The S&P 500 is testing resistance at 2100, while declining 13-week Twiggs Money Flow warns of medium-term selling pressure. Expect strong resistance between 2100 and 2130 but reversal below 2000 is now unlikely.
CBOE Volatility Index (VIX) at 15 indicates calm is restored after the last two turbulent weeks.
The Yuan is sliding against the Dollar, with USDCNY breaking through resistance at 6.60. Expect further capital flight, both from residents and offshore investors. Borrowers will also seek to repay Dollar-denominated loans and replace them with facilities in the local currency, adding further pressure on the Yuan.
The PBOC has been encouraged by fading prospects of further rate rises from the Fed, with 10-year Treasury Yields falling to a new all-time low of 1.37 percent, compared to 1.40 percent in 2012.
….And the Pound falling to a 30-year low.
Falling currencies and lower long-term interest rates are both good news for gold bugs, with spot gold surging to $1370/ounce. Expect retracement to test the new support level at $1300/ounce. Respect of the band of support at $1280/$1300 is likely and would signal another advance, with a target of $1400/ounce*.
* Target calculation: 1300 + ( 1300 – 1200 ) = 1400
From Leith van Onselen:
Senator-elect One Nation’s Pauline Hanson dominated news headlines yesterday after she warned of “terrorism on our streets” and suburbs “swamped by Asians”, prompting righteous indignation from all manner of MSM commentators.
The below extract from The Canberra Times captures some of the shenanigans: At a fiery press conference in Brisbane on Monday, Ms Hanson claimed the major parties should respect the large number of votes One Nation pulled, and urged a return to an Australia “where we as a nation had a right to have an opinion and have a say”…… “We are a Christian country and that’s what I’m saying … [former Liberal prime minister] John Howard said we have a right to say who comes into our country and I’m saying exactly the same.”
My simple advice to Ms Hanson is that if she wants to be taken seriously in the immigration debate, then she must dump the racial overture and instead focus on the level of immigration and why it is too high.
The fact that many of us in major cities are stuck in traffic, cannot get a seat on the train, are experiencing crowded hospitals and schools, and cannot afford a home has little to do with race, but rather a high immigration intake that has overwhelmed our cities’ ability to cope with the influx.
….Ms Hanson should also highlight that the system surrounding so-called skilled and student visas has been corrupted, with widespread rorting and fraud revealed by the recent joint ABC-Fairfax investigation (see Australia’s hidden people smuggling scandal). Again, rather than focusing on race, Ms Hanson should argue to restore integrity to Australia’s visa system so that it is not overtaken by “crooks and criminals”.
…More broadly, Ms Hanson should highlight that for a major commodity exporter like Australia, which pays its way in the world by selling-off its fixed endowment of resources, ongoing high immigration can be self-defeating from an economic standpoint. That is, continually adding more people to the population year after year means less resources per capita. It also means that Australia must sell-off its fixed assets quicker just to maintain a constant standard of living (other things equal).
Again, none of this has anything to do with race – i.e. where the migrants come from – but rather that the overall immigration intake is too high and has overwhelmed the capacity of the economy and infrastructure to absorb them, eroding individuals’ living standards in the process.
There has also been no proper debate within the community about the appropriate level of immigration and no political mandate for pursuing a “Big Australia”.
…..We should not forget that an Essential Research opinion poll published in May revealed that the overwhelming majority of Australians (59%) believed “the level of immigration into Australia over the last ten years has been too high”, more than double the 28% of Australians that disagreed with that statement.
….under current policy, Australia is on track to double its population by 2050 to more than 40 million people – something most Australians oppose. Again, this comes amid virtually no discussion nor mandate for this dramatic change, nor any plan on how to cope with this growth.
As long as Ms Hanson plays the “race card”, she will be rightly ridiculed and has already lost the debate. Population policy is far too important an issue to be segregated into pro- and anti-immigration corners based upon views about race and cultural supremacy. Instead, the issue needs to be debated rationally and based upon whether or not immigration is benefiting the living standards of the existing population.
I agree. This has nothing to do with race or religion. Pauline Hanson is barking up the wrong tree. This is about numbers. I suspect the same is true of the Brexit vote. I am all in favor of skilled migration (being a migrant myself) but any newcomer should ask themselves how they can contribute to existing Australian values and culture….rather than preserve their own.
Source: How Hanson should frame the immigration debate – MacroBusiness
Niels Jensen’s Absolute Return monthly newsletter raises one of the major structural impediments to growth in Europe:
As [economist Woody Brock] pointed out when in London, ageing has only had a modest impact on GDP growth and inflation so far. Governments have ruined economic growth in Europe; demographics haven’t. If employment laws are such that employment is virtually for life, companies stop hiring. If you can’t fire, you don’t hire, as Woody pointed out….
