management isn't committed to improving the functionality of its platform which flies in the face of amassing new users.

Back in February I wrote a piece saying mergers and acquisitions in the social media space could be a big news story this year. So far we haven't been left doubtful with Microsoft's purchase of LinkedIn and more recently Verizon's takeover of Yahoo's search engine. With Twitter market valuation under consistent pressure from stockholders the likelihood of a buyout from a bigger firm is increasing.

Who will that company be?

Twitter shares dropped 10% in after-hours trading after it missed revenue estimates https://t.co/UJLdQ4helX pic.twitter.com/rIFEk4n8sD

— Forbes (@Forbes) July 26, 2016

Technical Tuesday: Roche Holding AG

Monthly~20 years 

Going back twenty years the chart is quite good looking in terms of trendiness having exhibited two periods where the price rallied to new highs then corrected before restarting the trend. The most important rally out of the two occurred between 2003 to 2007 because of the significance of surpassing the previous high. In the move that follows, a price collapse is observed but bulls were able to support it enough to ensure it didn't track downward towards the previous lows setting up a platform to drive the value higher.

The company's valuation hasn't moved much since the end of 2014 where it marked an all time high and subsequently pulled back over the past year. Price has reached the 50 day moving average and seems to be holding on tightly above it for the time being.

When looking for possible support holding up the price currently, my instinct told me to look at the previous high of CHF 240 which lines up to the polarity of the chart. Once this price was overcome, buyers have been able to use it as a point to pick up more stocks as is seen in the long tails left behind in a number of months.

It should also be noted that the neatness of the pullback over the last year and a half has allowed price to be contained within a downward trend channel. This in effect has formed a bull flag that hasn't broken out of the range leaving tons of potential.  

Given this company falls within a defensive sector (pharmaceuticals) it's not surprising the bullish prospects currently showing on the chart.

Emerging market bonds experience mass capital inflows

The search for yield continues with the weekly net capital flow into emerging market bonds recording the highest inflow of all time marking a pivotal moment in the scramble to secure positive returns.

Analyst believe the contagion spreading through advanced economies bond markets, which has seen trillions of dollars in face value bonds turn into negative yields at an alarming rate, continuing due to the expectation on its central banks (some of the most respected in the world) to deliver further stimulus after a number of rounds of quantitative easing have left policymakers puzzled and frantic for a solution.      

Everyone wants a piece of the EM bond pie https://t.co/2KOywQ5MYk pic.twitter.com/iImJt8M0qy

— Bloomberg Markets (@markets) July 25, 2016

Reading through the article posted on Bloomberg, the reporters stated:

"With real sovereign yields in emerging markets high, relative to a flattening U.S. yield curve, the data suggests investors are ignoring political risks that have been exposed by events like last week's failed coup in Turkey, even if they're doing so through gritted teeth"  

This raises an important question when referring to the rational investor who is said to consider all risks when choosing the optimum choice of investment that fits his/her risk profile. If investors are deemed to push aside political risk in exchange for return then there's a case of emotional turmoil spilling over into financial markets, lessening the strength of those who propose rational decision making occurring in the normal course of trade.  

All risks aren't being considered directly skewing the picture with market participants urgency to generate income in a market growing excessively out of control. The true reflection of the condition of financial markets can't be taken from the valuation the market places on it but rather from the hesitancy of investors to shake themselves out of "safe haven" assets into riskier ones.

Are the markets as "resilient" as Draghi says?

ECB's president Mario Draghi struck a soft tone when talking about the impacts of Brexit yesterday saying the central bank was of the view that financial markets had acted "resilient" in the face of incredible headwinds created by it but conceded the bank could only tell of the real damage at its next meeting to be held in September. Draghi reiterated that he was ready and able to use all the instruments available to him to ward off disruptions created by the event.

The irony of this comes in the article I posted yesterday surrounding comments made by Bank of Japan governor Haruhiko Kuroda where he explicitly told a radio interviewer that the probabilities of floating the concept of "helicopter money" weren't possible and needed to revive Japan's sagging economy.

Inasmuch as I'm of the belief that measures such as these merely make a small problem even bigger, there's no hiding from the fact it's created the situation we deal with at the moment.

ECB in wait-and-see mode after Brexit vote, says Mario Draghi https://t.co/r3ZpvLhmpe

— Telegraph Business (@telebusiness) July 22, 2016

Markets didn't rally after Brexit because they thought the prospects of a separation between the United Kingdom and the European Union would bring about a stronger outcome, they did so based on the expectation of central banks natural inclination towards reverting to stimulus measures when the sad state of the global economy peeks through the cracks of policymakers rhetoric.

