Australia & NZ Archives - Page 63 of 95

April 23, 2013

Nikkei and ASX 200 rally, while China & Europe weaken

Respect of support at 1540 and the bottom trend channel indicates a S&P 500 rally to test 1600 and the upper channel line. Failure to break resistance at 1600 would warn of a correction as signaled by mild bearish divergence on 21-day Twiggs Money Flow.

S&P 500 Index

* Target calculation: 1350 + ( 1350 – 1100 ) = 1600

The FTSE 100 also respected support, at 6220, but a tall shadow on Monday warns of selling pressure. Reversal of 21-day Twiggs Money Flow below zero would strengthen the signal and breach of support (6220) would signal a test of the primary trendline at 6000.
FTSE 100 Index

* Target calculation: 6220 – ( 6420 – 6220 ) = 6020

Germany’s DAX broke medium-term support at 7500. A 21-day Twiggs Money Flow peak at zero warns of selling pressure. Follow-through below 7400 would signal a test of primary support at 7000. Recovery above 7600 is unlikely, but would test the descending trendline at 7700.
DAX Index

* Target calculation: 7500 – ( 8000 – 7500 ) = 7000

India’s Sensex broke resistance at 19000. Respect of support at 18000 and the rising trendline indicates the primary trend is intact. Mild bullish divergence on 21-day Twiggs Money Flow signals buying pressure. Expect consolidation or short retracement, but follow-through above the descending trendline at 19200 would indicate an advance to 20000.
BSE Sensex Index

* Target calculation: 19000 + ( 19000 – 18000 ) = 20000

China’s Shanghai Composite is testing medium-term resistance at 2250. Breakout would penetrate the descending trendline, indicating the correction is over.
Shanghai Composite Index
Unfortunately the Dow Jones Shanghai Index respected the descending trendline Tuesday, indicating another down-swing to the lower trend channel.
DJ Shanghai Index

Japan’s Nikkei 225 is the star performer, when measured in Yen. Sharp rallies, with frequent gaps, followed by short retracements indicates a strong up-trend. As does 21-day Twiggs Money Flow oscillating clear above the zero line.
Nikkei 225 Index

The ASX 200 met some resistance at 5020, but rising 21-day Twiggs Money Flow indicates buying pressure and breakout would signal a test of 5150.
ASX 200 Index

* Target calculation: 5025 + ( 5025 – 4900 ) = 5150

April 21, 2013

Forex: Euro finds support while Sterling, Aussie and Loonie fall

The euro respected primary support at $1.26 on the monthly chart. Follow-through above $1.32 would indicate another test of $1.37, while breakout above $1.37 would signal a primary advance to $1.50. A trough above zero on 13-week Twiggs Momentum would reinforce this. Reversal below $1.26, however, would signal a down-swing to $1.20.

Euro/USD

* Target calculation: 1.35 + ( 1.35 – 1.20 ) = 1.50

Pound sterling respected resistance at $1.53 against the dollar, confirming a down-swing to $1.43*. Declining 13-week Twiggs Momentum, below its 2011 lows, strengthens the signal.

Sterling/USD

* Target calculation: 1.53 – ( 1.63 – 1.53 ) = 1.43

The Aussie Dollar fell sharply, headed or a test of primary support at $1.015. Narrow fluctuation of 63-day Twiggs Momentum around zero suggests a ranging market. Respect of support would suggest another rally to test $1.06.

Aussie Dollar/USD

Canada’s Loonie respected resistance at $0.99 against the greenback. The primary trend is down and breakout below $0.97 would indicate another decline, while breach of $0.96 would strengthen the signal. Respect of $0.96, however, would suggest an advance back to the 2012 high of $1.03; strengthened if resistance at $0.99 is broken.

Canadian Dollar/USD

The greenback is testing resistance at ¥100 against the Japanese Yen. The 30-year down-trend of the dollar is over. Breakout above ¥100 is likely, after brief consolidation/retracement, and would suggest an advance to the 2007 high at ¥125*.

USD/JPY

* Target calculation: 100 – ( 100 – 75 ) = 125

The Fed, ECB and BOJ are all printing money and debasing their currencies. It is a case of which boat is sinking the fastest, and the US dollar, although taking on water, being viewed as relatively safe. The fall of gold reveals the market view that the Fed is likely to tail off quantitative easing in the next 6 to 12 months.

April 15, 2013

ASX 200: Correction continues

The ASX 200 opened sharply lower following a steep fall on US markets overnight. Respect of resistance at the 5000 level confirms the correction signaled earlier. A 21-day Twiggs Money Flow peak below zero would warn of strong selling pressure.
ASX 200 Index

The ASX 50 monthly chart shows that even correction back to 4500 would not disrupt the primary up-trend and may present a buying opportunity for investors. Breach of support at 5000 would confirm the correction, but a trough above zero on 13-week Twiggs Money flow (and above 4500 on the index) would signal the primary trend is intact.
ASX 50 Index

April 11, 2013

Time to clean up the Banks

Gabriele Steinhauser at WSJ writes:

A group of key crisis managers believes cleaning up weak banks is the only way to get Europe’s economy to grow again, after superlow interest rates and large-scale liquidity injections from the ECB have failed to produce the desired results. These officials see continued doubts over the health of many lenders as the main reason banks are reluctant to lend to companies, especially in the continent’s weaker countries.

“We’ve been stuck in this rubbish for five years, because we’ve been doing everything to prevent the banks from being recapitalized properly and the stress tests from being stringent enough,” said a senior EU official. “If we don’t do this, we will stay in this trap until 2020.”

