Spurred by a favorable result in the first round of French elections, Dow Jones Euro Stoxx 50 broke resistance at 3500 and is likely to test the 2015 high of 3800. Rising troughs on Twiggs Money Flow indicate strong buying pressure.
Dow Jones Euro Stoxx 50 represents 50 of the largest, mainly industrial, stocks in the Euro monetary area.
Pound Sterling is strengthening against the US Dollar as well as the Euro (mentioned last week). Recovery of the Pound above 1.27 (GBPUSD) completes a triple bottom, suggesting that a base is forming. Crossover of 13-week Momentum above zero indicates a primary up-trend.
Breakout above 1.20 against the Euro (GBPEUR) would strengthen the signal.
The FTSE 100 continues to test support at 7100. Declining Twiggs Money Flow indicates medium-term selling pressure. A rising Pound is likely to result in a Footsie test of primary support at 6700.
The Dollar Index broke support at 100 despite strengthening interest rates, warning of a down-trend. Target for a decline would be the May 2016 low of 93.
China has burned through a trillion dollars of foreign reserves in the last 3 years, attempting to support the yuan. I believe the sell-off is unlikely to abate and plays a major part in the Dollar’s weakness.
A falling Dollar would strengthen demand for gold. Spot Gold is retracing from resistance at $1300/ounce and is likely to find support at $1240/$1250. Respect of support would suggest another advance; confirmed if gold breaks $1300.
Spot Silver displays a more bearish medium-term outlook, however, with a stronger correction testing support at $17.00/ounce. Breach of support would test the primary level at $15.65 and warn of further gold weakness.
From Myriam Robin at the Sydney Morning Herald:
The yield differential between 10-year US and Australian government bonds has shrunk to less than 30 basis points, the tightest in about 15 years, as the US engages in monetary tightening while the RBA appears set to keep rates steady at 1.5 per cent.
….This should be a serious concern for Australian policymakers, TD Securities’ chief Asia-Pacific macro strategist Annette Beacher told The Australian Financial Review, as many foreign investors are primarily attracted to the high-yield status of the local currency.
The Aussie Dollar has attracted investors over the last decade primarily because good fortune in avoiding a post-GFC recession enhanced Australia’s reputation as a stable economy. But the Aussie is still a commodity currency prone to boom-bust cycles. Dodging the 2008/2009 bullet was more a matter of luck than of skillful management of the economy. Without China’s massive post-GFC stimulus the Australian economy would have been smashed — along with the housing bubble — and the big four banks would have gone to the wall (or more likely been rescued by a government bailout). And the Aussie would be trading close to 50 cents, which ironically, despite the massive shock, may have put the economy in a stronger (and more realistic) position than it is today.
Source: ‘Be careful what you wish for’: RBA could cause Aussie rout
Dow Jones Euro Stoxx 50, reflecting the top 50 stocks in the Euro monetary area, appears unfazed by the upcoming French elections. The index has undergone a shallow retracement over the last 3 weeks, while rising Twiggs Money Flow indicates long-term buying pressure.
Polls have proved notoriously unreliable in the last year and I will not venture to comment on the election outcome. But breakout above 3500 is likely if Le Pen fails in her bid and would signal another advance.
Pound Sterling strengthened this week on news of an early election. Despite Brexit fears the Cable, as it is commonly referred to by traders, has been strengthening for several months. Crossover of 13-week Momentum above zero suggests a primary up-trend. Breakout above 1.20 against the Euro would confirm the signal.
The FTSE 100 retreated from resistance at 7400. Rising troughs on Twiggs Money Flow indicate long-term buying pressure but reversal below 7100 would warn of a correction.
* Target: 7400 + ( 7400 – 6700 ) = 8100
Iron ore found support at $60.
The ASX 300 Metals & Mining Index has taken some encouragement from the rally, with support at 2850. But bear rallies are normally short in duration and reverse sharply.
The ASX 200 advance has slowed after the recent sell-off in the resources sector. But rising Twiggs Money Flow still signals buying pressure and another attempt at 6000 seems likely.
* Target medium-term: 5800 + ( 5800 – 5600 ) = 6000
ASX 300 Banks, the largest sector in the broad index, is consolidating above its new support level at 9000. Declining Twiggs Money Flow warns of medium-term selling pressure. Reversal below 8900 is unlikely but would warn of a correction.
Bank exposure to residential mortgages is the Achilles heel of the Australian economy and APRA is likely to keep the pressure on banks to raise lending standards and increase capital reserves, which would lower return on equity.
Shanghai’s Composite Index is experiencing selling pressure, with Twiggs Money Flow crossing below zero for the first time since 2014. Reversal below 3100 would warn of a primary down-trend.
* Target medium-term: May 2016 low of 2800
India’s Sensex is consolidating in a bullish narrow band below major resistance at 30000. Rising Twiggs Money Flow indicates medium-term buying pressure. Breakout is likely and would offer a target of 32000*.
* Target medium-term: 29000 + ( 29000 – 26000 ) = 32000
From Michael Pascoe:
A Caterpillar and Komatsu cavalry is arriving just in time to save the next two federal budgets from the effects of slowing residential building approvals, solving one of Treasurer Scott Morrison’s fiscal dilemmas. National spending on transport infrastructure is in the process of soaring 73 per cent from last financial year to 2018-19, according to industry research company Macromonitor.
Spending on road and rail hit a cyclical low of about $19 billion in 2015-16. In constant dollars, the cycle is expected to peak at $33 billion in 2018-19. That spending would more than cover a 10 per cent decline from last year’s $63 billion worth of new residential building….
Increased infrastructure spending is welcome but former RBA governor’s comments on setting up a proper process of infrastructure planning and selection [see link below] highlight the negative boom-bust mentality of government focused on the election cycle.
Source: Federal budget 2017: The next boom is under way – before another bust
From Latika Bourke at Sydney Morning Herald:
Australian economy to boom as unemployment drops, IMF
…The IMF predicts Australia’s economy will grow by 3.1 per cent in 2017 and 3 per cent in 2018. This is better than the most recent forecast by the Australian Treasury and released by the Australian government in December last year, which predicted GDP would “pick up to 2¾ per cent in 2017-18 as the detraction from mining investment eases.”
Broad projections like those of the IMF offer little comfort. The very next headline warns of falling iron ore prices:
From Timothy Moore at The Age:
Spot iron ore extends retreat, sliding another 4.6pc
The spot price of iron ore now has fallen one-third from its February peak, as the slide into a bear market turns into an accelerating rout.
At its Tuesday fix, ore with 62 per cent iron content slid $US3.05, or 4.6 per cent, to $US63.20 a tonne, according to Metal Bulletin. The price has tumbled more than 20 per cent so far this month….
Breach of the rising trendline warns that spot iron ore is likely to test primary support at 50. Reversal of 13-week Twiggs Momentum below zero warns of a primary down-trend.
Falling resources stocks are dragging the ASX 200 lower. The up-trend is still intact but expect strong resistance at 6000. Reversal below 5680 would signal reversal to a down-trend.