If this be the case then Draghi's comments regarding the "resilient" spirit of financial markets after Brexit cannot be taken at face value but in the context with the action that's driving valuation higher than they should be, the very policy he advocates as a measure to unshackle deflation that's arrested economic growth in the region but with little evidence to prove effectiveness.

A frighten trend of monetary policymakers following in the footstep of their bureacratic government counterparts of choosing to ignore the problem long enough to think it'll disappear only to be shaken awake when crisis hits is a reminder that those in charge don't necessarily possess the right solutions to the problem.

Kuroda's comments emphasizes the markets addiction to QE

As much as I oppose the thought of more deviant ways to stimulate the world economy with "free"money, the coyness of Bank of Japan governor Haruhiko Kuroda in a recent radio interview with BBC 4 is quite comical to say the least. This after the market perceived the central bank to evoke the use of Helicopter Money in an effort to purge the Japanese economy of deflation.

The market drew even more inference in its arrival when former US Federal Reserve Chairman Ben Bernanke made a visited to Japan a week and a half ago in a meeting with Japanese economic policymakers over possible ways of reviving its economy with alternative tools. Bernanke is a strong proponent of helicopter money so the link between the two inevitably matched up and got market participants racing to splash out on speculative assumptions.

We've seen a resurgence of buyers on the market following the British referendum which many had thought would devastate financial market stability yet has left many baffled when staring at new all time highs being registered in US markets as well as the buoyancy of global indices to erase all losses incurred two days after the results of Brexit.  

Bank of #Japan's Kuroda rules out 'helicopter money' https://t.co/qRusUlrvKw

— Pedro da Costa (@pdacosta) July 21, 2016

A close affinity by market participants to the use of quantitative easing methods to abate consequential risks leaning on the global economy have become so intertwined that any inkling of its continuation sends markets into a overdrive to get its hands on the most freely available assets with returns attached to it.

Sooner or later this hocus pocus will end but policymakers aren't committed to put an end to the extreme out of fear of collapsing an already fragile system built up artificially over the past eight years. When the realisation sinks in that the world doesn't require to be flooded out with hordes of money piles but instead a restructured approach to dealing with evolutionary economic problems, the damage done will be insurmountable and a need to start from the bottom up begun.

Driving market valuations upwards with money that has no cost suspends the decision making action that evolves out of borrowing money. It also has the quality of distorting the picture or outlook of the world economy due to its overpowering nature to secure returns instead of finding alternative asset classes to be placed in. Any asset that yields return is being flooded with "free" money to the detriment of the global financial system, a fate we'll only see when it finally gives up the falseness of the situation.  

The PBOC is speculated to be using intervention again

Last week I spoke about the ramifications of Brexit on the nature of global monetary policy going forward and said the Bank of England was poised to open its war chest of monetary tools to avert a deepening crisis in the British economy. I also said I thought a loosening stance from the BoE was likely to apply pressure on the US Federal Reserve regarding their divergent pledge to see interest rates normalised as opposed to its developed world counterparts such as Europe and Japan.

My assertiveness that this will indeed be the case was strengthened after it was reported the People's Bank of China may have intervened in the onshore currency market following an appreciation in the US Dollar which should've been offset by a devaluation in the Chinese Yuan with officials decidedly fixed the rate stronger.

The PBOC had steadied its hand with intervention when it abruptly devalued the local currency in the middle of last year causing shockwaves throughout the global financial system. After finding stability towards the beginning of this year it took the decision to allow market forces to dictate the direction of the price rather than set it itself.

Having followed this decision up until the Renminbi reached a six year low of 6.70 in the days gone by, its becoming abundantly clear that policymakers have reached an end of this resolution by observing the sudden appreciation of the local currency in an attempt to ward it away from this critical resistance.

Either the PBOC will be left to vehemently defend this level with all its might or it envisions a situation where the US economy is susceptible to economic headwinds that defer the Fed from raising rates as the global outlook remains bleak. Its own economy has yet to inspire forecasts that's turning the tide against the notion of a perpetual economic value generating machine.  

#Yuan rises most in a month as it looks like #PBOC may be defending 6.7: https://t.co/zTkiPB56w0 via @business pic.twitter.com/GQNxGI1bFQ

— Quinton Mendes (@CadeTradeR) July 20, 2016

Technical Tuesday: Verizon Inc.

