Category: Australia & NZ

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China’s NBS Manufacturing PMI for November

China’s NBS Manufacturing PMI increased to 49.2 for the month of November, up from 49.0 in October. The index indicates that the manufacturing sector has been contracting for the past 8 months, but only values below 49.0 are considered a risk-off signal.

China: NBS Manufacturing PMI

Conclusion

The NBS Manufacturing PMI for China continues to signal risk-on, and the Australian bull-bear indicator is unchanged.

Acknowledgements

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ASX Market Snapshot

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuation is high, but advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% three weeks ago. Three of four indicators from Australia and two for China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which makes up the balance, is only 40% risk-on.

ASX Bull-Bear Market Indicator

The November update for China NBS Manufacturing PMI is due for release tomorrow at 9:30. A decline below the October level of 49.0 would signal risk-off.

China: NBS Manufacturing PMI

The ASX 200 Financials index (XFJ) continues to test support at 9000, while the Trend Index has crossed below zero, indicating rising selling pressure. A breach of 9000 would offer a target of primary support at 8000.

ASX 200 Financials Index

Stock Pricing

ASX stock pricing increased to 83.02 percent, well below the August high of 92.23 percent, but remains extreme compared to the April low of 67.85 percent.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator indicates a mild bull market, but that could change if the Chinese NBS Manufacturing PMI falls tomorrow. Valuation is declining after reaching a new extreme, and the risk of a significant drawdown remains high.

Acknowledgments

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ASX Retreats

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuation is high, but advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, up from 56% two weeks ago. Three of four indicators from Australia and two for China indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, which makes up the balance, is only 40% risk-on.

ASX Bull-Bear Market Indicator

The ASX 200 Financials index (XFJ) crossed below its 50-week moving average, signaling a correction, but remains in a primary uptrend.

ASX 200 Financials Index

Stock Pricing

ASX stock pricing declined to 82.69 percent, compared to a high of 92.23 percent in August, and a low of 67.85 percent in April.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator has improved to a mild bull market. Valuation is declining after reaching a new extreme, and the risk of a significant drawdown remains high.

Acknowledgments

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ASX Improves to Mild Bull Market

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the one on the right reflects the current valuation of the stock market. Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because market valuation is high, but advise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator improved to 66%, from 56% over the last four weeks. Three of four indicators from Australia and two for China now indicate a risk-on stance, with a combined 60% weighting, while the US Bull/Bear indicator, with a 40% weighting, is 60% risk-off.

ASX Bull-Bear Market Indicator

NAB forward orders jumped to +3 in October, raising the 3-month moving average above the zero signal line to signal risk-on.

NAB Forward Orders

The improvement in forward orders was led by a jump in the mining sector.

NAB Forward Orders - by Industry

Stock Pricing

ASX stock pricing declined to 84.01 percent, from a high of 92.23 percent in August, compared to a low of 67.85 percent in April.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

ASX market capitalization increased to 1.2 times GDP, the highest since 2021.

ASX Market Cap/GDP

Earlier peaks are attributable to the resources sector, with ASX market cap almost doubling during the boom from 2004 to 2007. Both earlier peaks were followed by a steep rise in iron ore prices (marked in red below).

Iron Ore Booms

But this time is different. Iron ore prices are falling.

Conclusion

The ASX bull-bear indicator has improved to a mild bull market, but valuation is falling after reaching a new extreme, and the risk of a significant drawdown is high.

Acknowledgments

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ASX Stock Pricing Falls

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates whether the market is in a bull or bear phase, while the indicator on the right reflects the current stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high. Still, we advise investors to exercise caution when adding new positions.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 56%, down from 66% four weeks ago. Four indicators from Australia and China indicate a risk-on stance, with a 60% weighting, while the US Bull/Bear indicator, with a 40% weighting, is 60% risk-off.

ASX Bull-Bear Market Indicator

The OECD composite leading indicator for China strengthened to 99.59 from 99.52 in September—values below 99.0 signal risk-off.

OECD Composite Leading Indicator

September Australian building approvals rebounded to 16.8K, with the 3-month moving average holding above the 20-year average—values below the long-term moving average signal risk-off.

Australian Building Approvals

Stock Pricing

ASX stock pricing declined to 86.44 percent from 88.70 percent last week, compared to a high of 92.23 percent in August and a low of 67.85 percent in April.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator reflects a mild bear market, while the extreme valuation increases the long-term risk of a significant drawdown.

Acknowledgments

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RBA trapped by rising unemployment and inflation

Key Points

  • The RBA maintained the cash rate at 3.6%.
  • The strong housing market creates a wealth effect that encourages spending.
  • However, unemployment is rising, and the RBA can’t do much because of the upturn in inflation.

The RBA held rates steady at 3.6%, citing the recent upturn in inflation. Although some inflationary pressures are viewed as temporary, the policy statement says the housing market is strengthening and the labor market is “a little tight.”

We believe the labor market is deteriorating despite the “pick-up in private demand” mentioned in the RBA policy statement. ANZ-Indeed job ads declined by 2.2% in October, bringing the annual change to -7.4%.

Australia: Job Ads

The decline emphasizes the surprise increase in the unemployment rate to 4.5% in September. The graph below compares job ads on an inverted scale (blue – LHS) against the unemployment rate (red – RHS).

