There were some big smiles across the faces of many equity traders today as we have seen some of the strongest markets gains in a while. The Nikkei closed +0.4% but could not match the performance of the Shanghai or Hang Seng Indices when they closed up at almost 2% on the day. We saw some mixed data out of Japan when the index was down over 1%, so to close higher on the day was an achievement! In late US trading, the futures contract gained an additional 3% from the cash close. We saw a little unfriendly economic data (manufacturing) earlier from China, but yesterday’s cut of the RRR overshadowed all of those to achieve the 2% gain.

In Europe, the initial focus was on oil, miners, and the Eurozone Employment Report. Given the bounce in the price of oil and the healthy rally in miners, we saw strong gains for all core markets. This against the backdrop of a weaker employment number (10.3% against an expected 10.4% forecast) and a weaker euro. It was a stronger USD than a weaker euro. FTSE was the weaker of the core (+0.9%) and that was impressive when you see a core stock (Barclays) lose 9% on the day! CAC and IBEX both closed 2%+ on the day and was closely followed by the DAX that finished +1.6% higher.

Given the supporting ISM number (48.5 forecast against a 49.5% release), a healthy oil rally (+2% last seen $34.45), and some low impact data (construction spending forecast +0.4% but actual +1.5%), it was no surprise we saw strong gains across all sectors. The Dow was last seen trading over 350 points (+3%) up on the day with the broader S&P 2.4% and NASDAQ at 2.9%. What was interesting was the performance of the Financials Index in the States today, which was rumored to have benefited from some European inflow. Also good to see accompanying this rally was a pick-up in intraday volume.

Obviously, the safe-haven trade reversed and that saw sellers appear in the gold and fixed-income markets. Intraday gold did reach $1248 but drifted into the close to finish at $1235. Europe did not suffer as much as all European players are awaiting next week’s ECB meeting. US 10s had its worst day since late last year when it lost 10BP and was last seen at 1.83%. 2’s closed around 0.775% closing 2/10 at 105.5BP. Over in Europe, the 10yr German Bund closed 0.155% (+3BP), Italy 10yr closed 1.41% (-1BP), UK Gilt 10yr at 1.41% (+8BP).

ADP tomorrow and after the previous 205k print the forecast for Wednesday is 190k.

We did not elect any bullish reversals. March remains our Directional Change target and the Dow could not close above 16934 for February. Looking ahead, we see the weeks of 03/14 and 03/23 (array posted on the private blog for the Investor level). We have also not elected any Weekly Bullish Reversals. The 17000 level remains as resistance. There is still no indication that the market is yet out of the risk of new lows under that of 2015.

When we look at the S&P 500, here we see that a February low was on target. This implies the next key turning point should be May. Looking at the weekly level, we see 03/14 and 03/18 as key target weeks with a Directional Change the first week of April.

We have a divergence between the Dow and the S&P 500. This may be resolved with new lows if we do not begin to elect bullish reversals above. The overall shift appears to be unfolding in June. This does line up with BREXIT referendum. If the vote is rigged and Britain remains in the EU, we could see a last rally for the euro before this currency breaks hard to the downside.

There is no breakout to the upside at this time. Such a pattern appears to be set more for 2017 moving into 2020. Without electing some Monthly Bullish Reversals, it will be hard to see a justified and sustainable rally.

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Barclays shares in the UK have fallen 9% after it announced further restructuring, a dividend cut, and an 8% decline in statutory pre-tax profit. As part of the restructure, Barclays is looking to sell off its 62.3% holding in its African business. They followed the trend of commodities and now they are following that same trend by exiting. Banks are notorious for buying the high and selling the low. Historically, they have been one of the worst investors in the arena.

You can see that even the Dow Jones Financial Index never made new highs above 2007. We see this index in serious trouble. A close below last year’s low technically will signal this is heading lower into the abyss ahead.