Monthly

From the lows found during 2008 through to the stabilisation phase there wasn't much trending price action to write home about until a subsequent recovery got underway in 2010 which helped spur this stock past previous highs made in 2001. Perhaps the recuperation of all of the capital losses accumulated since the early 2000's as well as generating fresh highs highlighted the extent of intervention placed in the economy that allowed financial markets freedom to flourish.

But the most distinctive characteristic of this chart is the underperformance relative to the overall market return from 2013. Since this stock is considered highly defensive and the market switched from a risk off to a risk on environment, this stock failed to stand out during the market euphoria whilst registering new highs on the Dow Jones and S&P 500.

We now have a setting where this stock is beginning to outperform the overall market with signs of increased strength. The highs reached at the pinnacle of the last rally have been overtaken recently with a follow through to cement its ground above that level. What once offered resistance will now become a springboard to new rallies going higher.

The stochastic indicator breached the overbought area at critical resistance levels which made market participants wary of a breakout occurring. This resulted in a heavy sided short trade setup to be placed on this stock with the shift in sentiment providing impetus to drive up the price leaving behind a long positive candle to confirm the break.  

Following onto the RSI, the downtrend thats prevent upside momentum from materialising has finally broken away setting forth a spurt of buyers to the upside.

Weekly

Consolidation took shape rather neatly as can be seen on the weekly chart with little to say about any significant trends to either the upside or downside. We can ascertain that the level of resistance broken was at $54 and the follow through is yet to pullback to test support. 

Price sits above both the 50 SMA (yellow line) and the 200 SMA (blue line) with a golden cross being produced as recent as June. The curvature in the gradient of the 50 SMA suggest that buyers momentum is picking up which is likely to support the follow through further. 

The stochastic is overbought and considering the long tail left to the top from three weeks back indicates buyer's strength might be waning here. However if we look at the RSI it's currently touching lateral resistance with a break above the horizontal level leveraging momentum to a faster pace. The last two weeks of price candles don't give much away which probably says both sellers and buyers are uncertain of direction. 

If buyers could mount themselves above the highs made in early July there's a likely chance the rally will continue given the depth of the range. The move above resistance shows healthy signs of a uptrend being enforced so a considerable degree of upside movement can be expected taking into account the follow through hasn't moved too much away from the breakout. 

Softbank agrees to purchase ARM Holdings

Excitement filled the voices of investors at the opening of trade this week following an announcement from Japanese multinational Softbank Group agreeing to buy British microprocessor chip maker ARM holdings for a staggering $32 billion in what will become the biggest takeover purchase by the internet and telecommunication giant.

ARM holdings main product of microprocessor chips which are used in big name brand smartphones such as Apple and Android will diversify Softbank's mix of businesses within the realm of technology.

But with such a hefty price tag, was the takeover all that worth it for Softbank?

Only recently the company saw its president Nikesh Arora resigning from his position because of uncertainty pertaining to the supposed transition to a more leading role as CEO currently held by founder Masayoshi Son who head hunted Arora from Google's executive team. Son hoped to install Arora as CEO to replace himself after his retirement having found him to showcase the same traits his used in the last 34 years in funding fledgling businesses that held exponential value for the future, his most notable being Alibaba.

However Son's abrupt decision to pull back his retirement plans directly influenced Arora's resignation with questions raised over the company's strategy given management's willingness to pay a handsome premium for this latest takeover.

SoftBank to buy Britain’s ARM for $32 billion in record deal: https://t.co/e9pxriChNr

— Bloomberg Deals (@BloombergDeals) July 18, 2016

Adding further to this is the growth of sales in smartphones steadily declining with recent figures indicating the first year on year decline. This doesn't bode well for ARM holdings whose positioned itself as the leader in the market for microprocessing chips for these devices. A decline in sales will inevitably see a drop in the number of chips sold.

Some might argue that a slight decline in sales growth is insignificant given the quantities of smartphones manufactured however it does set in trend a downward bias that'll leave investors unsure of the outlook growth. If this is indeed the case the market for microprocessor chips in smartphones may have reached maturity implying a slowdown in a previously expanding sector.

Purchasing a business in a receding market for its product isn't an optimal decision to be made because of the additional risks it adds to the equation. Taking into account Softbank has divested a sizable amount of its existing businesses in Alibaba and Supercell, the cash generated from the sale of these assets aren't enough to cover the $32 billion price tag which means management will be digging itself further into debt  as expressed in its intention in the announcement.  

