European woes aiding fresh uncertainty in the market

I stumbled across this chart posted by Cecile Vannucci on Twitter and found the observation thought provoking. The underlying instrument being studied is the SPDR EuroStoxx 50 ETF, a popular depository receipt listed on the New York Stock Exchange that tracks the movements of the EuroStoxx 50 index in Europe.

The activity being followed is the amount of short interest positions taken on a weekly basis with the vertical axis representing the level of quantity traded.

Analysing the chart,  the evidence of asymmetry is quite prominent when assessing the magnitude of volumes produced just in the last week when compared against preceding stages.

The closest figure in this set of data to come anywhere near this number happened almost a year ago however the volumes recorded in that particular registered 20 000 whereas the current aggregate sitting shy of 100 000 contract, a staggering five times the volume.

An anomaly or signs of things to come as the quantity of put options traded on SPDR EuroStoxx 50 ETF surges ... $FEZ pic.twitter.com/SJCdX0Si14

— Quinton Mendes (@CadeTradeR) February 6, 2017

Investigating further with charting, it immediately becomes noticeable that the EuroStoxx 50 has been confined to a downtrend since the second half of 2014 whilst only breaking free of this containment in recent weeks.

A lateral resistance just below $35 has acted as a catalyst for bearish traders to take advantage in the past with the prospects of this happening strengthening when used in conjunction with the information provided above.

SPDR EuroStoxx 50 ETF

With European political dynamics drifting into limbo in the months ahead, it's not surprising to see the state of play being set up.

Both the Dutch and French elections are bound to create uncertainty going into voting day on March 15th and April 23rd respectively with right-wing nationalism surging forward in the polls leading up to elections.

Added to this is the re-introduction yet again of the Greece debt crisis which hardly goes a year without shaking the institution of the EU.

A tricky political issue that refuses to go away but coincidently is responsible for claiming power away from ruling governments.

Unless something drastically changes, which is highly unlikely, the tone being set by financial market participants will ultimately remain until some resolve is found.

European Commission orders Apple Inc. to pay Republic of Ireland $13.5 billion

A heated debate has erupted between the Republic of Ireland and the European Commission after the latter revealed in an investigation that US tech giant Apple Inc. had abused it's status as a multinational corporation by booking its profits from European operations to its Irish based Apple Sales International company to unfairly benefit from the low tax rate charged by that country.

In concluding its investigation the European Commission ruled that Apple Inc underpaid $13.5 billion to the Irish ficus and ordered the California based tech company to pay the tax bill. Both the government of Ireland and Apple have expressed their intention to appeal the ruling.

Although a staggering amount, the implications of such a ruling relating to the taxation of large multinational corporations using countries like Ireland as a haven to pay less tax within its operations in the European Union could shift the playing fields in favour of fairness at the risk of a substantial divestment from these firms in the region.    

The argument for enforcing the ruling has won over many individuals who feel the necessity in shifting the tax burden away from citizens and onto entities who have a far greater ability to generate incomes than the masses. This comes at a time when questions around the integrated sustainability of the European Union mounts with debt piles accumulating at alarming rates.

But some critics say the EU is playing a dangerous game in chasing companies for unpaid taxes for short term gains whilst forgetting the wider impacts that will affect the economic state of play in the long term.

In this case both the Irish government and Apple have stated the relationship between them has mutually benefited both parties by providing employment and economic value creation for Ireland as well as a gateway into European territories for Apple to sell its products.

But is it enough to accept gains in economic value generation in exchange for tax breaks?

EU ruling on Apple reignites U.S. tax reform debate: https://t.co/ixwSKdPekf $AAPL pic.twitter.com/xmXeMDKcQQ

— Reuters Business (@ReutersBiz) August 31, 2016  

If speaking in the context of Ireland as a country on its own, it could very well be prosperous but the fact of the matter is Ireland is one piece in an integral puzzle that all adds up to form a free market which we know as the European Union where countries adopt a common currency yet still have a considerable degree of control over their sovereignty.

Enacting a country's right to elect a tax regime means a level of discretion when setting an appropriate rate to charge those being taxed whether it be individuals or companies. This translates into many different tax rates charged throughout the European Union thus creating a competitiveness in attracting foreign investment to its shores.

Apple was fully in its right to take advantage of the tax rate offered to it by Ireland even if it says it hadn't negotiated special terms in paying over its fair share. Sovereignty hasn't been surrendered although Ireland needs to abide by the rules imposed on it by the EU to stay inside.