In Russia, an Islamic nanny beheaded a four-year old child that she was hired to take care of and paraded down the streets of Moscow with the child’s head. The nanny, Gyulchehra Bobokulova, from Uzbekistan has been arrested. She beheaded the little girl, Anastasia Meshcheryakova, who she was supposed to care for. Bobokulova was reportedly shouting, “I hate democracy. I am a terrorist. I want you dead. … You have become so hardened, you have eliminated so many of us. Look, I am a suicide bomber. I will die. Doomsday will come in a second.” This has erupted into a real wave of anti-Islamic feelings in Russia as this story now resonates throughout Europe given the migrant crisis that left many questioning just what the hell has Merkel done.

Our long-term projection models targeted March 13/14, 2016 for when the confidence in the EU would begin to crack much more profoundly among the average community. Indeed, the general view about the EU’s future has begun to plummet as reported in nearly every member state (28 in total) with the exception of just a few. The most striking statistics come from Netherlands and Germany where people are now overwhelmingly negative about the outlook of the union. Ireland is the least pessimistic, coming in at 20%, with Greece leading the pack at 63%. The pessimism in Greece has increased by 20% in the past year alone. It appears the computer has successfully targeted the correct period, but this feat was accomplished by looking at the business cycle. It is very clear that once the cycle turns down, confidence collapses.

In Britain, 44% of the population is against staying in the EU. Clearly, the number one issue has been the wholesale migration ushered in by Merkel in Islamic hordes. David Cameron announced the referendum would take place June 23. He initially agreed to such a vote because he never thought in a million years that the British would vote to get out. Now the polls have narrowed, and despite the media supporting Cameron and the EU, they seem unlikely to win with their brainwashing campaign to stay in Europe. Despite the fact that Cameron has been using scare tactics against his own people to stay in the EU, he has said that his authority rests on holding the vote on British membership and that does not mean winning it. Cameron has no plans to step down if the people vote for a BREXIT. The likelihood of the British votes being rigged is EXTREMELY HIGH because Brussels fears a contagion. Since the majority of member states have an extremely high pessimistic view of Brussels, you are looking at a massive loss of government jobs. So it is unlikely Brussels will simply go quietly into the light.

British schoolgirl Lexie Hill blew politicians away when she made a statement as an audience member on TV. The filmed show was in Poole, Dorset. Lexie confronted Ms. Abbott Elizabeth Truss, Julia Hartley-Brewer, Giles Fraser, and Julian Fellowes. She emphatically stated: “I am sorry, but I can’t accept Liz’s arguments that they are trying to remove the pull factors for migrants because what is increasing the living wage to £9 in 2020 going to do, especially to Eastern Europeans who have a minimum wage that is already one tenth of what ours is, surely that is going to increase net migration?”

Lexie added: “We could have someone coming unskilled without any questions from within Europe, but a really talented doctor from India has to go through a really intensive process. It doesn’t make sense.”

She is not even in university yet. Lexie has shown just how stupid the arguments presented by politicians to stay in the EU really are. The press is “free” to pick sides, and they pick government against the people. So what else should we expect? It looks like we have a young Maggie Thatcher in the making. I would hire her, but I would probably get in trouble for using child labor. It is strange when a child has better reasoning and clearer logic than the adults who just believe whatever the press and politicians tell them. If she would like to write a guest column, that might be interesting.

QUESTION: 

Dear Mr. Armstrong,

Your article on the trend set in motion with reference to Trump was fantastic. The world and how it ticks is truly fascinating, your work in investigating how it does so is worthy of any prize and will surely go down in history as the greatest investigation into humanity of all time. Always building on the work done by previous great minds and expanding on it.