Similar impediments are evident in Australia. If developed economies want to compete in global markets, they need to get their house in order. Raising barriers to free trade is not a sustainable alternative but will instead destroy any remaining semblance of competitiveness. Trade barriers result in a limited choice of products, forcing customers to pay higher prices and accept inferior quality. Lack of competition leads to the death of innovation. Quality deteriorates and we soon face another zombie industry dependent on government support. A prime example would be the motor industry — in Europe, North America, even Australia — over the last half-century.
From Clancy Yeates:
APRA on Monday updated a study that showed the common equity tier 1 (CET1) capital ratio of Australia’s major banks were now in the top quartile of banks internationally – a key target set by the 2014 financial system inquiry……APRA said the banks’ average CET1 ratios were 13.5 per cent of assets at December 2015, up from 11.7 per cent in June 2014.
The comparisons are significant because the 2014 financial system inquiry (FSI), chaired by former Commonwealth Bank chief executive David Murray, said that in order to be “unquestionably strong”, the banks’ capital position should be among the top quartile globally.”
….Echoing previous comments from APRA chairman Wayne Byres that capital requirements would rise “somewhat higher”, APRA said global banking regulators were likely to settle on rules later this year that would ratchet up how much capital banks must set aside. This will probably affect Australian lenders, too.
….It said the final shape of these rules would not be known until late this year, and it would be “prudent” for banks to plan for “the likelihood of strengthened capital requirements in some areas”.
While increased capital requirements may reduce bank profitability and slow lending growth in the medium-term, an increased capital buffer is critical for long-term sustainability of the industry and the broader economy. The pay-off banks should see is lower risk premiums for both deposit and liability funding, more stable growth and higher equity valuations.
Brexit gives a further reason to buy Asian and emerging markets stocks, according to CLSA‘s chief equity strategist Christopher Wood. Wood raised emerging markets to Overweight this morning.
First, Brexit is good for commodities such as iron ore and steel, thereby boosting Asia’s material stocks. This is because a …..cheaper pound and euro that resulted from Britain leaving the European Union, provides an excuse for more monetary and fiscal easing. “Infrastructure stimulus in the G7 world should give some sort of bid to the commodity complex on a global basis,” wrote Wood.
Indeed, commodity traders in China agree. Iron ore futures jumped 5.2% this morning, hard-rolled coil (steel) soared 4.5%…..
Second, Brexit relieves pressure on the People’s Bank of China, which is trying to liberalize its exchange rate while keeping capital outflow under control. The deep slump in the British pound gives the PBoC another excuse to guide its yuan fix lower.
Indeed, the PBoC’s yuan-dollar fix is at a 6-year low this morning, even though the pound still tumbled 8.7% against the yuan in onshore trading.
Third, Wood raised emerging markets to Overweight “given the increased negative outlook on European equities, given the political uncertainties raised by Brexit and given the negative consequences of even more negative interest rates and more negative bond yields for European banks.”
Wood continues to see gold price soaring …..G7 central bankers are crazy, in Wood’s view.
Source: Barron’s
Source: Why Brexit Is Good For Iron Ore, China, Emerging Markets | Hellenic Shipping News Worldwide
China seems to have given up on its policy of supporting the Yuan against the Dollar, with USDCNY breaking through resistance at 6.60. Depleting foreign reserves to support the Dollar-peg was always going to be a tough call for the PBOC. But the alternative of increased capital flight and rising counter-measures from trading partners may exact an even higher price.
Perhaps the PBOC was encouraged by fading prospects of further rate rises from the Fed this year, after BREXIT. 10-Year Treasury Yields are headed for a test of support at the all-time low of 1.40 percent in 2012.
Gold broke resistance at $1300/ounce and is now retracing to test the new support level. BREXIT, a weakening Yuan, and lower interest rates are all likely to fuel demand for gold. Respect of the band of support at $1280/$1300 is likely and would signal another advance, with a target of $1400/ounce*.
* Target calculation: 1300 + ( 1300 – 1200 ) = 1400
By Ankit Panda:
Consider Boris Johnson, the man who appears best positioned to emerge as the UK’s next prime minister. In becoming the public face of the Brexit campaign in defiance of fellow Tory Prime Minister David Cameron, Boris seized on the opportunity he saw in the aftermath of the Cameron government’s own politically cynical ploy to hold a non-binding referendum on EU membership…. Boris, heeding Machiavelli’s warning that “there is nothing more important than appearing to be religious,” took on the role of the high priest of Tory euroskeptics in favor of leaving the European Union.
….Direct democracy by mean of referendum, in the context of Brexit, was a tool evoked of political necessity (Cameron seeking temporary political ballast) and taken advantage of for political ambition (Boris’ skewering of Cameron). That the people of the UK voted and told us what they really think is ultimately a neutral event, on balance.
