Spot iron ore prices have fallen quite sharply over the last 2 weeks, down 8% to $158/t. In the last 4 weeks, Australian spot fines, as measured by the TSI, are down almost 12% landed in China.
Westpac forecast spot prices of around US$140/t by mid 2012.
Ms Luci Ellis, RBA Head of the Financial Stability Department:
Indeed, credit booms are very often part of the story in the lead-up to a period of financial instability. We published that assessment in the March and September Reviews. In the wake of that, we have sometimes been asked: how fast is too fast? Do we have a target for credit growth? Or for the ratio of credit to GDP? Or, perhaps, for housing and other asset prices? I can tell you quite plainly that we do not have numerical targets for any of these things. A target for credit growth, or any of these other variables, is not analogous to the RBA’s inflation target……….The distinction is simply that price stability is about inflation. So it can be defined as keeping inflation at an acceptably low rate. Financial stability is harder to define, but in essence it is about avoiding episodes when the financial system significantly harms the real economy.
My interpretation of this series of statements is that a fundamental flaw is at the heart of the RBA’s view of financial stability management. The RBA has specific targets for inflation and that is the single price (including assets) stability tool but has no targets or model parameters to govern financial stability. A big mistake not just of policy but market knowledge
via The Platypus blues – macrobusiness.com.au | macrobusiness.com.au.
Alarm bells should ring if household debt starts growing at 8pc to 10pc a year.
The euro is headed for a test of $1.40 against the greenback, on the hope that European banks will be re-capitalized after taking a haircut on the PIIGS bonds. There still appears to be some confusion — I suspect deliberate — as to who will pay, with German Finance Minister Wolfgang Schaeuble suggesting that banks first attempt to raise money from investors. Given the current state of financial markets, private investment will be scarce and European taxpayers are likely to end up with sizable stakes in a number of banks. Expect resistance at $1.40 to be followed by another test of support at $1.30*.
* Target calculation: 1.40 – ( 1.50 – 1.40 ) = 1.30
The pound is similarly headed for resistance at $1.60. Respect would signal another test of $1.53.
* Target calculation: 1.53 – ( 1.60 – 1.53 ) = 1.46
Canada’s Loonie and the Aussie dollar both benefited from a surge in commodity prices. Expect the CADUSD to find resistance at parity, followed by another test of support at $0.94.
* Target calculation: 1.00 – ( 1.06 – 1.00 ) = 0.94
The Aussie will find resistance between $1.02 and the descending trendline. Respect is likely and would indicate another test of $0.94.
* Target calculation: 1.02 – ( 1.10 – 1.02 ) = 0.94
The Aussie has formed a broad double bottom against its Kiwi counterpart. AUDNZD breakout above $1.28 would signal a primary advance to $1.32*.
* Target calculation: 1.28 + ( 1.28 – 1.24 ) = 1.32
Support is holding firm on the dollar-yen cross — with assistance no doubt from the BOJ. Expect a narrow range between 76 and 78.
The South African rand is testing support at R7.70 against the greenback, after penetrating its rising trendline. Probably because of all the visitors returning early from the Rugby World Cup. 🙂 Apparently they have invited the referee to run a series of clinics in South Africa on his novel interpretation of the forward-pass rule. I suggest that he decline — it could get violent. Failure of support would offer a target of R7.00*
* Target calculation: 7.70 – ( 8.40 – 7.70 ) = 7.00
Dow Jones Industrial Average broke its declining trendline Monday, surging strongly, but light volume indicates hesitancy on the part of buyers.
* Target calculation: 11000 – ( 12000 – 11000 ) = 10000
Asian stocks reacted with enthusiasm but Shanghai, after gapping up at the open, fell sharply, giving up most of its gains. The ASX 200 response was muted, with a narrow range and low volume indicating hesitancy from buyers. Reversal below Monday’s low of 4150 would signal another test of 3850. Failure of support would offer a target of 3600*.
* Target calculation: 3900 – ( 4200 – 3900 ) = 3600
The NZX 50 Index broke through resistance at 3350 to signal an advance to 3450, with a long-term target of the 2011 high. 13-Week Twiggs Money Flow above zero indicates buying pressure.
* Target calculation: 3350 + ( 3350 – 3100 ) = 3600
The ASX 200 index is testing its upper trend channel. Low volume is typical for a Monday — before US and European markets open for the week — but the low range indicates caution on the part of buyers. Reversal below 4100 would indicate a down-swing to the lower trend channel, while follow-through above 4200 would suggest a bear market rally to 4500. The primary trend remains down, however, and reversal below 4000 would warn of a decline to 3500*.
* Target calculation: 4000 – ( 4500 – 4000 ) = 3500
I don’t wish to be too alarming. These are stress tests and scenarios not yet reality. But, there is logic in the thought that we currently face the possibility of the final two scenarios happening simultaneously. That is, a Western recession triggered by European and US austerity (not to mention financial tumult) and a Chinese real estate pop.
via IMF stress tests China/Australia bust – macrobusiness.com.au | macrobusiness.com.au.
Australia’s ASX 200 index rallied strongly Thursday and is headed for a test of the upper trend channel. 63-day Momentum declining below zero reminds that we are in a strong primary down-trend. Respect of the upper channel would warn of another decline — to test the lower channel border.
* Target calculation: 4000 – ( 4500 – 4000 ) = 3500
We are experiencing exceptional volatility at present and risk of false signals is high. It is important in such situations to look for strong confirmation. One step is to wait for signals on the weekly chart to confirm those on the daily chart. As you can see, this bear market is a long way from over.
Apologies. I messed up the links at the bottom of the Trading Diary newsletter. For the correct link click here. Correct links are also available on the Trading Diary web page and under Recent Posts in the right margin of this page.
The Aussie dollar found support between $1.23 and $1.24 against its Kiwi counterpart. The trend channel has weakened and AUDNZD is now likely to range between $1.24 and $1.28. The primary trend remains down, however, and failure of support would offer a target of $1.20*.
* Target calculation: 1.24 – ( 1.28 – 1.24 ) = 1.20
Apologies. I messed up the links at the bottom of the Trading Diary newsletter. For the correct link click here. Correct links are also available on the Trading Diary web page and under Recent Posts in the right margin of this page.
Falling commodity prices have started a primary down-trend on both the Australian and Canadian dollar. The Aussie rallied off support at its target of $0.94, but respect of the (secondary) declining trendline would warn of further losses.
* Target calculation: 1.02 – ( 1.10 – 1.02 ) = 0.94
The Loonie also bounced of $0.94 and is testing the first line of resistance at $0.9650. Respect would again warn of further losses.
* Target calculation: 1.00 – ( 1.06 – 1.00 ) = 0.94
