Countries & Regions Archives - Page 114 of 381

June 14, 2016

Why BREXIT matters

Support for leaving the EU is strengthening, with phone and online surveys reporting a six-point lead, according to a pair of Guardian/ICM polls.

Leave now enjoys a 53%-47% advantage once “don’t knows” are excluded, according to research conducted over the weekend, compared with a 52%-48% split reported by ICM a fortnight ago.

….Prof John Curtice of Strathclyde University, who analyses available referendum polling data on his website whatukthinks.org, noted that after the ICM data, the running average “poll of polls” would stand at 52% for leave and 48% for remain, the first time leave has been in such a strong position.

If the UK votes to LEAVE, we can expect:

A sell-off of UK equities. GDP is expected to contract between 1% and 2%. A Footsie breach of support at 6000 would signal a test of 5500, while breach of 5500 would offer a target of 5000 (5500 – [ 6000 – 5500 ]).

FTSE 100

UK housing prices fall.
A sharp sell-off in UK banks in response to falling GDP, equities and housing — threatening contagion in financial markets.
BOE rate cuts to support the UK economy.
A sharp fall in the Pound due to uncertainty, lower interest rates and lower capital inflows.

GBPUSD

The Euro falls in sympathy, as confidence in the EU dwindles.
The US Dollar strengthens, causing the Fed to back off on further interest rate rises.
Volatility surges across all markets.
Gold spikes upward.

Hat tip to The Coppo Report

June 14, 2016

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

June 8, 2016

Gold strengthens as Dollar weakens

Long-term interest rates continue their decline, with 10-year Treasury yields testing support at 1.65 to 1.70 percent. Breach would signal a test of the all-time (July 2012) low of 1.40 percent.

10-year Treasury yields

Gold rallied in response, breaking initial resistance at $1250/ounce to signal a test of $1300.

Gold

The Chinese appear to have resumed selling foreign reserves to support the Yuan, with USDCNY running into resistance at 6.60. PBOC sale of reserves would weaken the Dollar, boosting demand for Gold. Failure to support the Yuan is unlikely, but would increase safe haven demand for Gold from Chinese investors.

USDCNY

The Dollar Index, representing predominantly the Euro and Yen crosses, fell sharply. Breach of support at 93 would confirm the primary down-trend earlier signaled by 13-week Momentum below zero.

Dollar Index

The Australian All Ordinaries Gold Index broke through 4500 to signal another advance, with the weakening Australian Dollar adding further impetus. Gaps between trough lows (orange line) and preceding highs (brown line) indicate strong buying pressure.

All Ordinaries Gold Index

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

June 1, 2016

China manufacturing remains under duress | Westpac

Elliot Clarke

From Elliot Clarke:

There was little new information in the headline China manufacturing PMI results for May other than confirmation that the sector remains under duress. The official NBS measure was unchanged at 50.1, while the Caixin PMI edged 0.2ppts lower to 49.2. Also released today, the official non-manufacturing PMI deteriorated from 53.5 to 53.1.

…..For manufacturing, both new order indexes deteriorated in May, to (a still expansionary 50.7) for the NBS survey and a (contractionary) 49.7 for the Caixin measure. This modest discrepancy corresponds to the greater external focus of the Caixin measure and the poor state of global demand. Export orders are falling according to Caixin respondents and are static amongst NBS’ survey participants.

Stocks of finished goods continue to contract, yet the absence of orders means that a pipeline of new work is struggling to build. On that basis, it seems unlikely that production will strengthen materially in the near term.

Currently production is best described as stagnant…..

Given the production and orders detail, it is unsurprising that employment continues to contract outright, at 48.2 and 46.3 respectively for the NBS and Caixin surveys.

Source: Westpac: China PMI update May 2016

May 26, 2016

Gold tanked? Not yet!

Gold broke below its recent flag formation, warning of a test of support at $1200/ounce.

Gold

Selling is driven by expectations of a Fed interest rate hike in June …..and recent Chinese stimulus which postponed Yuan devaluation against the Dollar. But expectations of a rate hike are causing a sell-off of the Chinese Yuan, with the USDCNY strengthening over the last few weeks.

USDCNY

…Which in turn will cause the Chinese to sell foreign reserves to support the Dollar peg (…..else devalue which would panic investors and cause a downward spiral). Sale of Dollar reserves by China would drive the Dollar lower.

Dollar Index

…and Gold higher. I remain bullish as long as support at $1200/ounce holds.

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

May 26, 2016

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.

May 25, 2016

Stock buybacks: Short-term gain, long-term pain

Companies are maintaining stock buybacks and dividends payouts despite falling earnings. Combined buybacks and dividend payouts for S&P 500 corporations exceeded earnings by an estimated $572 billion for 2015.

The chart below illustrates how stock buybacks, for S&P 500 stocks, have grown to exceed dividend payouts. The combined figure now exceeds earnings, leaving nothing for investment. The only way to make up the shortfall is to raise debt.

S&P 500 Stock Buybacks and Dividends compared to Earnings

Private nonresidential fixed investment (which excludes inventory increases) is declining as a percentage of GDP.

Fixed Investment

And corporate debt is rising relative to profits.

Nonfinancial Corporate Debt v Profits

But rising debt is not a recent development. Corporate debt has been growing since interest rates started to decline in the 1980s, doubling the corporate debt level as a percentage of GDP.

Nonfinancial Corporate Debt v 10-year Treasury Yields

Corporate profits have also grown dramatically, even when adjusted for inflation. But some of this increase is attributable to unsustainable low interest rates.

Corporate Profits in 2009 Dollars

And the more debt grows, the more unsustainable corporate profits become.

Corporate Profits / Debt

The graph above shows corporate profits as a percentage of corporate debt (excluding banks and other financial corporations). The lower the level, the greater the risk.

University of Massachusetts economics professor William Lazonick warned in 2014 that companies were forsaking new investment in favor of stock buybacks. His conclusion was that corporate executives are lining their own pockets:

“Corporate executives give several reasons …..But none of them has close to the explanatory power of this simple truth: Stock-based instruments make up the majority of their pay, and in the short term buybacks drive up stock prices.”

May 24, 2016

Death of America’s department stores

From Bob Bryan:

Old-school retail has been getting walloped lately…..

Torsten Sløk, chief international economist at Deutsche Bank, has one chart in his monthly chartbook that lays out a pretty straightforward reason for the decline. In the chart, Sløk presents the startling decrease in the amount of income Americans spend on clothing….

Source: HERE IT IS: One brutal chart shows death is imminent for America’s department stores | Business Insider

May 24, 2016

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.

May 22, 2016

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