Although it must be said that the tense state the global economy is in, an option for investors to shelter themselves from extreme uncertainty is in defensive stocks, with Softbank falling into this category of company with operations in telecommunications, a necessity throughout the world. But in saying this one wonders the viability of such thought when the company is so indebted.  

China can no longer rely on debt to fuel growth

It's hard to believe a year has flown past since matters relating to an implosion of Chinese equity markets took a firm grip of the world's future outlook and sent global financial markets into overdrive over the spillover effects of such an event.

Although the full risks have yet to contaminate the world economy it must be said that the Chinese government has orchestrated the fixed smooth over of concerns many economists cited as persistent problems that threaten to reappear at a later stage.

One of these risks is the consistent additions to an ever growing debt pile used to spur economic activity that's seemingly wearing thin in its appropriateness as a tool to stimulate growth. The current situation in which consumers and producers have burdened themselves up with debt is weighing heavily on their ability to transform income into a value chain.

The taxing demand interest repayments impose on the borrower is far outstripping any good that would come out of it due excessive obligations as a result of an overextension of credit.

Notwithstanding the fact that debt made in the past was done so with the perception of infinite growth at abnormally high rates which don't match present reality. The difficulty in achieving escalated economic expansion requires policymakers to reign in the debt in the short term to medium term and only recommence once satisfied enough has been done.

But considering how indebted China is, roughly 250% of GDP, this would be a mammoth task for any government to achieve in a short span of time. Herein lies where the next frontier of economic thought is going, the Growth Dilemma.

How does a nation abate the long term implications of an action that motivates a short term solution to a dire situation yet leaves its citizens poorer by laddening excessive obligations to their sustanence?  

China’s mounting debt is hurting its tradition of using spending and lending to spur growth. https://t.co/3m8dUpcTUy pic.twitter.com/gbNvnHEotP

— NYT Business (@nytimesbusiness) July 15, 2016

Can we imply further NIRP if the BoE lowers rates?

Just as the United Kingdom received a new prime minister yesterday in Theresa May's appointment to Britain's political hot seat, focus now shifts to the Bank of England's interest rate decision with pundits expecting BoE governor Mark Carney to drop rates for the first time in seven years.

At first glance it appears the decision will be made as a reactionary measure following the developments concerning Brexit which probably holds the greatest weight in the argument to edge rates to all time lows. Needless to say it can also be seen as a coercive coordination in responding to the re-instituted quantitative stimulus by its developed nation counterparts such as the European Central Bank and the Bank of Japan.

It's prudent to be reminded that although interest rates in the UK currently sits at all time lows of 0.5%, the central bank has an arsenal of monetary tools its able to enact to fight off dangers to the economy. It briefly paused its bond buying program in 2012 when other banks opted to continue and still extensively rely upon it but to no avail.

In the past four years the BoE has resisted the temptation to restart these programs however we need to question the British economy's capability in shielding itself from additional bond purchases that's ridden the strength of the British Pound since 2012 when stimulus was paused and in the light of the drastic economic upset from the Brexit vote to leave the European Union.

If the strength with which the British economy boldly defended its monetary policy stance has been wounded badly by the future outlook, then it brings into question the validity over the distorted might of the US economy that's hardly churned out economic growth sufficient to create waves in the global economy. It would suggest that it too is susceptible to becoming influenced by its fellow central bank counterparts exploring the riskiness of negative interest rate policy.

The BoE's decision will impact the global financial system more than simply the confines of its own economy with an action of lowering rates placing pressure on the US Federal Reserve in defending its case of normalisation of interest rates and in saying this implicitly suggest that its influence of directing world economic policy has been tremendously harmed.    

BOE set to cut rates for the first time in 7 years on Brexit backlash - MarketWatch https://t.co/MW7uuokkhN

— Rod McAlpine (@Rod1015) July 14, 2016

Are Alcoa's earnings indicative of the health of the world economy?

Second quarter earnings season kicked off with the usual hype going into Alcoa reporting their numbers after the close with anticipation that a beat or a miss could pre-empt the outlook for the rest of earnings season. However in a surprise turn of events that underplayed many analysts, its age old aluminum business that's set to be unbundled off in the next few months outperformed better than expected.

This gives the first hints of a much needed recovery in the resources sector that's been plague by a protracted slump in recent times resulting in producers drastically cutting back on capital expenditure projects in an effort to well up cash flows.

