Kevin Andrews and the challenges for Australian conservatism

By William Hill:

The Liberals …have to decide how to confront the anti-business, anti-immigration trend that is developing on their right flank.

John Howard was able to manage One Nation by moderating his criticism and by appearing to assuage some of their concerns. On the BBC Howard responded to a criticism of his refugee policy by arguing that the handling of the former helped to mitigate opposition to orderly migration.

Concerns are real and perceived but the economic insecurity confronting so many Australians and their children is a palpable thing. Some people voice their frustration by voting for a moderate protectionist such as Nick Xenophon and others hitch themselves to One Nation’s more assertive and aggressive style. The Liberals are in difficulty when so many of its natural voters are suspicious of capitalism and the importation of more and more people into the country.

……The supporters of Hanson, Xenophon, Lambie and Katter do not feel that the present arrangements in parliament are working for them and we should not rush to dismiss them. We should also give these voters the benefit of the doubt that they do not share the faults and naiveties of the people they have elected. Andrews advocates a more conciliatory approach when it comes to Hanson’s supporters:

“You have to listen to their concerns, the fact that a person votes for One Nation doesn’t mean that they are a racist, redneck, homophobic whatever. Some might be but usually there is an underlying concern about the direction of the country and the direction of the economy that’s motivating them.”

That underlying concern is nothing less than their fear for their economic wellbeing and that of the next generation. If the Liberal Party is going to defend free enterprise, free trade and immigration against protectionists and nationalists then it had better do as Howard did successfully and give the concerns of the latter fair hearing.

Source: Kevin Andrews and the challenges for Australian conservatism after Hanson – On Line Opinion – 21/9/2016

Australian banks rally

The ASX 200 is headed for another test of resistance at 5600. Bearish divergence on Twiggs Money Flow warns of selling pressure. Breakout above 5600 is unlikely and breach of the lower trend channel would warn of a test of primary support at 5000/5100.

ASX 200

* Target calculation: 5400 + ( 5400 – 5100 ) = 5700

The ASX 300 Banks Index formed a bullish higher trough above 7200 and is again testing resistance at 8000. Declining Twiggs Money Flow, however, warns of selling pressure. Respect of resistance remains likely. Breakout, however, would signal a primary up-trend.

ASX 300 Banks Index

Flattening yield curve & low bank interest margins

The Yield Differential, calculated by subtracting 3-month from 10-year Treasury Yields, is trending lower. This warns that the yield curve is flattening but we are still above the danger area below 1.0 percent.

Yield Differential: 10-Year minus 3-Month Yields

A flat yield curve squeezes bank interest margins and often precedes a credit contraction.

Large US Banks: Net Interest Margins

But there is little sign of slowing credit growth so far.

US Bank Loans & Leases: Annual Growth

The St Louis Fed Financial Stress Index (STLFSI) continues to indicate low market stress.

St Louis Fed Financial Stress Index

The STLFSI measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.

Dow selling pressure

The S&P 500 is retracing for a test of short-term support at 2150. Respect of the rising trendline would signal a test of 2200. Breakout above 2200 would complete an inverted scallop (or fish hook) with a target of 2400*. Declining Twiggs Money Flow, however, warns of selling pressure. Breach of 2050 would test medium-term support at 2100.

S&P 500 Index

* Target calculation: 2100 + ( 2100 – 1800 ) = 2400

The Dow Jones Industrial Average also displays a potential inverted scallop on the weekly chart. Follow-through above 18600 would confirm but bearish divergence on Twiggs Money Flow again warns of selling pressure. Tall shadows on the last two candles also suggest short-term selling pressure. Breach of support at 18000 would warn of a test of primary support at 17000.

Dow Jones Industrial Average

* Target medium-term: 18500 + ( 18500 – 18000 ) = 19000

India: Sensex spinning tops

India’s Sensex is consolidating below medium-term resistance at 29000. Spinning tops and dojis signal indecision. Breakout above 29000 is likely and would test the 2015 highs at 30000. Expect strong resistance at 30000. Penetration of the lower trend channel would warn of a correction.

SENSEX

Gold respects support

10-Year Treasury yields are retracing to test the recent support level at 1.60 percent but the trend remains upward.

10-Year Treasury Yields

The Chinese Yuan is easing against the US Dollar, with USDCNY in a gradual up-trend as the PBOC manages the decline in order to conserve foreign reserves. This is likely to alleviate immediate selling pressure on the Yuan, both from capital flight and borrowers covering on Dollar-denominated loans.

USDCNY

Spot gold respected support at $1300/ounce. Breakout above the falling wedge (and resistance at $1350) would signal another advance.

Spot Gold

* Target calculation: 1375 + ( 1375 – 1300 ) = 1450

Rising interest rates and low inflation are bearish for gold but uncertainty over US elections, Europe/Brexit, and the path of the Chinese economy contribute to bullish sentiment.

Gold stocks serve as a useful counter-balance to growth stocks in a portfolio. If there are positive outcomes and a return to economic stability, growth stocks will do well and gold is likely to underperform. If there is instability and growth stocks do poorly, gold stocks are likely to outperform.

UK: Footsie rallies

The Footsie rebounded after a short retracement — a bullish sign. Expect strong resistance at 7000/7100 but completion of another trough on Twiggs Money Flow, high above zero, would signal strong buying pressure.

FTSE 100

* Target calculation: 6500 + ( 6500 – 5900 ) = 7100

DAX bear trap

Germany’s DAX recovered above the former support level of 10500, confirming the primary up-trend. A Twiggs Money Flow trough above zero would signal long-term buying pressure. Follow-through above 10800 would complete a bear trap — a bullish signal with a target of 11500*.

DAX

* Target calculation: 10500 + ( 10500 – 9500 ) = 11500

TPG shares drop more than 20 per cent on disappointing forecast

From Lucy Battersby:

The market has fallen out of love with telco company TPG….

The cut-price telco beat guidance by just $300,000 when it has a history of beating guidance by tens of millions of dollars.

It has also forecast earnings growth of 7 per cent this year, the lowest growth forecast in seven years.The reasons for the soft result include plans for more capital expenditure than usual, its future profit margins are likely to be squeezed on the NBN, and there are few obvious acquisitions left after swallowing up iiNet and AAPT in recent years…..

Source: TPG shares drop more than 20 per cent on disappointing forecast

Warning sign of China bank crisis | Business Insider

From Engen Tham, Reuters:

Excessive credit growth in China is signaling an increasing risk of a banking crisis in the next three years, a report from the Bank for International Settlements says.

The credit-to-gross-domestic-product gap, an early warning of financial overheating, hit 30.1 in China in the first quarter of this year, the financial watchdog said in a review of international banking and financial markets published Sunday.

Any level above 10 signals a crisis “occurs in any of the three years ahead,” the BIS said. China’s indicator is way above the second-highest level of 12.1 for Canada and the highest of the countries assessed by the BIS….

From the BIS:

The credit-to-GDP gap captures the build-up of excessive credit in a reduced-form fashion. It is defined as the difference between the credit-to-GDP ratio and its long-run trend, and it has been found to be a useful early warning indicator of financial crises.

In the BIS Table of credit-to-GDP gaps, Hong Kong was second highest at 18.1. Chile (15.7), Singapore (14.8), Thailand (14.5), Saudi Arabia (14.0) and Belgium (12.2) are higher than Canada (12.1). Australia (4.5), USA (-9.9) and UK (-27.0) are far lower. In fact, UK looks like a credit contraction.

Source: Credit-to-GDP warning sign of bank crisis China – Business Insider