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 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:
We all know “sell in May and go away” but why do Australian investors mimic their Northern counterparts when they are headed into Winter, not Summer holidays?
Apart from the influence of large Northern hemisphere indexes on smaller Southern hemisphere markets, we should also consider that the financial year for Australians ends on 30 June. Institutions tend to window-dress their balance sheets before the year-end by selling off non-performers and building a strong cash holding for new acquisitions. Private investors are also motivated to realize tax losses before the year-end.
Bell Potter’s Coppo Report observes:
“I have looked at tax loss selling over the years & it actually begins earlier than most realise – around now. It usually goes for 4 weeks until the 3 week of June & then some stocks start to recover.”
Only 35% of ASX 200 stocks are lower but these tend to be the heavyweights, with Coppo pointing out they represent 56% of market capitalization. At an average annual loss of -15%, they offer plenty of motivation for tax loss selling.
Gold is now in the fourth week of a flag formation and is testing support at $1250/ounce. The best flag signals are in weeks 3 or 4. With no immediate prospect of a breakout, this raises the question: is gold losing momentum?
Increased likelihood of a Fed interest rate hike has certainly taken some wind from the sails …..as has recent Chinese stimulus which at least postponed (but not averted) Yuan devaluation against the Dollar. While this affected short to medium-term prospects, factors driving long-term demand for gold are unaltered. From a technical view, narrow candle ranges over the last 4 days suggest increased buying at the $1250 support level. And breakout above the flag remains a buy signal ……at least into the fifth week.
Silver experienced a much sharper sell-off, but on the weekly chart still looks likely to respect support at $16.00/ounce. Respect would suggest another test of resistance at $18.00 to $18.50.
On the weekly chart gold remains on track for a test of $1300/ounce. For as long as support at $1200 holds, we retain our bullish view on gold.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
With the added incentive of a weakening Aussie Dollar, Australian gold stocks, represented here by the All Ords Gold Index (XGD), remain in a strong primary up-trend. A 13-week Twiggs Money Flow trough above zero and breakout above the recent trend channel are both bullish signs.
Disclosure: Our Australian managed portfolios are invested in gold stocks.
From The AFR:
Macquarie Bank is planning to hit the brakes on lending to high rise and high density apartment dwellings in up to 120 postcodes around the nation amid growing fears about falling demand and oversupply. A confidential memo from the bank to brokers announces that from May 23 it will require a maximum loan to value ratio of 70 per cent, which means buyers will have to stump-up another 10 per cent deposit…
Leith van Onselen:
Macquarie’s latest actions, of course, also follows curbs by other major lenders aimed at mitigating exposure to high-rise developments, including:
- tightening of lending criteria….
- increased mortgage rates for investors; and
- refusing to lend to overseas buyers…..
Every tightening of criteria by Australia’s mortgage lenders represents another nail in the high-rise apartment boom’s coffin.
Source: Macquarie joins high-rise lending crack-down – MacroBusiness
From Malcolm Maiden:
The Internet of Things is “billions of connected devices from vending machines to mining equipment, aircraft engines and their componentry, agricultural sensors and cars,” [Andy] Penn said in his first keynote speech as Telstra CEO in July last year.
It both offers opportunities and poses threats. Penn mentioned in his first speech for example that a Committee for Economic Development of Australia report on Australia’s future workforce had estimated that almost 40 per cent of the jobs that exist in Australia had a moderate to high likelihood of disappearing in the next 10 to 15 years.
“Machine learning is the biggest driver of this because of its implications for the service industry,” he said. “In future, many traditional services type activities will be done by computers more quickly, more cheaply and more accurately.
“New jobs will be created by the Internet of Things, too of course. We just don’t know yet exactly where they will be…..”
Source: The Internet of Things: it’s arrived and it’s eyeing your job
From Michael Janda:
Wage growth has hit a fresh record low, with workers’ pay rising just 0.4 per cent last quarter and 2.1 per cent over the past year. The latest seasonally adjusted Bureau of Statistics Wage Price Index is growing at the lowest level since the data began in the September quarter of 1998. The weakness in pay rises is particularly evident in the private sector, where wages edged just 1.9 per cent higher over the year to the end of March….
Says a lot for the state of the economy when compared to US wage growth which has recovered to close to 2.5pc a year:
Source: Wage growth hits fresh lows, ABS index shows – ABC News (Australian Broadcasting Corporation)
From Andy Semple at Andika:
The iron ore price has slumped to a one-month low as investors fret over the strength of Chinese demand. The commodity weakened 1.7% to $US53.50 a tonne at the end of last week, its lowest price since April 11. It’s the commodity’s seventh red session in the past eight and the price has now dropped to below the [Australian] government’s recent budget forecast of $US55 a tonne.