More specifically the resilience shown in aluminum markets in 2016 when an initial bounce materialised was thought to be a reaction to the scores of shorts closing out and subsequent expectation of renewed selling were foiled when buyers sustained their good run at higher prices.

These kind of price movements haven't been isolated to aluminum only but seen throughout the commodities market where the bulk of positive returns have been recorded thus far in the year.  

Alcoa’s (other) earnings surprise: metal production outperforms https://t.co/TIoRNAMYhx

— BN Commodities (@BNCommodities) July 12, 2016

Yet I'm of the belief that we cannot find optimism in the earnings of one company because some forget the disconnect that occurred between mining stocks and the rest when commodities suffered severely. The realignment of correlation hasn't merged as once was and in saying it would be ill-considered to erroneously believe the good health of the world economy just by judging the outlook of the commodities sector.

Brexit, European banking crisis and the situation evolving out of negative interest rate policy all contribute to a bleak foresight for markets given the length of time these news items spend bothering investors and traders alike.

These events have all taken such a toll on the global economy that they'll certainly weigh on activity in the future. How are we to rely upon on form of data to decipher the sentiment of an entire stock market, its simply impossible.

Earnings season is far from over and the true feeling will only be known once the last company has reported, until then we can't take for granted the frailty of situation.

Earnings season is here. Look who reports. Citi, Wells Fargo & more: https://t.co/MjHsStEqRH$C $WFC pic.twitter.com/07jZUCEWUg

— StockTwits (@StockTwits) July 11, 2016

Technical Tuesday: Toyota Motor Corp.

Quarterly

Resistance built up in the region of ¥8500 managed to hold the price back and subsequently push it back down significantly. Where price is sitting currently ¥5000 marks an important deciding point in the direction of price when seeing the polarity it's offered this stock since 2008. 

Two scenarios could take place depending on price action: 

• The Japanese Yen weakens which directly influences the price of cars manufactured thus driving sales higher. With sales increasing the stock price should respond in the same manner. 
• The Japanese Yen continues strengthening as it has been for the past two years causing the price to fall below ¥5000 to the next support of ¥2500. 

Both scenarios seem likely however the probabilities are slightly in favour of the bulls here when weighing in that price remains above the 50 Simple Moving Average (Yellow Line) and the stochastic lies within oversold territory creating divergence in the process. 

Although the prospects look bright we're only 12 days into the quarter accepting that a lot can still happen in a space of three months. 

Weekly

The most notable feature on this chart is the technical topping formation of the cup and handle that's broken to the downside. We've witnessed a rush into the selldown with little chance for those planning a short side trade to enter. The price movements have lost considerable ground to the 200 SMA (Blue Line) and price now lies below it and the 50 SMA. 

This put the bulls on an unsteady footing going into the next few weeks in trying to attain their presence. Admittedly price does lie some distance away from the downtrend which does suggest sellers complacency setting in. 

Possibilities of a throwback are likely but should be observed with a great deal of attention to assess whether the strength exhibited by the bulls is strong enough to push price above both long term moving averages. If they can't the move should be considered as a chance to re-enter a short position. 

The moving averages are heading into a technical storm which is termed a "death cross"where the 50 crosses below the 200, if that were to happen we'll likely see a selloff ensue.

Oil prices remain lofty as US suppliers add production

In Friday's blog I discussed a number of different commodities that were exhibiting signs of trendiness following a slump in prices that devastated the mining industry. Having said that the divergence between sectors within the commodities space made me draw on the conclusion that although many think a bottom may be in when speaking generally, there are a number of counters with signs of wariness attached to them.

One of those being the oil industry which hasn't found long term resolve between producers from opposite ends of the competitive line.  Although we've seen a staggering rally in prices this year, much of the move can be put down on the flexibility of US shale gas producers and considerable supply interruption from OPEC members.

What appears to be a stable market is gradually propelling existing producers in the US with halted production wells to have the propensity to turn open taps once again due to the lofty price levels being traded on market.

I recall observing the chart below a few weeks back and saying the disconnect between the price and US production was too large to believe a sustainability in the short term stating higher prices would coax suppliers back into the market. This pattern has been confirmed in the bottoming of operating US rigs increasing since May 2016.

To determine how willing producers are to start up production will become dependent on the level of support oil prices have at current prices. If we were to see a falter in demand it would immediately stop additional supply being brought to market however if demand continue to gobble up the leftover glut the International Energy Agency says exists fresh production could consolidate prices.

