India’s Sensex rallied off support at 26000, but Twiggs Money Flow still warns of selling pressure. Breach of 26000 would indicate a test of 25000.
The DAX is back
Germany’s DAX broke out of its narrow line (or consolidation) between 10200 and 10800, signaling a primary advance with a target of 11500* and confirming a bull market.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
Gold declines as interest rates rise
The Fed is expected to hike interest rates in December. Long-term interest rates are rising in anticipation of further rate hikes in 2017. 10-Year Treasury yields have penetrated their 10-year descending trendline, warning that the secular down-trend is ending. Breakout above 2.50 percent would strengthen the signal, while follow-through above the 2013/2014 high of 3.0 percent would confirm.
The Dollar Index successfully tested its new support level at 100. Target for the advance is 107*.
* Target medium-term: 100 + ( 100 – 93 ) = 107
With interest rates rising and the Dollar strengthening, demand for Gold is shrinking. Steps by the Chinese government to limit private gold purchases, part of their program to support the Yuan by slowing capital flight, will also impact on demand. Target for the decline is unchanged at the December 2015 low of $1050/ounce. Retracement that respects the resistance level at $1200 would strengthen the bear signal.
Are stocks overpriced?
Some good discussion on our forum regarding current high stock valuations, based more on hopes than on earnings.
This chart of Price-Earnings ratios highlights the problem. PEs for both the MSCI World Index (ex-Australia) and the ASX 200 are close to historic highs (after the Dotcom bubble).
Strong earnings growth would soon fix this but there is little sign of that at present.
Wider trade gap adds to economy’s worries
From Jens Meyer and Patrick Commins:
A surprise blow-out in the October trade deficit has raised questions about the predicted rebound in economic growth, following the first contraction in GDP in five years.
Instead of shrinking as predicted, Australia’s trade gap widened 20 per cent to $1.54 billion as growth in imports outpaced exports….
Paul Dales from Capital Economics said the October trade number was worrying as it implied net exports – a key GDP component – might be a big drag on economic growth in the fourth quarter, as volumes mattered for real GDP growth.
“This could all change when the November and December trade data are released. But at the moment, other parts of the economy will have to be much stronger to prevent another fall in GDP,” he said, adding that while that was probable, he was nonetheless now more worried about a possible recession.
On its own, the trade deficit is unlikely to tilt the economy into recession but there is a worrying contraction in business investment, outside of the expected mining slow-down, and in wages growth.
Australia: Say goodbye to growth
Business investment in Australia continues its sharp descent since the end of the mining boom, falling below 14% of GDP for the first time since the Dotcom crash.
Source: RBA Chart Pack
Apart from the expected “cliff” in Engineering, investment in Machinery and Equipment has fallen to record lows.
Source: RBA Chart Pack
Without investment, growth is likely to contract. The impact on Australian wages is an ominous warning.
Source: RBA Chart Pack
Markus Fischer: A robot that flies like a bird
Plenty of robots can fly — but none can fly like a real bird. That is, until Markus Fischer and his team at Festo built SmartBird, a large, lightweight robot, modeled on a seagull, that flies by flapping its wings.
First Impressions: Australian Q3 GDP
From Andrew Hanlan at Westpac:
The Australian economy contracted in the September quarter, with a sharper fall than anticipated.Q3 GDP was -0.5%, after a +0.6%. Annual growth slowed to 1.8% from 3.1%….
Trump the biggest positive and negative risk for growth, survey finds
From Zac Crellin:
The policies of a Trump administration are both the biggest downside and upside risks to the global economy, an international survey of companies by Oxford Economics has found.
While 38 per cent of respondent companies were hopeful for US growth to surge thanks to President-elect Donald Trump’s fiscal stimulus program, 27 per cent feared Mr Trump would instigate a trade war between the US and China….
Source: Trump the biggest positive and negative risk for growth, survey finds
Yuan Warning
Our forex data feed shows a current USDCNY exchange rate of 7.4775, which matches Barcharts.com and Google Finance, but Bloomberg and NetDania show a far lower rate of 6.8681. We have asked our data suppliers to investigate the disparity. Please do not act on the rates quoted without verifying with your bank/forex dealer.