Australia: Job Ads & Unemployment

Growth in monthly hours worked is also slowing, and we expect the uptrend in unemployment to continue.

Australia: Aggregate Hours Worked

Housing

Building approvals for private dwellings indicate resilience in the housing market, with the 3-month moving average (15.5K) above its 20-year moving average.

Australia: Building Approvals

Housing prices continue to reflect a market shortage due to high immigration.

Australia’s home value growth hits the fastest pace in over two years as national dwelling values surged 1.1% in October, marking the strongest monthly gain since June 2023 and pushing the annual growth rate to 6.1%. (Cotality)

Conclusion

Australia faces a similar K-shaped economy to the US.

Rising housing values and a buoyant stock market create a wealth effect, encouraging spending by wealthier consumers.

However, the increase in demand has not translated into strong job growth. Unemployment is rising, and growth in monthly hours worked has slowed, but the RBA can’t do much while inflation is increasing.

Acknowledgments

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ASX Leading Indicators

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the indicator on the right reflects stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high. Still, we advise investors to be circumspect about adding new positions without carefully investigating the underlying value.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 56%, down from 66% three weeks ago. Four indicators from Australia and China indicate risk-on, with a 60% weighting, while the US Bull/Bear indicator has a 40% weighting.

ASX Bull-Bear Market Indicator

China’s NBS Manufacturing PMI fell sharply from 49.8 in September to 49.0 in October. A PMI below 49.0 signals risk-off.

NBS China Manufacturing PMI

September Australian building approvals will be released on Monday, where the 3-month moving average was close to a risk-off signal in August.

Australian Building Approvals

Stock Pricing

ASX stock pricing declined to 88.70 percent, compared to a high of 92.23 percent in August and a low of 67.85 percent in April.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator reflects a mild bear market, while extreme valuation increases the long-term risk of a significant drawdown.

Acknowledgments

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ASX extreme pricing continues

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the indicator on the right reflects stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high. Still, we advise investors to be circumspect about adding new positions without carefully investigating the underlying value.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 56%, from 66% two weeks ago. Four indicators from Australia and China indicate risk-on, with a 60% weighting, while the US Bull/Bear indicator has a 40% weighting.

ASX Bull-Bear Market Indicator

The ASX 200 index has been in a downtrend relative to gold (measured in AUD) for four years, and shows no sign of changing.

ASX 200/ Gold in AUD

Stock Pricing

ASX stock pricing increased to 90.09 percent, compared to a high of 92.23 percent in August and a low of 67.85 percent in April.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator reflects a mild bear market, while extreme valuation increases the long-term risk of a significant drawdown.

Acknowledgments

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ASX Swings to Bear

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the indicator on the right reflects stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high. Still, we advise investors to be circumspect about adding new positions without carefully investigating the underlying value.

Bull/Bear Market

The ASX Bull-Bear Market indicator retreated to 56%, from 66% last week, shifting to a mild bear market.

ASX Bull-Bear Market Indicator

The 3-month moving average of the NAB forward orders index fell below zero in September, signaling risk-off.

NAB Forward Orders & 3-Month MA

Four indicators from Australia and China now indicate risk-on, with a 60% weighting, while the US Bull/Bear indicator, with a 40% weighting, is unchanged.

Stock Pricing

ASX stock pricing eased slightly, to 89.75 percent, compared to a high of 92.23 percent in August and a low of 67.85 percent in April.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator has shifted to a mild bear market, while the extreme valuation increases the long-term risk of a significant drawdown.

Acknowledgments

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ASX Leading Indicator and Stock Pricing

Bull-Bear Market Indicator
Stock Market Pricing Indicator

The gauge on the left indicates bull or bear market status, while the indicator on the right reflects stock market valuation. Stock market pricing indicates whether stocks are cheap or expensive relative to earnings, but it is a poor indicator of market timing. We do not recommend selling stocks because the market valuation is high. Still, we advise investors to be circumspect about adding new positions without carefully investigating the underlying value.

Bull/Bear Market

The ASX Bull-Bear Market indicator remains at 66%, compared to 56% six weeks ago, signaling a mild bull market.

ASX Bull-Bear Market Indicator

Five indicators from Australia and China indicate risk-on, while the ASX 200 relative to Gold (in AUD) remains risk-off. The composite index includes a 40% weighting for the US Bull/Bear indicator, which is also unchanged.

The OECD Composite Leading Indicator for China remains at a low 99.36 points for September, largely unchanged from 99.35 in August. Readings below 99 signal risk-off.

China: OECD Leading Indicator

Stock Pricing

ASX stock pricing eased to 89.79 percent, compared to a high of 92.23 percent in August and a low of 67.85 percent in April.

ASX Stock Market Value Indicator

We use z-scores to measure each indicator’s current position relative to its history, with the result expressed in standard deviations from the mean. We then calculate an average for the five readings and convert that to a percentile. The higher that stock market pricing is relative to its historical mean, the greater the risk of a sharp drawdown.

Conclusion

The ASX bull-bear indicator signals a mild bull market. However, the extreme valuation increases the long-term risk of a significant drawdown.

Acknowledgments

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