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.
10-Year Treasury yields are retracing to test the recent support level at 1.60 percent but the trend remains upward.
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.
Spot gold respected support at $1300/ounce. Breakout above the falling wedge (and resistance at $1350) would signal another advance.
* 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.
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.
* Target calculation: 6500 + ( 6500 – 5900 ) = 7100
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*.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
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
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
From Bob Doll’s weekly newsletter:
The strong patch of summer U.S. economic data may have ended. Following weak Institute for Supply Management readings in previous weeks, August retail sales declined 0.3%. This marks the first pullback since March, and bears watching for a broader downtrend into September…..
Corporate earnings expectations are climbing slowly. Following a modest second quarter improvement, analyst expectations for future quarters have climbed in recent weeks…..
Equities may continue to climb in 2016, based on historical trends. Strategy group Fundstrat shows that since 1940, when stock prices increased more than 5% by mid-September, 87% of the time they rallied further in the last three-and-a-half months of the year. As of Friday’s close on September 16, the S&P 500 Index is up 6.3%….
As you can see from Bob’s commentary, there seems to be a divergence between economic data (retail sales in this case) and technicals which tend to be more focused on the earnings expectations. I have seen something similar.
Retail sales have fallen in July/August but of greater concern is the longer-term down-trend. Continued growth below core CPI would warn of a contraction in real terms.
Light Vehicle Sales are also below trend, reinforcing the down-turn in consumer outlook.
The decline in sales is reinforced by the decline in growth of average weekly earnings (all employees).
Technicals, on the other hand, remain reasonably strong for the present. Until declining sales impact on corporate earnings.
Alastair Hunter – Lead Analyst, Investment Manager | Franklin Local Asset Management
Apologies for the sub-titles but this Hard Talk interview has an important message.