If the Brexit drama is anything to go by I think its safe to say politicians won't be affording attention to ensuring growth returns to the world economy but rather on saving an inevitably broken economic union from collapse. In order for oil to support current prices it needs consistent economic growth which isn't likely to occur anytime soon an in saying this I expect the vulnerability of oil prices to increase and pressure to mount until an eventual drop.    

Crude falls as U.S. drilling rigs increase to most since April https://t.co/6A9RywBAmV pic.twitter.com/wpZbbZA3Ax

— Bloomberg Markets (@markets) July 11, 2016

Shifting dynamics in commodity markets

It would be fair to say that commodity prices in general have markedly improved their performance compared to previous years when prices sat in the doldrums and optimism sunk to new lows. The landscape of commentary surrounding these physical & intrinsically valued assets is changing shape with analysts starting to locate pockets of opportunities emerging from the ashes of a once admired sector.

Iron Ore

This commodity has much to prove in the coming months with the majority of news followers of this metal concluding that the glut in supply will remain as producers expand and refuse to budge on cutting back projects.

That'll be key in this sector but with the Chinese government demarcating steel production as an area of mass employment generation, it doesn't look likely we'll see the end of the surplus of steel inventory anytime soon.

Producers attempt to drive prices lower in an effort to force Chinese manufacturers to concede will be a time consuming process that'll result in additional supply flooding the market together with the condition the world economy finds itself in, it paints a pretty bleak picture.

Iron ore prices will fall by a fifth next year, world's biggest shipper says https://t.co/LlqP5q5t4i pic.twitter.com/LWtBHdaCZb

— Bloomberg (@business) July 8, 2016

Copper

On the opposite end we have copper that's experiencing a drain on inventory coupled with a time-collapse of planned projects that's halting the pace of the material reaching the surface. Combine these supply constraints with an avid pickup in demand from China and you have a recipe for recovery.

Mining companies were forced to slash projects due to a poor outlook with the one commodity that bore the brunt of this being copper. As a result the bounce that has materialised since the lows are seen as sustainable in forecasting the price in the near future.

I'm reasonably convinced the fundamentals present supports considerable upside potential going forward.

The $149 billion pipeline to expand the world’s copper supply is running into trouble https://t.co/rLq7HtqEel pic.twitter.com/RM08g7gq00

— Stuart Wallace (@StuartLWallace) July 7, 2016

Silver

Much of the shine in gold has taken away from the superb rally seen in this commodity but has drawn the attention of pundits recently after surpassing previous highs last reached two years ago. The significant upward price moves are challenging the bearish sentiment built into this sector.

The reason behind the resurgence in price could be because of its affinity as a precious metal with gold producing similar upward surges related to uncertainty drifting into the market. If one had to make an assessment as to the probability of any of these economic negativities finding resolve soon, its likely we'll see a continued trend of investors finding refuge in precious metals.

#Silver Tops $21 for First Time Since 2014 as Investors Seek Haven https://t.co/IbyxCfQc1q @business #Commodities pic.twitter.com/LVqOQNlXCf

— Javier Blas (@JavierBlas2) July 4, 2016

Coal

Since I've extensively covered oil in previous articles I thought it would be a good idea to look within the energy sector away from the noise being created by price wars of oil producers.

Coal has built up a reputation as being the dirtiest and most pollutant energy used in generating electricity which has lead it to being the number one target of environmentalists and governments in eliminating carbon emissions that are subsequently affecting global warming.

Western governments have stepped up their attack on this commodity by implementing tax breaks to companies that use alternate fuels to generate electricity, namely natural gas, solar panels and wind turbines. This has hurt the material poorly as demand begins to taper off from the high outputs registered before such events.

Besides this the materials alternate use in the production of steel hasn't afforded it any favours. With this being said and the emergence of new technology that promotes the use of other less toxic products will ultimately weigh heavily on this commodity and I don't foresee much stability in the long term.

Physical coal prices hit 2016 highs on mining cuts, high Korean orders https://t.co/ipUCl5bpuu

— Reuters Commodities (@ReutersCommods) July 7, 2016

Why gold will continue its impressive rally as the world economy falters

One of the best performing asset classes this year has to be Gold and with the global economic environment faltering at every step of the way its not surprising so many analysts are predicting a resilience in price over the next year given the outlook.