But how consistent are those rules?

If truly committed to enforcement we could probably assume Greece would've been evicted out of the trade bloc long before the political chaos erupted onto the street of Athens. We could also say the propensity to stay within Europe for the UK could've been avoided had it not been for the lapse of security detail on European borders that compromises citizens safety.

Europe's big push to coerce member nations to give up their sovereignty is failing to convince nations of its worth if a common currency free market agreement hasn't worked. This is just another example of the EU's attempt to create fairness in how it sees it but neglects to take into account the different political will and beliefs that occur in each nation.  

It's highly unlikely it'll succeed in proving its case in this matter and will continue to create a divergence in tax rates charged amongst member nations that'll ultimately prove the concept of a united Europe is doomed to fail.  

Brexit; What's the state of play right now?

One of the crucial lessons you'll ever learn when participating in financial markets is complacency is often caught on the wrong side of expectation. This is what many woke up to find this morning after the British public elected to leave the EU sending shockwaves throughout world markets who up until yesterday believed the "Remain" camp had done enough to secure a victory.

I'll be the first to admit that my intuition told me the possibilities of the UK leaving the EU was largely unlikely but I do believe that my opinion wasn't far off from the markets expectation in the midst of a global selloff felt today.

If financial market participants believed that they fully understood the psyche of the British voter or even that of a European voter this morning's shock decision has reminded them they're very wrong. It's as if there's a disconnect between what politicians in the EU are saying and what's really happening on the ground with the latter proving more serious in their convictions than the former.  

Nightmare Coming True for Stock Bulls Blindsided in Brexit Shock https://t.co/zctjqPDiWC @ALJax7 @JoeCiolli pic.twitter.com/XcuV9EYrRI

— Emerging Markets (@BloombergEM) June 24, 2016

Where to from here?

David Cameron's campaign to convince the British public of staying with the EU has irrevocably failed along with his reputation to lead the country forward forcing him to make a decision to step down from his role as prime minister that'll happen in October with no mentions of who might take over. The obvious candidate would be the current chancellor of exchequer George Osborne however this won't be a firm certainty with the Conservative Party reeling from split lines in support of Cameron's campaign.

One critic that stood out boldly was former Mayor of London Boris Johnson who added weight to the "Leave"camp that's successfully resulted in the desired outcome for their campaign but not without longer term implications for UK's leading political party.

Cameron's decision to stay on until the Conservative Party Conference was strategically link with saving the image of the party who did itself no favours holding such a vote that's ended up dividing the party instead of uniting it. It could also suggest that Osborne might not fancy himself sitting in Number 10 lamenting the defeat whilst preparing the UK for life after the EU considering he strongly favoured "Remain".

This all but guarantees Boris Johnson an open door to take over as prime minister should he want to which would be confirmed in his own decision to stand down as Mayor of London to concentrate his attention of campaigning for the "Leave" vote that's given him incredible momentum to snatch up Britain's highest political position.

But it won't be without its own problems with the party divided, the prospects of the future uncertain and the opposition rearing to take full advantage of the vulnerable state of the ruling party's woes.

Boris Johnson is probably going to be the next Prime Minister https://t.co/QjCf6NE145 pic.twitter.com/EhAQdJI06U

— The Independent (@Independent) June 24, 2016

Reconsidering Investment

Businesses in the UK will definitely be reconsidering their geographical location now that all ties between Britain and the EU are to be severed. The district served as an entry into Europe together with the benefit of operating in Pounds rather than Euros, producing a currency advantage if the Pound was weak.

They've come to rely on a significant amount of demand stemming from the EU region that'll now be subject to tighter border controls, import tariffs as well as delays in delivery all making matters complicated when they should be easier.

Needless to say the British public have come to recognise the grave risks becoming apparent in the EU with issues such as Greece austerity not being properly addressed, the Syrian refugee crisis benignly out of control and an insurgence of ISIS terrorism threatening to national safety.

Possibly the biggest risk of the Britain staying was the implosion of the Eurozone which seems to be drawing closer with every fresh unattended economic calamity. You could say perhaps Britons have voted to shield themselves from an inevitable crash when it does occur, a view that's not distant but possibly a huge risk to bank on given the importance of it's relevance and relations with the EU.  