…..The takeaway from ‘Brexit’, thus, shouldn’t be a hardening of contempt for popular will and the one-person-one-vote principle that underwrites all forms of modern democracy, but to continue to expect politicians to be politicians.
I’ll leave it to Boris Johnson to prove me right.
Source: Brexit: An Indictment of Direct Democracy or Vulgar Politics as Usual? | The Diplomat
Barry Ritholz ascribes the BREXIT vote to “culturally constructed ignorance”:
….there is a disconcerting trend that has gained strength: agnotology. It’s a term worth knowing, since it is going global. The word was coined by Stanford University professor Robert N. Proctor, who described it as “culturally constructed ignorance, created by special interest groups to create confusion and suppress the truth in a societally important issue.” It is especially useful to sow seeds of doubt in complex scientific issues by publicizing inaccurate or misleading data. Culturally constructed ignorance played a major role in the Brexit vote, as we shall see after a bit of explanation.
….Current agnotology campaigns seem to be having similarly desired effects. We see the results in a variety of public-policy issues where one side has manufactured enough doubt through false statements, inflammatory rhetoric and data from dubious sources that they can mislead public opinion in a significant way, at least for a time.
….In the aftermath of the Brexit vote, there is evidence that people didn’t fully understand what they were voting for. Some didn’t think their protest vote would matter, or misunderstood what they were voting for, or what the EU actually was. There seems to be a rise in voters’ remorse the days after. Many blamed the tabloids in the U.K.. The misstatements and myths which were being pressed by the leave campaign about the EU were so rampant and absurd that the European Commission had to put out repeated corrections and maintain a blog to rebut the nonsense.
While I am as concerned as Barry over the dumbing down of political debate, ably assisted by the tabloid press and the Internet, where “false statements, inflammatory rhetoric and data from dubious sources” are used to inflame the public, this is nothing new. That is politics. When emotions are aroused, the intellect is dormant.
But we should guard against the arrogance of presuming that voters are misinformed. Perhaps it is us, as George Friedman points out, who are aloof from issues on the street:
Immigration is socially destabilizing. There is always friction between older residents and immigrants…..But, better educated and wealthier individuals normally don’t experience this…
….the British who were for it, to a large extent, did not feel the profound social costs of immigration. That fee was going to be paid by those who—again with many exceptions—voted for leaving.
Source: Culturally Constructed Ignorance Wins the Day – Bloomberg View
Excellent analysis from George Friedman:
As troubling as Europe’s economy is, it was not the prime mover in the referendum. The contentious immigration debate holds that honor. And immigration itself was not really the issue. Britain was quite comfortable with immigrants until Brussels began making demands.
The EU dictating the rules was the problem. It was a question of sovereignty. That the EU could make decisions that would change the character of Britain was not okay.
Granted, there was a large vote for staying. The British media have been eager to point out that those who voted to leave were less educated, had lower incomes, and so on. They were also most likely to be affected by immigration.
Immigration is socially destabilizing. There is always friction between older residents and immigrants…..But, better educated and wealthier individuals normally don’t experience this element of immigration. The tension on the streets rarely enters the halls of academia, senior civil service, or banking.
Not surprisingly, the question of sovereignty wasn’t critical to this class. Just as large-scale immigration did not concern them.
….In Britain, the immigrant issue was critical and created a sense of powerlessness. First, Britain was not in control of its immigration policy. Second, the British who were for it, to a large extent, did not feel the profound social costs of immigration.
That fee was going to be paid by those who—again with many exceptions—voted for leaving. So it was a revolt against the British establishment and the EU. As with most things, it was much more complex than it seemed.
When All Else Fails, Acknowledge the Obvious
The EU has already responded. This statement from the foreign ministers of Belgium, France, Germany, Italy, Luxembourg, and the Netherlands, defines the future:
We will continue in our efforts to work for a stronger and more cohesive European Union of 27 based on common values and the rule of law. It is to that end that we shall also recognize different levels of ambition amongst Member States when it comes to the project of European integration. While not stepping back from what we have achieved, we have to find better ways of dealing with these different levels of ambition so as to ensure that Europe delivers better on the expectation of all European states…. However, we are aware that discontent with the functioning of the EU as it is today is manifest in parts of societies. We take this very seriously and are determined to make the EU work better for all our citizens.This was the EU’s answer to Brexit. They recognized that not everyone wants the same level of integration and will respect that. They are aware that many are discontent with the EU.
In other words, after the British vote, they acknowledge the obvious. This is a unique evolution. It is not clear what they are going to do, but they are not going to punish Britain. They can’t afford to.
Source: Is Brexit the End of the EU? | This Week in Geopolitics Investment Newsletter | Mauldin Economics
