The reason for the upward spike in the ASX 200 is clear. While shortage in iron ore supply may be temporary, while Brazil reviews mine safety, it is sufficient to cause spot prices to jump 20% in the last week.
Windfall profits are likely to benefit not only the Materials sector but the entire economy over the next few months. The ASX 200 Materials Index ran into resistance at 12500 while a bearish divergence on Money Flow continues to warn of selling pressure.
The ASX 200 broke resistance at 6000 but remains in a bear market. Reversal below 5650 would signal a primary decline, with a target of the 2016 low at 4700.
ASX 200 Financials Index rallied on release of the Royal Commission on Banking final report. The outcome could have been a lot worse, or so the market seems to think.
I suspect the bank rally will be short-lived. Credit growth is falling and broad money warns of further contraction.
House prices are falling and concerns over a slowing economy have caused many to call for further rate cuts. I believe this is short-sighted.
One of the biggest threats facing the economy is ballooning household debt. Tighter credit and falling house prices are likely to curb debt growth….provided the RBA doesn’t pour more gasoline on the fire.
I have been cautious on Australian stocks, especially banks, for a while, and hold more than 40% in cash and fixed interest investments in the Australian Growth portfolio.