Although the receding nature of its price performance since reaching an all time high of $1911.60 in late 2011, the renewed ambitions of gold bulls has been sparked once more in the face of crisis with an impressive rally of over 30% gain year to date.

Bias in the yellow metal is further boosted by the troublesome position world central bankers find themselves in trying to reignite the embers of inflation that's dogged developed world economies for some time after the onset of the Financial Crisis in 2008.

Their collective efforts thus far have yet to yield the desired outcome most expected by world leaders who had envisioned a stronger foothold on their respective economies after a spiralling crisis had drained all decency from the pool of conventional policy that had been trusted for all these years. What they hadn't bargained on was the extensive use of monetary policy whilst ignoring the calamitous state of government debts would eventually uncouple artificialness from reality.

The first signs of trouble brewing came when China's economy failed to buoyantly recover from a slump in economic activity causing shockwaves throughout the global financial system, however if the expediency of "easy money" had truly done the trick to fix what had been broken then there was no need for alarm or so that's what politicians fronted.

Evidence began to show the world economy wasn't able and strong enough to withstand a contractionary event that occurred at a time when central banks hadn't even begun to consider lifting interest rates from their lowly existence.  

Investors just keep piling into #gold - https://t.co/1coWuCiUpa pic.twitter.com/iFMZ8d3y6t

— Thomas Biesheuvel (@tbiesheuvel) July 7, 2016

Momentum quickly drove up the possibilities of using negative interest rates as a tool that had only been implemented in smaller, open and more liberal countries such as Switzerland, Finland and Norway. It should be stressed that the positive effects from using such measure hadn't been recorded at the time when other larger economies decided to do the same.

Japan and the European Union have effectively become the poster boys for the policy with sentiment built in those regions leaning towards that thought with the US Federal Reserve being the only developed nation committed to normalisation of interest rates but as it turns out the pressure is mounting on them to reverse an initial decision to begin lifting and join the fray of sinking interest rates.

In the time before we reached this point, the market saw signs of the central banks stimulating their economies as a positive, now the opposite is true. The more stimulus measures are put in place the less convinced participants are becoming over the relevance of such event and more concerned about the ill consequences they will have which is why the sudden rush to gold.

The longer central banks hold off triggering off the inevitable and making governments more accountable for their policy inaction the more likely the demand for gold will rise because the market is becoming fearful that the usefulness of monetary policy has worn so thin that any further efforts will simply hold no weight in pushing things forward.  

The next EU crisis; Italy's banking system

Just as the heightened fear and uncertainty reached frightening levels after the British referendum to exit the EU, it appears the event has indirectly influenced a trigger of a fresh crisis concerning Italian banks. Although Italy's banking system has been under strain for some time, the markets shifted focus away from a potentially devastating financial implosion has made the likelihood of such occurrence edge closer to happening.

And if you thought the European circus of politics couldn't entertain you anymore than it has, a regulation passed by the European Commission preventing member governments from bailing out ailing banking institutions is going to have dire consequences on the strength of the union if it cannot be overlooked.

Effectively the EU wants creditors to suffer from losses made by the banking institution, a term referred to as bailing in, instead of allowing governments to mop up the mess. If the EU were to succeed in upholding such policy it could mean funders aiding the banks with credit to generate loans would now be less convinced to provide financing facilities as well as cause a collapse of the entire Italian banking system if continued signs of financial stability erosion isn't plugged.

It should be said that a figure of 17% has been bantered around as a measure of the amount of loans that are considered "soured" or "bad", meaning an unlikeliness of being recovered which equates to roughly €360 billion in loans that cannot be paid!!!

Moving on to the economic dynamics that would lessen the severity of a mass default, lack of any confidence can be found when considering that the Italian economy has grown underneath the 1% band for far too long to shine any hope on the matter. Some analysts have cited the inadequate depreciation in the Euro versus other major currencies has made Italian goods & services more expensive when compared to its counterparts giving impetus to calls from nationalist parties for an exit out of the EU agreement.

Bad-debt warning triggers fresh fears for Italian banks https://t.co/rxW2sPduwD

— CNBC International (@CNBCi) July 5, 2016

That reality became much more real after the British referendum which not only put the final nail in the coffin of Euro optimists but also feted the grievances among citizens of Europe. Inasmuch as politicians in the region might find diplomatic and flexible solutions to devilishly avoid evidence proving closer integration a mass failure, the full effects being felt by the ordinary folk on the street has become so insurmountable that its caused a revolution of opinion.