More than 1,280 business leaders sign letter backing UK's EU membership https://t.co/e5XD51hpvD #EUref pic.twitter.com/60IaB70Wca

— BBC News (UK) (@BBCNews) June 22, 2016

Is the Danish central bank creating currency risk?

At the start of the week I decided to focus my attention on major currencies and the volatile climate they were exhibiting as well as the troubling situation most developed nation's central bankers are finding themselves in trying to reverse the years of expansive monetary policy measures that has produced ill-effects that are seemingly weighing down economic activity.

The monetary noose that hangs around these nations necks seems to be getting tighter with every consecutive week that passes as the trickling news flow slowly starts to build up momentum to turn this cash flush fanfare into a nightmare on Elm street.

Being aware that there are a number of countries mostly in Europe that implemented such extreme measures of sinking interest rates below zero before the ECB and BOJ joined the foray, it would make sense to find the nation that's had these measures in place the longest and assess whether there's been a level of success.

As luck would have it I found a handful of stories about the Danmark Nationalbank who currently holds the longest reign of interest rates in negative territory with the ongoing recording setting feat sitting at four years!!!

The funniest part is only last week Governor Lars Rohde cautioned those who wished to speculate against the central bank saying officials would unpack whatever measures were necessary to stop the Danish Krone from appreciating against the Euro. The reason for such a strong message is revealed in the fact that the DNB has placed a peg on the level it wants to protect the Krone from surpassing against the Euro.  

Don't bet against #Denmark’s central bank https://t.co/cDZcwbmWm2 via @PeterLevring pic.twitter.com/s2rm7Fkk1u

— Zoe Schneeweiss (@ZSchneeweiss) May 13, 2016

Tough talking didn't prevent a scare from happening early last year when the Swiss National Bank, who itself had a floor in place against the Euro, abruptly removed the peg in an unexpected move that created a toxic currency whirlwind of volatility that reverberated throughout the entire financial market.  At the time, the DNB defended its own peg bravely after speculation became rife that it could follow suit with the SNB and remove the floor.

However once things settled down the Krone began depreciating, helping it avoid the inevitable ascent the DNB hoped to ward off but this time it decided to use foreign currency reserves it had built up over years since negative interest rates hadn't assisted its objectives up until that point. 

It's imperative to understand that the reason the SNB removed the floor against the Euro is because the ECB was speculated to and has now begun a protracted quantitative easing program that would would sponge up all the foreign reserves the SNB had available which had fast depleted once speculation grew. The issue came in the nature of the communication between the SNB president Thomas Jordan and the public with the perceived level of trust towards the central bank amongst the highest out of all its peers.

Jordan's timing of the removal of the peg was left too late in the game and miscommunicated improperly that direct fault can be pointed at him and his colleagues for creating mass panic that left financial markets reeling.

Currency intervention an imminent risk in Denmark, Nordea says https://t.co/DT8mJYPwQ0 via @CHRWIENBERG pic.twitter.com/mo4WDNLMKJ

— Bloomberg Markets (@markets) May 20, 2016

If common sense prevails, the market would've realised that the mammoth monetary stimulus currently being effected by the ECB dwarfs all the monetary programs being meted out by Nordic countries including that of Denmark. These nations are simply too small to compete against monetary stimulus of this size and scale which means their local currencies get brushed aside by the waves of crisis-fearing money making its way to their shores in an effort to shelter wealth.  

This probably explains the markets skittish sentiment after Lars Rohde made comments refusing to concede his effort to the market and allow a free hand to decide appropriate equilibrium. It translates into the possibility of seeing another SNB type shock descending into market sphere's, adding risk at a time when major currency volatility is at its height.

The worrying foreign currency reserve drain that's occurred over the last year surely puts the writing on the wall for DNB officials or is this yet another case of attempting to cover up the flaws of a failed process that isn't working and probably won't be the saving grace of the world burdened with troubled economic times.

#Denmark Foreign Reserves have been shrinking for some months sending worries over whether the peg will be remove pic.twitter.com/atKWg44xsH

— Quinton Mendes (@CadeTradeR) May 20, 2016

Travelling Technicals with Global Indices: Swiss Market Index

With a modest population of just over eight million people, Switzerland's position in the world order remains amongst the top mostly because of the political neutrality the country holds as well as the loosely regulated financial sector that encourages plentiful capital inflows due to its image of being a tax haven for the wealthy. 

