Two interesting charts from Tim Baker at Deutsche Bank. Foreign investment in ASX equities, avoiding banks and resources, has slowed to a 5-year low.
Super fund investors have lost their enthusiasm for bank deposits, as interest rates tumble, and are allocating more to equities.
Cautious optimism has evaporated after poor recent polls favoring a BREXIT. I hope that sanity prevails but, as the saying goes: “Hope isn’t a strategy”.
Better to have a Plan A and a Plan B to cope with the two alternatives. But if enough investors decide their money is safer in the bank, then expectations of a fall are likely to become a self-fulfilling prophecy.
The S&P 500 does not appear unduly alarmed but a sharp fall on 13-week Money Flow warns of selling pressure. Reversal below 2000 would warn of another test of primary support (1820 to 1870).
Dow Jones Industrial Average shows a similar picture. Breach of medium-term support at 17400 to 17500 would warn of another test of primary support at 15500 to 16000.
A CBOE Volatility Index (VIX) spiked to 20, indicating increased market risk. Long-term measures remain unaffected.
Germany’s DAX retreated below medium-term support, warning of another test of primary support. 13-Week Money Flow below zero suggests a primary down-trend.
The Footsie broke support at 6000 warning of a test of 5500. Reversal of Money Flow below zero would suggest a primary down-trend.
* Target calculation: 6400 + ( 6400 – 6000 ) = 6800
The Shanghai Composite Index continues to range between 2700 and 3100.
Japan’s Nikkei 225 Index broke support at 16000 and its lower trend channel, warning of another decline.
* Target calculation: 15000 – ( 18000 – 15000 ) = 12000
India’s Sensex remains bullish, with a short retracement below 27000. Bearish divergence on 13-week Money Flow would end if the descending trendline is penetrated.
The ASX 200 broke medium-term support at 5200, warning of another test of primary support at 4750. Expect support at the former level of 4900 to 5000 but it is questionable whether this will hold. Combination of a seasonal sell-off and BREXIT fears are going to test buyers’ commitment.
The Banks Index fell sharply and breach of support at 7200 would offer a target of 6400*.
* Target calculation: 7200 – ( 8000 – 7200 ) = 6400
Health Care is experiencing a strong sell-off, led by CSL. This is a good long-term stock but exposure to the UK/Europe has spooked the market.
Long-term interest rates continue their decline, with 10-year Treasury yields breaking support at 1.65 percent. Breach signals a test of the all-time (July 2012) low of 1.40 percent.
Gold broke resistance at $1300/ounce on fears of a BREXIT vote on June 23rd and expectations that the Fed will need to soft-pedal on interest rates. Breakout offers a long-term target of $1550*.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
Chinese buying of gold has been relegated to secondary status, at least for the next week. Sale of foreign reserves appear to have resumed, with the USDCNY running into resistance at 6.60. PBOC sale of foreign reserves weakens the Dollar, boosting demand for Gold.
Disclosure: Our Australian managed portfolios are invested in gold stocks.
From The Guardian, June 14th:
Support for leaving the EU is strengthening, with phone and online surveys reporting a six-point lead, according to a pair of Guardian/ICM polls.
Leave now enjoys a 53%-47% advantage once “don’t knows” are excluded, according to research conducted over the weekend, compared with a 52%-48% split reported by ICM a fortnight ago.
….Prof John Curtice of Strathclyde University, who analyses available referendum polling data on his website whatukthinks.org, noted that after the ICM data, the running average “poll of polls” would stand at 52% for leave and 48% for remain, the first time leave has been in such a strong position.
If the UK votes to LEAVE, we can expect:
Hat tip to The Coppo Report
From Bell Potter:
Australian stocks with more than 80% of revenue derived from UK/Europe:
Stocks with 40% to 50% of revenue derived from UK/Europe:
Stocks with 30% to 40% of revenue derived from UK/Europe:
By Houses and Holes:
From FT: When Liu Qibao, China’s propaganda minister, visited Sydney last month and signed a raft of deals with Australia’s top media companies, few paid much attention. But the fruits of that trip — a supplement produced by China Daily, the Communist party’s English-language mouthpiece, appearing in such bastions of free speech as the Sydney Morning Herald — lay bare the growing reach of China’s multibillion-dollar propaganda machine as it seeks to win hearts and minds across the globe. ….China Watch, the new monthly pullout in Fairfax Media newspapers, marked its inaugural issue with favourable coverage of China, including an article backing Beijing in its stand-off over contested waters in the South China Sea.
