Author: ColinTwiggs

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Gold-Oil ratio warns of further easing

I don’t attach much significance to the Gold-Oil ratio on its own but it’s back in overbought territory, above 25.

Spot Gold/Light Crude

The chart below — plotting inflation-adjusted prices (over CPI) — far better depicts the relationship between gold and crude oil. Each major spike in crude prices over the last 50 years has been followed by a rising gold price.

Spot Gold/Brent Crude

Falling crude prices are likely to weaken demand for gold over the next few years, both through lower inflation and declining foreign reserves of major oil producing nations.

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Gold finds support at $1250

The Dollar Index continues to test support at 96.50. The primary trend is down and breach of support is likely, signaling a decline to test the 2016 low at 92/93.

Dollar Index

Spot Gold found support at $1250. A weaker Dollar and rising political uncertainty both favor an up-trend but rising interest rates are expected to weaken demand. Respect of support at $1250 would confirm the up-trend, while breach of $1200 would warn of another decline.

Spot Gold

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Crude headed for $30 if OPEC fails to deepen cuts

Crude could fall to $30/barrel next year — and stay there for two years — according to Fereidun Fesharaki, chairman of consultants FGE.

Nymex Light Crude breached support at $45/barrel, signaling a primary decline. Expect further support at $40 but penetration of this would target the 2008 low at $30 and the 2016 low at $25 a barrel.

Nymex Light Crude

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Westpac Leading Index counters jobs surge

In stark contrast to the buoyant recent ABS jobs numbers, the Westpac Leading Index slowed:

From Matthew Hassan at Westpac:

The six month annualised growth rate in the Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity relative to trend three to nine months into the future, eased from 1.01% in April to 0.62% in May.

…..The index is pointing to a clear slowing in momentum. While the growth rate remains comfortably above trend, the pace has eased markedly since the start of the year….

Read more at Westpac.

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Moody’s downgrades Australian bank credit ratings

From Mathew Dunckley and Clancy Yeates at SMH:

Credit rating agency Moody’s has downgraded a dozen Australian banks, including the big four, citing increased risks in the nation’s increasingly indebted households.

Moody’s stripped the big four banks – the Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Westpac Banking Corporation (Westpac) – of their Aa2 long-term rating and placed them on the next level down at Aa3….

“In Moody’s assessment, risks associated with the housing market have risen sharply in recent years. Latent risks in the housing market have been rising in recent years, because significant house price appreciation in the core housing markets of Sydney and Melbourne has led to very high and rising household indebtedness,” the statement said.

Source: Moody’s downgrades Australian bank credit ratings

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Gold and the Dollar test support

The Dollar Index is finding support at 96.50/97; the latest long tail on the weekly chart signaling buying pressure. But the primary trend is down and breach of support would signal a decline to test the 2016 low at 92/93.

Dollar Index

Spot Gold is testing support at $1250. Fundamentals, like a weaker Dollar and rising political uncertainty, still favor an up-trend. Respect of support at $1250 would confirm. Breach of $1200 is unlikely but would warn of another decline.

Spot Gold

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S&P 500 stays on course

The S&P 500 continues to advance, with a short-term target of 2500*. Bearish divergence on Twiggs Money Flow warns of rising selling pressure. While secondary (medium-term) in nature we should expect stronger resistance at 2500.

S&P 500

Bellwether transport stock Fedex is advancing strongly after breaking out above $200, signaling rising economic activity in the economy.

Fedex

Stage III of a bull market can last for several years.

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Strange week on the ASX

Strange week on the ASX, with strong jobs numbers from the ABS causing a surge in the Aussie Dollar and a more optimistic outlook on the ASX.

But Iron ore continues to fall, headed for a test of 50.

Iron Ore

The ASX 300 Metals & Mining index respected resistance at 3000 and is headed for a test of primary support at 2750. Breach would confirm the primary down-trend.

ASX 300 Metals & Mining

The ASX 300 Banks index respected resistance at 8500 and is likely to test primary support at 8000. Again, breach would confirm the primary down-trend.

ASX 300 Banks

The ASX 200 has formed a broadening wedge consolidation, in a down-trend. Declining Twiggs Money Flow indicates some selling pressure. Expect a test of primary support at 5600. Again, breach would warn of a primary down-trend. But a failed swing (that respects 5700) would warn that all bets are off and the index may be preparing for a rally.

ASX 200

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Australia: Jobs surge

The May 2017 ABS Labour Force Survey surprised to the upside, with employment increasing by 42,000 over the previous month (full-time jobs even better at +52,100). These are seasonally adjusted figures and the trend estimates are more modest at 25200 jobs.

Australia Jobs and Unemployment

Seasonally adjusted hours worked also jumped, reflecting an annual increase of 2.3%.

Australia Hours Worked and Real GDP

The Australian Dollar surged as a result of the impressive numbers but Credit Suisse warns that there may be some issues with the latest strong NSW estimates:

By state, the gains in full-time employment were particularly strong in NSW…..

But beware the sample rotation bias ….the ABS has confessed that for the sixth time in seven months, it has rotated the sample in favour of higher employment-to-population cohorts. Officials report that this has had a material impact on the NSW employment outcomes.

If the numbers are correct, there are only two areas that could account for the job growth: apartment construction and infrastructure. The former is unlikely to last and the latter, while an important part of the recovery process, are also not a permanent increase.

I would prefer to wait for confirmation before adjusting my position based on a single set of numbers.

One swallow does not make a spring, nor does one day.

~ Aristotle

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