Nestled in the heart of Europe, the Swiss are known for their excellence in chocolates and cheeses but more notably their innovative ability in the fields of manufacturing and pharmaceuticals that play a vital role in ensuring a healthy trade balance that's the envy of other nations. The country has however suffered from protracted periods of appreciation in the Swiss Franc, it's local currency with the severity of sentiment having been tested in January 2015 when the Swiss National Bank president Thomas Jordan announced a surprise decision to remove a floor that had been placed on the Franc against the Euro stopping it from appreciating further.   

Besides this event, the nation has also found itself in the grasps of a battle to produce meaningful inflation following the lack of demand both locally and internationally which has eventually led the SNB to drop interest rates below zero (one of the first nations to do so) with imminent signs of continuing on this path as the latest economic data indicates the country is far from where it would like to be. 

The SIX Swiss Exchange in Zurich plays host to some recognisable multinational companies some of which are; 

• Glencore 
• Compagnie Financiere Richemont SA
• Credit Suisse Group
• Nestle SA
• UBS Group
• Swatch Group SA
• Novartis AG
• Zurich Insurance Group 

Let's get to the charts: 

Quarterly

An appealing chart at quick glance considering the volatile price moves that have been experience over the past decade. Although it must be noted that the timeframe is a quarterly, there remains distinct technical features that provide us with clues to what we can expect to see happen in the future. 

The index shot up to 9 500 during the year of 2007 followed by the slump most world markets went through occurring between 2008 and 2009. I've touched on this extensively saying that the similarity of technical damage incurred by market indices from the same event does stress the significance of its doing. The previous highs leading up to the bubble bursting played a pivotal role in dictating the direction of world stocks by providing overhead resistance that's stopped most indices from marching ahead and at the same time denting confidence when considering investment into equities. 

I made the resistance line of 9 500 bold because it marked an important level traders and investors needed to pass in order to be satisfied that the current bull run that's been in place since 2012 will remain intact and energetic enough to settle the index at higher levels. This hasn't materialised with the resultant action being the retest of the line of polarity highlighted in red. 

Again, I saw this as a crucial point in the bull run where it represented a step higher in its pursuit to the resistance level and higher.  The level of 7 500 was broken during 2008 but overcome five years later with the bulls setting themselves up for a good run. However observing the price action you'll notice the tails to the bottom were small then began expanding as the price got closer to 9 500. This would indicate heightened volatility at elevated levels spelling uncertainty. 

The area of interest will take place at 7 500, so don't be surprised if this level is well contested in the second half of the year. Depending on the sentiment world markets take on, it could prove either distressful or supportive of price going forward. 

Monthly

I've introduced a 50 SMA to clarify the bias price currently holds with the observation being critical in the tipping point of this chart. Price sits below the moving average having broken down in recent months. The moving average does however exhibit a positive gradient making things hard for traders to decipher the direction. 

Although the technical formation isn't perfectly aligned, the basis of the shape does help us understand what price action may be suggesting. The flat floor together with an upward slope along the highs building up to 9 500 confirms the volatile nature the quarterly chart had indicated, telling us that the level of uncertainty in this area remains high. 

The support between 8 200-8 300 has broken downward with price desperately trying to hold onto newly formed resistance. The RSI has generated a favourable indication for the bears by showing the momentum shifting below the 50 level after last being there in 2012. This suggests that the momentum from the sellers is much stronger than it had been while they were fighting for territory in the area between 8 200-9 500. 

 

The setup seems perfectly positioned for the trade with good risk to reward ratios. 

Major currency volatility is feeding from the sentiment of political uncertainty

Brexit might be fear-mongering the British public into the possibilities of a Eurozone without the participation of the UK, it's also stirring up a lot more than fierce debate over the strengths and weaknesses of remaining in the EU with market players beginning to look further than the June 23rd referendum date set down for voting to take place.

The pound has suffered dearly as a result of news flow pointing to the nation going either way when it comes to vote day, sowing the seeds of public discord amongst voters, not the ideal situation UK Prime Minister David Cameron would like to be in facing a possible party backlash should the vote favour heading to the exit door. Such a strong disagreement over the course of action the government should take doesn't make it easier for the Conservative Party after such vote has taken place with many expected to become disgruntled at the outcome whichever way it goes.

Added to this is the US presidential election set to take place in November of this year which itself is beginning to be drawn into the outlook of political uncertainty that has taken hold of global risk sentiment with some saying that it's creating a fluctuating pool of volatility in currency markets.