The time has come to clear up the mess from the GFC and strengthen bank balance sheets — not only in Europe — so that a similar financial crisis is unlikely to ever happen again. Moves are also afoot in the US where Senators Sherrod Brown (D-Ohio) and David Vitter (R-La.) are working on a bipartisan bill to end too-big-to-fail banks. The bill does not attempt to break up big banks but focuses on improving bank capital ratios. Risk-weighted capital ratios as suggested by Basel III disguise banks’ true leverage and encourage risk-taking. Australian banks are particularly exposed to low risk-weighting of residential mortgages. Eliminating risk-weighting would force banks to strengthen their underlying capital base and discourage risk concentration in low risk-weighted areas.

The biggest obstacle to change, however, is the banks who benefit from an implicit taxpayer-funded guarantee in the event of failure. Being able to rely on a bailout enables them them to take bigger bets than their balance sheets would otherwise allow. Columbia University’s Charles Calomiris points out that the banks are able to get away with this because they are supported by populist democratic governments who trade off banking instability in return for political (and financial) support.

April 7, 2013

Australia: Unsuspecting super investors are being sold a pup

David Potts at the Sydney Morning Herald writes:

Retirees with far less than $2 million in superannuation face extra tax bills…… the new tax will apply to all earnings above $100,000 a year from 2014, no matter the size of the nest egg.

The tax net is far broader than the 16,000, or 0.4 percent of retirees, mentioned in the recent announcement. Treasury estimates cited are based on a projected 5 per cent rate of return on investment and ignore the fact that returns can fluctuate widely, from 30% in a good year to -30% in a really bad year. Super funds with as little as $200,000 or $300,000 are affected if they earn more than $100,000 in any given year.

The problem is further exacerbated by capital gains, especially for self-managed funds that are not widely diversified. If a super fund sells a property or large block of shares, the asset may have been held for many years but the entire capital gain is recognized in the year in which the asset is sold. Despite some phase-in concessions, lumpy capital gains could lift a retiree over the $100,000 income threshold.

This is a deliberate tax grab that affects ordinary Australians while being sold to them under the smokescreen of “taxing the rich”.

Hat tip to Ody for bringing this to my attention on Incredible Charts forum.

April 7, 2013

Lessons for Australian banks: Why Risk Managers Should Be Spymasters | ProPublica

Jesse Eisinger’s interview with risk specialist John Breit highlights an issue facing Australian banks. Residential mortgages are allocated a low risk weighting — 15% to 17% because of historic performance — compared to 50% for US banks. The big four banks piled into this area because of the perceived low risk, leveraging up to 50 times capital. Risk-weighted capital ratios (around 10%) still appear healthy, but they conceal a hidden danger from the resulting housing bubble.

[Breit] despises the concept of “risk-weighted assets,” where banks put up capital based on the perceived riskiness of the assets. Inevitably, he argues, banks will “pile into” the same types of supposedly safe investments, creating bubbles that make the risks far more severe than the initial perceptions. Paradoxically, risk-weighting can leave banks setting aside the least capital to cover the biggest dangers.

“I could not be more disappointed,” he said. “The cynic in me thinks this is all in the interests of senior management and regulators to avoid blame. They may not think they can prevent the next crisis, but they then can blame the statistics.”

April 4, 2013

ASX 200 warns of correction

The ASX 200 broke medium-term support at 4950, signaling the start of a correction for Australian stocks. Reversal of 21-day Twiggs Money Flow below zero confirms medium-term selling pressure.
ASX 200 Index
Initial target for a correction is the rising trendline around 4700. Even correction back to 4500 does not disrupt the primary up-trend and would present buying opportunities for investors.

* Target calculation: 5000 + ( 5000 – 4500 ) = 5500

April 1, 2013

Has Australia hit the floor with interest rates?

Izabella Kaminska made a strong argument on FT Alphaville last year for the RBA to lower interest rates and weaken the Australian Dollar to protect manufacturing and export industries:

Australia’s current account deficit coupled with a deeply negative net external debt position both provide strong fundamental impetus for currency weakening. Should the RBA want to engineer currency depreciation, lower interest rates are likely to be more than enough. Indeed, even if interest rates decline only gradually to reflect a structurally slowing economy there are plenty of fundamental reasons for the Australian dollar to weaken.

The case for lower interest rates still holds true but the RBA is obviously concerned by signs of recovery in housing prices that could exacerbate the existing property bubble. Robert Gottliebsen at Business Spectator reports:

In less than three months the market price of a bottom of the range Meriton inner-Sydney apartment has risen 6 per cent from about $500,000 to around $530,000……According to Meriton’s Harry Triguboff, local buyers have jumped from 15 to 40 per cent of the market.

There is a solution. The RBA can lower interest rates provided it simultaneously introduces macroprudential steps similar to those being considered by the RBNZ: increase the amount of capital banks must set aside to cover potential losses from high loan to valuation ratio (LVR) home loans. That would make high LVR loans more expensive and discourage property speculation, taking some of the heat out of the housing market.

March 31, 2013

Mongolia needs better roads, schools and hospitals: so why all this talk about saving for the future? | Making development work for all

Australia could also learn from the Chilean experience of resources boom-bust cycles and adopt similar policies to those being considered by Mongolia. Gregory Smith explains:

Eric Parrado, former head of the Chilean ‘Economic and Social Stabilization Fund’, tells us that “if natural resource booms are well managed they can be a blessing” and that “an important general lesson is that governments should avoid temptation to spend significant temporary surpluses”.