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Dow Jones Euro Stoxx 50 appears unruffled by Donald Trump’s visit and withdrawal from the Paris Accord, consolidating above support at 3500. Respect is likely and would signal a further advance to the 2015 high at 3800*.
* Target calculation: 3650 + ( 3650 – 3500 ) = 3800
An unintended consequence of Trump’s failure to re-affirm NATO’s Article V, may be that European states learn to rely less on an external party and draw closer together to support each other.
Sterling continues to test primary support at 1.140 Euro. Breach would signal a decline to the 2016 low at 1.100.
The FTSE 100 advance stalled, signaled by a doji on the weekly chart, with bearish divergence on Twiggs Money Flow indicating medium-term selling pressure. Retracement that respects support at 7400 would re-affirm the target of 7700*.
* Target: 7400 + ( 7400 – 7100 ) = 7700
India’s Sensex continues to advance, breaking resistance at 31000. Rising Twiggs Money Flow indicates long-term buying pressure. Target for the advance is 32000* but expect retracement to first test the new support level.
* Target: 29000 + ( 29000 – 26000 ) = 32000
The Shanghai Composite Index retraced to test support at 3100. The decline on Twiggs Money Flow indicates long-term selling pressure. Reversal below 3000 would confirm a primary down-trend.
* Target medium-term: May 2016 low of 2800
Iron ore is falling.
And the broader DJ-UBS Commodity Index is testing support at 82. Breach would signal a decline to test the 2015 low at 74.
But the Aussie Dollar rallied Friday, the large engulfing candle suggesting another test of resistance at 75 US cents.
Miners finished strongly, with the ASX 300 Metals & Mining index reflecting short-term buying pressure. 13-Week Twiggs Money Flow recovered above zero.
The ASX 200 is testing resistance at 5800. A 21-day Twiggs Money Flow trough above zero indicates medium-term buying pressure. Breakout above 5800 is likely and would suggest another test of 5950/6000.
Banks also rallied, with the ASX 300 Banks index headed for a test of 8500. Expect strong resistance.
Perhaps this UBS report had something to do with it.
I believe that the latest rally is a secondary reaction and that the ASX is headed for a down-turn, with miners and banks leading the way. But it’s no use arguing with the (ticker) tape.
A prudent speculator never argues with the tape. Markets are never wrong, opinions often are.
~ Jesse Livermore
I wouldn’t read too much into weaker US job gains of 138 thousand for May 2017. Job gains seem to be tapering in 2017, with February highest at 232 thousand, but this could also be a sign of tightening labor conditions.
Comments from respondents in yesterday’s ISM report showed hints of a tightening labor market:
Unemployment continues to fall, reaching 4.3% for May 2017. The dip below the natural rate of unemployment also warns of tighter labor market conditions.
But there are no real signs of a tight labor market in hourly wages. In fact, hourly wage rate growth in the manufacturing sector is slowing.
Employee compensation as a percentage of value added (Q1 2017) is starting to rise and the percentage of profits (after tax) is declining. The lines tend to invert, with employee compensation peaking and profits dipping ahead of a recession. This still seems 12 months away.
In summary, declining unemployment and rising employee compensation as a percentage of value added both indicate a tight labor market. But soft wage rate growth and falling core CPI suggest the Fed will be in no haste to apply the brakes. At least for the next three quarters.
If you want to know why RIO is higher today than when iron ore was at $92 then check this out from UBS:
Hitting the Wall or Just a Wobble?
Australian equities performed poorly in May (falling 3%) despite global markets posting solid gains (rising 2%). The market weakness in May was overwhelmingly driven by the heavyweight banks sector. On balance we believe “hard landing” fears are overdone though we concede that the consumer outlook is lacklustre.
Staying Overweight Resources and Neutral Banks
We continue to overweight the resource sector on the basis of relative valuation, and benign (iron ore) to moderately constructive commodity expectations (copper, oil, mineral sands). With the bank sector off 10% (total return), we think the sector is once again looking “fair” in an absolute sense (12.8x and 5.9% yield) and notionally cheap in a relative sense. A constrained growth outlook and near-term capital uncertainty keep us neutral.
Other Favoured Themes
From a thematic standpoint two of our key themes remain 1) public infrastructure exposure (we continue to hold Boral and Lend Lease Group) and 2) domestic energy suppliers continue to be well supported by investors (we continue to hold AGL Energy, Origin Energy). We continue to overweight US$/US economy plays.
What can I say? That’s some crazy shit.
After a setback in April, activity in the manufacturing sector is again expanding:
| MANUFACTURING AT A GLANCE May 2017 |
||||||
|---|---|---|---|---|---|---|
| Index | Series Index May |
Series Index Apr |
Percentage Point Change |
Direction | Rate of Change |
Trend* (Months) |
| PMI® | 54.9 | 54.8 | +0.1 | Growing | Faster | 9 |
| New Orders | 59.5 | 57.5 | +2.0 | Growing | Faster | 9 |
| Production | 57.1 | 58.6 | -1.5 | Growing | Slower | 9 |
| Employment | 53.5 | 52.0 | +1.5 | Growing | Faster | 8 |
| Supplier Deliveries | 53.1 | 55.1 | -2.0 | Slowing | Slower | 13 |
| Inventories | 51.5 | 51.0 | +0.5 | Growing | Faster | 2 |
| Customers’ Inventories | 49.5 | 45.5 | +4.0 | Too Low | Slower | 8 |
| Prices | 60.5 | 68.5 | -8.0 | Increasing | Slower | 15 |
| Backlog of Orders | 55.0 | 57.0 | -2.0 | Growing | Slower | 4 |
| New Export Orders | 57.5 | 59.5 | -2.0 | Growing | Slower | 15 |
| Imports | 53.5 | 55.5 | -2.0 | Growing | Slower | 4 |
| OVERALL ECONOMY | Growing | Faster | 96 | |||
| Manufacturing Sector | Growing | Faster | 9 | |||
Manufacturing ISM® Report On Business® data is seasonally adjusted for the New Orders, Production, Employment and Supplier Deliveries Indexes.
*Number of months moving in current direction.
Notable comments from respondents:
Read the full report at ISM May Report
Key points from Bob Doll’s weekly investment summary:
Contrast this with Philip Parker’s outlook at Altair Investments.
Read more at: Weekly Investment Commentary from Bob Doll | Nuveen
Philip Parker – veteran fund manager decides to sell all shares in Altair’s Trusts to hand back cash and hands back mandates for SMA/IMA’s and also sells MDA family office mandates to cash from shares.
Why?
AUSTRALIAN EAST COAST PROPERTY MARKET BUBBLE AND THE IMPENDING CORRECTION
CHINA PROPERTY AND DEBT ISSUES LATER THIS YEAR
THE OVERVALUED AUSTRALIAN EQUITY MARKETS AND
OVERSIZED GEO-POLITICAL RISKS AND AN UNPREDICTABLE US POLITICAL ENVIRONMENT
The underlined above are some of the more obvious reasons to exit the riskier asset markets of shares and property – in my opinion.
As a result of the above and after 25 years as a fund manager and 30 years in this industry I am taking around 6 to 12 months off. The main reason is in my opinion that there are just too many risks at present, and I cannot justify charging our clients fees when there are so many early warning lead indicators of clear and present danger in property and equity markets now….
Read more at: Why we’re selling all shares and handing cash back to investors – Philip Parker | Livewire