Part of the reason we seeing stark movements in currency valuations stems from the continuation by some in developed nation economies to extend its expansionary monetary programs through its central bankers causing a tsunami of liquidity that's finding it difficult to secure a home for investment and return.

Top currency traders warn White House race may echo Brexit chaos https://t.co/XNVLqqz5zP via @rachelevans_ny pic.twitter.com/p1hEiU0swB

— Bloomberg Markets (@markets) May 16, 2016

Both Europe and Japan have joined a number of crippled nation's suffering from appreciative valuations in their domestic currencies, dissuading foreign buyers from purchasing goods and services that contribute significantly to economic activity. The plan of action has been to venture interest rates into negative territory, a first for the world which hasn't been taken too kindly at its implementation.

Japan has been the most aggressive in stepping up its approach yet the desired effects that the BOJ would like to have seen come out of the situation has taken a turn for the worst with the Yen drastically strengthening as the placement of savings abroad no longer meet the prime objective of investment, which is to seek return. Japanese investors are starting to see their little returns made outside its border erode as its counterpart nations follow a similar monetary policy path, causing a mammoth inflow of Yen back into Japan.

The implication of such action has led to the Japanese Finance Ministry threatening intervention in the currency market if the appreciation doesn't stop. This obviously raised the hairs on the back of the necks of its fellow foreign finance ministers who feel that such a move would evoke the start of fresh currency wars.

Japan's Taro Aso repeats explicit threat of yen-selling intervention https://t.co/BDWPmwOSDv via @Reuters pic.twitter.com/ldhcTwILMy

— Dan Popescu (@PopescuCo) May 10, 2016

US Treasury Secretary Jack Lew reiterated that participating in overzealous currency devaluation would only help weaken the world economy instead of fulfilling each nation's self-serving currency goals. This was said in the light of Japan's finance minister Taro Aso edging closer to starting the process of currency intervention and ahead of the G7 summit taking place in Japan in just under two weeks.

It certainly sets the tone for what will be interesting discussions that will likely create a stalemate in terms of agreement around how world leaders will direct the economy in the right way. It's this uncertainty created by indecision that could heighten currency volatility further with the need to find common ground becoming the bone of contention.

Dollar struggles after U.S. Treasury secretary’s comments on currency wars https://t.co/HeKUPdMnFW

— MarketWatch (@MarketWatch) May 16, 2016

Is the ECB running scared after today's comments?

Questions still remain whether the decision made by the European Central Bank was the right choice in adding extra stimulus to its already extensive arsenal in the hopes of bumping up inflation above the all important 2% mark which so far has failed to win over critics. Apart from having to contest with both internal and external shocks that play a massive role in influencing the inflation rate, the ECB has now found itself drawn into a new debate over the usage negative interest rates.

The message that came out of the ECB this morning is a reactive one where the central bank is trying to revive the hope that a stock market rally might pursue if they talk it up enough. This is hardly the case as new uncertainty arises from the profit prospects of the banking industry following another interest cut that takes things deeper into negative territory prompting banking executives to re-think their strategies going forward.

After Mario Draghi's announcement last month I commented in my blog that markets have become fearful of the ability of central banks to steer the global economy in the right direction. We heard grim projections of the state of the European economy that increased fears rather than abate them leading to market participant to reassess their views on the current market environment.

Norm would suggest that markets should've come alive after such an expansive stimulus program yet it didn't and instead fell flat on the ground leading many to believe that perhaps monetary policy has reach an exhaustive end.

ECB stresses it's ready to do "whatever is needed" to return inflation to target https://t.co/ixShYT2hkL pic.twitter.com/HqMmFQH06h

— Bloomberg (@business) April 7, 2016

If wanting evidence that would backup the belief you'd only need to look over the Asian continent to Japan and witness the unforgiving onslaught traders and investors have brought onto the stock market fearing the once hopeful policies proposed by Prime Minister Shinzo Abe amusingly known as Abenomics maybe setting up a dramatic tragedy to end the tale.

With government debt ballooning out of proportion and credit rating agencies closing in on investment grades by warning that the levels we're seeing currently aren't sustainable, now would be a good time to exhibit the good that may have come out of such measures after almost 4 years of progress. But the Japanese economy has nothing to show for it besides piles of debt and an overheating stock market spurred on by the Bank of Japan.