What was once seen as beneficial is now seen as thieving sovereignty if agreeing to generalised policy that might stand in one country but has no place in another.

Italian prime minister Matteo Renzi will have to decide whether he should followed the prescribed rules set out by the EU commision or ignore them and face the consequences of the trade bloc but inevitably save his nation's banking system from collapse.

The EU's lack of flexibility over this simply enforces the notion of drawing out extreme cases where convention is disregarded and rules firmly stated instead of dealing with the issue at hand. This only serves to weaken the EU and strengthen the case of Euro-Skeptics who are convinced that this will all come crashing down.

Italy can't succeed economically if their banking system is placed in such a poor state that it drawdowns confidence in them.

Technical Tuesday: Diageo Plc.

Monthly

Price reached an apex in 2013 and has since been in a consolidatory range ever since with resistance levels just above £21 where its currently retesting previous highs. The support lies just underneath £17 and found strong rallies on numerous occasions.

Given that the company has operations in a large number of different countries it exposes it to currency fluctuations and taking into consideration that it's listed on the London Stock Exchange meaning it reports in Great British Pounds, a surge in price has emerged following a dramatic weakening of the currency to all other major currency.

The 50 simple moving average(Yellow Line) is supporting the uptrend with the 200 SMA(Blue Line) a measurable distance away allowing the bulls open season on producing new highs provided they can break through resistance.

Observing the Relative Strength Index(more commonly known as RSI) we see that the indicator has driven across in a directionless motion which is evident in price action over the last three years. The areas highlighted in red are significant levels that have or could determine the speed of the trend.

In the smaller area, the indicator tracked above 80 and if you were to follow the price movement whilst in that zone you'd notice a solid momentum spurt taking place. Proceeding to the larger area we see the indicator becoming restricted, disrupting momentum from taking place however judging the strength of the previous monthly candle, its opened up the possibility of see the indicator rise above the 80 level.

If it were to do that then we'd see the consolidatory pattern broken and fresh highs being registered.  

Weekly

On the weekly we can identify two consolidatory price movements that have occurred, one that defines the longer term price movement marked with green lines, the second that's taken place inside the first highlighted with black lines. This suggests high degrees of frustration for investors and traders who ideally like to see prices go higher. 

The smaller consolidation pattern broke through its resistance of £20 and subsequently touched the longer term resistance of just above £21. It's difficult to say whether price will continue moving upwards as the sudden move has led the Stochastic to show overbought at a crucial point. 

We'd need to see the level of £21 and higher being broken, held and close high to be certain of an impending rally into new territory.  

Again the RSI is bumping up against significant resistance with a break to an upside to be considered as bullish in the medium term. 

Do negative yields call for bold new economic policy?

An emerging topic that's gaining traction of late is the tremendous shift seen in developed nations bond rates with some nations sovereign debt trading at negative yields, a world first. The ever expanding debt load that's fallen below zero yield has begun consolidating after initially bulging outwards at an alarming pace but could be fuelled further if investors search for positive return is exacerbated by the enormous demand for both US Treasuries and UK Gilts.

As of today the US 10 Year Treasury yield recorded an all time low as buyers stormed through sellers demands as fears from Brexit flood the market with worry and the outlook for the interest rate environment drifted away from expectancy of normalisation after a lengthy period near zero, a once thought lower bound of rationality.  

Stocks are overstretched and have been for a while considering the previous quantitative easing measures that had were in place for some time which prompted companies to take advantage of the low cost of borrowing to repurchase stock in the open market. Although the effects of this helped extend the bull market by an extra year or two the party soon came to an end when the taps turned off and earnings were suppose to continue their growth.

This hasn't happened, in fact earnings are fading fast along with the global economy that can't find the right footing to leverage the mounds of debt created to act as stimulus.

The US Federal Reserve divergent plan to act in a different manner to its developed nation counterparts is a far greater mission than had been expected which is why investors foresee it departing from this policy stance and reverting back to its old habits of printing money till the cows come home.

Why is this all bad?

Simply because the world cannot function on the perpetual money creating scheme that has so many politicians fixated with in an effort to cover up their own flaws. We've entered a new era of economics and the need to find policies that branch off from convention yet address the evolutionary problems that constantly grow as year go by cannot be without fail.

We trust the message of the bond market over stocks.#stocks vs #bonds$TLT vs $SPY#GrowthSlowing@KeithMcCullough pic.twitter.com/EvlfjctE6o

— Hedgeye (@Hedgeye) July 1, 2016