ASX 200: Banks weigh on the index

The ASX 200 encountered resistance at 5300 and is likely to test support at 4900/5000, with breach of the lower trend channel and declining 13-week Money Flow warning of selling pressure. Breach of support at the recent low of 5050 would confirm.

ASX 200

The Banks are weighing on the index, with APRA warning of further capital increases and concerns over a slowing housing market, particularly apartments. The ASX 300 Banks Index is testing primary support at 7200. Breach would offer a target of 6400*. Weakness in this sector is likely to affect the entire market.

ASX 300 Banks

* Target calculation: 7200 – ( 8000 – 7200 ) = 6400

How Hanson should frame the immigration debate | MacroBusiness

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

Don’t blame demographics, blame the government

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.

Who is/isn’t buying Australian stocks?

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.

Foreign Investors in ASX

Super fund investors have lost their enthusiasm for bank deposits, as interest rates tumble, and are allocating more to equities.

Super Fund Investors

Hope isn’t a strategy

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).

S&P 500 Index

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.

Dow Jones Industrial Average

A CBOE Volatility Index (VIX) spiked to 20, indicating increased market risk. Long-term measures remain unaffected.

S&P 500 VIX

Europe

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.

DAX

The Footsie broke support at 6000 warning of a test of 5500. Reversal of Money Flow below zero would suggest a primary down-trend.

FTSE 100

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

Asia

The Shanghai Composite Index continues to range between 2700 and 3100.

Shanghai Composite Index

Japan’s Nikkei 225 Index broke support at 16000 and its lower trend channel, warning of another decline.

Nikkei 225 Index

* 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.

SENSEX

Australia

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.

ASX 200

The Banks Index fell sharply and breach of support at 7200 would offer a target of 6400*.

ASX 300 Banks

* 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.

ASX 200 Health Care

Gold surges on BREXIT fears

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.

10-year Treasury yields

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*.

Gold

* 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.

USDCNY

Disclosure: Our Australian managed portfolios are invested in gold stocks.

BREXIT: Stocks to watch

From Bell Potter:
Australian stocks with more than 80% of revenue derived from UK/Europe:

  • Macquarie Atlas Roads
  • Hendersons

HGG

  • Ansell
  • Amcor

AMC

Stocks with 40% to 50% of revenue derived from UK/Europe:

  • Cochlear
  • CSL

Stocks with 30% to 40% of revenue derived from UK/Europe:

  • Resmed
  • Brambles

Why Aussies sell in May

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 it flagging?

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?

Gold

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.

Silver

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.

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.

All Ords Gold Index (XGD)

Disclosure: Our Australian managed portfolios are invested in gold stocks.

The high-rise boom is over

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