The projected 2011 budget deficit sits at 1.48 Trillion.
Debt maturing including interest in 2011 is 2.15 Trillion (includes 142 billion in interest).
Less approximately 300 billion of yet to be purchased Treasury Securities as per TARP (900B in total QE2 spending).
This creates a gaping 3.3 Trillion fiscal 'hole' of funding and refunding needs through 2011.
And with monthly U.S. government spending breaking out on a fiscal year to date basis as per Sept 2010 - Sept 2011...no wonder the U.S Dollar has been collapsing as of late. See the weekly chart below of the US Dollar futures contract.
But the end of QE2 is fast approaching. And with this intermittent 'break' in Fed support coming at the end of the month (June) ...is the reflationary backdrop that has energized asset prices into 2011 at risk of reversing?
We see from the chart above the very positive correlation between different assets from 2009 to 2011; Gold (Yellow Line), Crude Oil (Green Line), Nasdaq (Black), Aussie Dollar (Red Line).
Coming around the other side we can see from the chart below that U.S. import prices (ex energy) have been accelerating to the upside with continued downside pressure on the USD.
Also emanating from this dynamic we can see that U.S. Producer Prices Index (Consumer Finished Goods ex food) is on the rise as per the chart below dating back to 2000, from the St. Louis Fed, which creates an implied marginal 'squeeze' that moves through the product supply chain and into final demand retail.
All of this fiscal spending has clearly been supportive to assets -- which has been the singular area of wealth creation for consumers. But, at the expense of rising 'real' inflation in the context of falling short term funding rates; commercial paper rates sitting at all time lows.
But, is this trend of US Dollar depreciation in the process of reversing in the intermediate term in-line with the end of QE2?
The overlay chart below looks at the weekly Copper futures (Blue Line) relative to the Nasdaq Cash Index (Black) line. There has been a very strong positive correlation between these markets since the market bottom in 2009, where Copper (Blue Line) was the early leader to the upside. This apparent 'mirror' image is occurring at the 2011 intermediate top (Feb-June 11'), where Copper is once again leading the nasdaq to the downside.
On the back of manufacturing weakness as per the latest ISM numbers and the renewed 'belief' of global economic weakness back on the table, does the Copper market know something as per its early downside leadership ahead of the Nasdaq?... and possibly forecasting the early stages of a trend reversal.
When we look closer at Copper structurally below, we can see that the market has violated the monthly structural boundary as indicated by the brown arrow below and has been trading below this monthly structure for May and June. In order for a Bullish signal to be generated here, Copper would have to violate the 2 day structure pivot (Black arrow) and push through the 'stronger' weekly boundary as indicated by the blue arrows. This would signal a more sustainable move higher for Copper.
Let's also review our latest short trade in the NQ (Nasdaq e-mini contract) that has just been stopped. See the Hourly Pivot Range below, with today's violation of the upper boundary, the first of which since the June 1st reversal lower.
The second chart above shows the NQ in relation to its larger macro trading structures. The brown arrow shows current activity below the crucial monthly boundary. We will be watching this level in conjunction with the weekly structural boundaries (blue arrows) to see how the stock market behaves around these time frames. If the market were to close above the monthly lower boundary in June that would be supportive for the US stock market in the short term.
No comments:
Post a Comment