Globalisation is a feature you predicted with the ECM you developed. Recently I came across the TTIP program – Transatlantic Trade and Investment Partnership. I was wondering if this is a feature of the trend towards globalisation which you saw possible? Is it possible that we could see a massive trade and investment peak before the crash and burn? Or is it crash and burn first with a spike in gold and then start a fresh? The “crash and burn” event you spoke of. Is this crash and burn of government ?
(the drop after 2030 looks pretty serious on the ECM) It seems that the degree of corruption “behind the curtain” is a webbed network around the globe…..people I think are waking up to the level of totalitarianism enforced upon them by powerful government circles, unknown names, unknown faces……the pot seems ready boil over
A

ANSWER: The Transatlantic Trade and Investment Partnership (TTIP) will be a failure. There is nothing governments can do to stimulate the world economy. To encourage trade, you do not support the reporting among nations that will begin in 2017. You do not impose a global tax on companies, as proposed by the IMF. You do not keep increasing enforcement on taxes while claiming that you are expanding the world economy. So do not expect some surge in global trade.

There is nothing we can do to alter the business cycle. The West will crash and burn, and the global economy will rise from the ashes in Asia — not Europe or the U.S. Gold and tangible assets will make the transition from one monetary system to the next. It has nothing to do with the quantity of money. It has to do with a collapse in confidence in the state. That is what we are witnessing with Trump right now. The pundits are fools. They think they can attack Trump to hold on to their elite status and power. Sorry, that is just not the way this works. They will never reform because they will not admit that they have ever done anything wrong.

All core Asian markets traded heavy by the close of business – it was hopeful that Japan was to be the exception – sadly, that was not to be the case! Although the Nikkei was higher for the majority of the day in the final ninety minutes it too was sold and closed down 161 points (-1%). Neither Shanghai nor Hang Seng ever looked close to trading in the green with both eventually closing down 2.89% and -1.3% respectively. PBoC set the Yuan rate a little weaker again today at 6.5452 mid-point, whilst also stressing there is no need for a markedly weaker Yuan. A little bit of domestic news; we heard rumours that China were in the process of firing 1.8mio steel workers and also talk that the property market around Shenzhen had risen recently by as much as 40% recently.

Having seen such a weak close for Asian equities it really was not much of a surprise to see Europe opening weaker also and by mid morning most core markets were down between -1.5 and 2%. Eurozone inflation data expected at 0% came in at -0.2% which obviously hit both stocks and currency. However, at the same time the Chinese announced they cut the RRR by 0.5%. This comes just as the G20 members were still on the plane on their way home. The fact they cut, yet left rates unchanged, implies they are concerned that would apply additional pressure of the FX rate. So, rumours are they are concerned about confidence and are therefore being proactive ahead of bigger economic data (yet to be released) and so are playing it cautious. Core European markets loved this news and spent the rest of the afternoon regaining the mornings losses. DAX, and FTSE closed unchanged whilst CAC and IBEX closed around 1% higher. In the US cash markets have had a comparatively smoother ride in the morning session but month end closing reversed all that and in the last 30minutes were trading 100 points lower. In late US trading Asian futures (China 300 and HSI) have bounced around 1% as a result of the Chinese cut in the reserve ratio requirement.

Gold has had another good day (rallying $17) to close a healthy +17% return for the month. It closed at the $1234 level electing a Monthly Bullish at the $1207 level leaving the potential to still rally to reach our first target resistance at 1309 and 1365 area. Oil also rallied 3% today to finally close the month small down but still down 45% YoY and down 13% YTD.

US Treasuries rallied today with the curve flattening 2/10 by 2bp to close at 94BP. 2’s appeared to be anchored, given Fridays data but also will play nervous ahead of ADP and Fridays employment data. Europe fully expects the ECB to play extend at next weeks meeting which continues to aid core and peripheral markets. German 10’s closed this evening at 0.11BP (closing the TY/RX spread at +162BP. Italy 10’s closed 1.42% (-5BP), Greece 10’s 9.93% (-7BP), Turkey 10.27% (-11BP) and UK Gilt 10yr closed 1.33% (-6BP).