How Long Can Central Banks Keep This Rally Going? Global Financial Stress Is Starting To Grow, U.S. Consumer Confidence Plunges As New Home Sales, Richmond Fed Miss, BRIC ( Brazil, Russia, India & China) and Emerging Markets Are Close To Or Are Breaking Key Support Lines!
Global financial stress, a coincident indicator for global stock prices, is flaring up again in the wake of the crisis in Cyprus.
The blue line on the chart below shows BofA Merrill Lynch‘s Global Financial Stress Index turned upside down to illustrate how it correlates with global equities, proxied by the MSCI All Country World Index (the red line).
While global equities have started to roll over a bit, global financial stress has spiked upward pretty forcefully in the past few weeks.
Houston we may have a problem: with the DJIA trumpetedely hitting new all time highs day after day in March, one would expect that its traditional second derivative – US Consumer Confidence, would be at all time highs as well, or close thereby. One would be wrong, because according to the Conference Board, March consumer confidence plunged to 59.7 from 69.6, and well below expectations of a 67.5 print. Both components of the index dipped, with both the present situation and expectations indices sliding from 61.4 and 72.4, to 57.9 and 60.9, respectively. And just to make sure the S&P ramps to all time highs on ongoing miserable economic, corporate profit and, of course, sovereign insolvency news, we got both New Home Sales, dropping from 431K to 411K, missing expectations of 420K, and the Richmond Fed also missing expectations of a 6 print, dropping from last month’s 6 to 3. All in all, if this latest round of ugly and rapidly getting worse economic data doesn’t send the S&P to new all time highs, nothing will. Well, perhaps another European country going broke may do the trick…
Consumer Confidence biggest miss since June 2010…
and Richmond Fed missed expectations…
The 6-pack below reflects that BRIC ( Brazil, Russia, India & China) and Emerging markets are close to or are breaking key support lines.
CLICK ON CHART TO ENLARGE
Many pundits continue to tell us that Emerging markets are the growth engine of the world. In time this idea may end up being true! What has been the case over the past few years? While the Dow and S&P 500 are at or near new all time highs, BRIC/Emerging markets are well below their 2007 highs.
Not only are these emerging markets below the 2007 highs, most are attempting to break below important support lines, with patterns looking very similar to Copper. The relative weakness in these markets continues to suggest that when it comes to portfolio construction, under weighting towards these countries remains a good idea!
Could “Falling BRIC’s/Emerging Markets” impact the S&P 500 and Europe? Yes…If BRIC’s can stop falling here, it would be a good sign for older established countries!
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