…..Controversy stoked in Australia by Beijing’s deals with Fairfax, Sky News Australia and several other local companies proves the point. Critics point to the harder edge of Beijing’s propaganda machine, with journalists imprisoned and many foreign media websites blocked at home. Some warn that publishing Chinese propaganda alongside other news could undermine their newspapers and hand Beijing commercial influence over the way Australian journalists report on China. ….Fairfax dismisses these concerns, saying China Watch is clearly labelled and no different to other advertising content. “Our commitment to providing independent, quality journalism — including on matters relating to China — remains absolute and unchanged,” it said.
Welcome to the whorehouse Downunder.
Media independence is subject to one overriding and unspoken rule: DON’T BITE THE HAND THAT FEEDS YOU. Advertisers with multi-million dollar budgets are not criticised. And journalists who ignore that rule will find themselves looking for a job. The silence of the media on health issues related to cigarette smoking, when tobacco giants were spending billions of $ on advertising, is the most obvious example but food giants like Monsanto still hold considerable sway over mainstream media. Would China be treated any differently?
Good summary of Australia’s predicament from David Llewellyn-Smith:
…..A lot of this is to be expected in a post-mining boom environment. I mean, we seriously overdid it:
This is why I obsess over lowering the dollar. It absorbs an huge amount of the deflationary pain in repairing one’s competitiveness rather than doing it internally vis-a-vis Europe’s PIIGS.
That is also why authorities have made such a hash of the adjustment by at first denying the mining bust was happening and then inflating debt and asset prices to offset it when they found themselves behind the curve.
They thus levitated the dollar throughout, hammering tradable wages harder than otherwise and spilling it out more widely now. Worse, we now have the debt overhang to deal with and another adjustment to face in non-tradable sectors related to households once the post-mining boom adjustment abates.
Pity we didn’t listen to Prof. Warwick McKibbin in 2012 when he warned: “…the central bank should ‘lean against the wind’, that is intervene to slow down the extent of appreciation of the exchange rate.”
Long-term interest rates continue their decline, with 10-year Treasury yields testing support at 1.65 to 1.70 percent. Breach would signal a test of the all-time (July 2012) low of 1.40 percent.
Gold rallied in response, breaking initial resistance at $1250/ounce to signal a test of $1300.
The Chinese appear to have resumed selling foreign reserves to support the Yuan, with USDCNY running into resistance at 6.60. PBOC sale of reserves would weaken the Dollar, boosting demand for Gold. Failure to support the Yuan is unlikely, but would increase safe haven demand for Gold from Chinese investors.
The Dollar Index, representing predominantly the Euro and Yen crosses, fell sharply. Breach of support at 93 would confirm the primary down-trend earlier signaled by 13-week Momentum below zero.
The Australian All Ordinaries Gold Index broke through 4500 to signal another advance, with the weakening Australian Dollar adding further impetus. Gaps between trough lows (orange line) and preceding highs (brown line) indicate strong buying pressure.
Disclosure: Our Australian managed portfolios are invested in gold stocks.
From Michael Keane:
Having to continually tread on eggshells for fear of doing something that will ruin your life, family or career, even something that no-one could ever reasonably predict would be wrong, is a well-known form of intimidation and causes chronic psychological torment. We could use the jargon of Human Factors Engineering or behavioural psychology, but it’s obvious. We’ve heard of reverse discrimination, but political correctness is causing a sort of reverse intimidation and is damaging both individuals and society.
….. The Chief Justice of the US Supreme Court famously warned that if you want to stop racial discrimination then you have to stop discriminating on the base of race. In other words, most 21st century Australians are well and truly over race. But if you continually discriminate on the basis of race with racial quotas, separate flags, separate clinics, separate scholarships, this will breed racial resentment…..
The same applies to all forms of discrimination, whether by race, gender, religion or sexual orientation.
Source: Political Correctness and reverse intimidation – On Line Opinion – 6/6/2016
From Elliot Clarke:
There was little new information in the headline China manufacturing PMI results for May other than confirmation that the sector remains under duress. The official NBS measure was unchanged at 50.1, while the Caixin PMI edged 0.2ppts lower to 49.2. Also released today, the official non-manufacturing PMI deteriorated from 53.5 to 53.1.
…..For manufacturing, both new order indexes deteriorated in May, to (a still expansionary 50.7) for the NBS survey and a (contractionary) 49.7 for the Caixin measure. This modest discrepancy corresponds to the greater external focus of the Caixin measure and the poor state of global demand. Export orders are falling according to Caixin respondents and are static amongst NBS’ survey participants.
Stocks of finished goods continue to contract, yet the absence of orders means that a pipeline of new work is struggling to build. On that basis, it seems unlikely that production will strengthen materially in the near term.
Currently production is best described as stagnant…..
Given the production and orders detail, it is unsurprising that employment continues to contract outright, at 48.2 and 46.3 respectively for the NBS and Caixin surveys.