Foreign investors have taken exception to the shifting ground below their feet and decidedly made a spectacular dash for the exit sign as things get worse. There's an old saying that goes "The proof of the pudding is in the eating" and unfortunately Abe hasn't delivered on his promises. Adding further to the woes is the BOJ's action of supporting equity markets and placing a blur of valuations making the risk of a collapse so much closer.

It's clear that monetary policymakers are running out of options at an alarming rate which would explain the uncertainty that's lying around global markets at the moment. The more they struggle to find endless solutions to perpetual problems the clearer it becomes that the time for governments to get to grips with the reality on the ground and focus on the restructuring of their respective economies is coming soon.

 My only distress is how much disorder has been created by taking the extreme this far?

"Buy my Abenomics"? Hedge fund says nope https://t.co/ixihLhwVdz via @ynakamura56 #JPY pic.twitter.com/RJy9kSctOu

— Sarah McDonald (@mcdonaldsarahj) April 7, 2016

The cats out the bag for the IMF's plan on the Greek debt crisis

An explosive leaked transcript from a conversation between IMF officials pertaining to the manner in which the monetary body intends on dealing with the Greek debt crisis has rocked the already shaky relationship between the desperate European nation plagued by economic calamity and one of  the three lenders of saving grace, the so called Troika, installed to prevent a spillover of defaulting debt due to non-payment because of inadequate means of doing so.

In the transcript that was released by WikiLeaks on Friday, the conversation suggests that the IMF may try to pressure the European Commission to provide a larger proportion of the debt relief as well as force the Greek government to scrap pension increases that's been at the heart of the stalemate between creditors and Athens. The IMF intends on doing this by threatening to exit from the Troika which could spell disaster going forward however this seems to be a scare tactic that was discussed amongst the three IMF officials who believe such a threat would awaken the European Union from its unrealistic ideals it thinks would be satisfactory to secure stability in the region once again.

This latest developments set off what is expected to be yet another round of back and forth disagreements between Greece and its creditors in an attempt to prevent a crisis. We saw the negative blow to confidence in the global economy when Greece's prime minister Alexis Tsipras fought for weeks over the conditions attached to the renew bailout deal that was eventually agreed upon at a much later date than would've been necessary.

The fight will continue as the deadline to reach a new deal draws closer with July being the cut off, but this time we can look forward to an even bigger resistance from Tsipras with these revelations giving him all the ammo needed to take aim at his nation's creditors. This could be devastating for financial markets as it would bring a new wave of volatility and uncertainty into the mix under tough conditions already being felt.  

#Greece demands IMF explanation over leaked debt transcript https://t.co/EPKuq2wDsd

— Pedro da Costa (@pdacosta) April 2, 2016

One of the possibly reason's why creditors need to see a resolution soon could be because the referendum vote in the UK over whether to stay in the EU or not taking place on the 23rd June 2016. Many believe that the run up to these elections might interfere with the priority of reaching a conclusive agreement in Greece that wouldn't leave much time for policymakers to draw enough attention to the criticalness of such resolution after proceedings from the elections have wrapped up.

Although it can be argued that the Troika has had more than enough time to iron out its differences with Greece, the previous negotiations have left a bitter taste in their mouth with many leaders taking deep political hits to their credibility. In attempting to devise a plan being fully aware of Tsipras resilient and tempered personality, the IMF has tried to avoid a renewed crisis and in fairness who could blame them.

However Greece's 11th hour crucial decision-making antics have pushed the extremities too far that the European Union has been found complacent in its concessions to allow these political point scoring games to continue for as long as they have.

It could be said that the IMF sees the Greek debt crisis as a perpetual disadvantage for the EU moving forward with the latest revelations indicating their unhappiness at the lack of proper restructuring taking place which puts Europe at risk of economic catastrophe. We've heard that the benefits of an expanded monetary program has reached the end of its time and the need to restructure, in referring particularly to developed economies, is catching up with politicians who have for too long made promises that lack the continuity of more than a generation.

If the EU continues to follow such a path that leads to no ends we could well begin to see the end of the EU itself. And so I leave you with a quote:

"The recipe for perpetual ignorance is: Be satisfied with your opinions and content with your knowledge." ~ Elbert Hubbard  

#IMF predicts #Greece's default will coincide with UK's EU referendum. https://t.co/Ic0VnAXSvC pic.twitter.com/Za28kCGaGU

— Holger Zschaepitz (@Schuldensuehner) April 2, 2016

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.