The Pound fell this evening to its lowest level since the 1980s.
Gold surges as BREXIT looms
It looks like the LEAVE vote has it, with a lead of more than 900,000 so far.
Gold bugs seem to think so, with the spot price blasting through resistance at $1300/ounce. Retracement that respects the new support level would confirm a target of $1550*.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
Gold: Should I BREXIT?
Odds of a BREXIT are drifting at the bookmakers, with REMAIN a firm 1 to 4 favorite. Fears of a BREXIT have been driving demand for gold and a REMAIN vote is likely to spur a sell-off.
* Target calculation: 1300 + ( 1300 – 1050 ) = 1550
Breakout above resistance at $1300/ounce turned into a bull trap with a sharp retreat to support at $1250/$1260. A REMAIN vote on June 23rd would test support at $1250 and possibly $1200. But the up-trend remains intact if support at $1200 holds.
Political uncertainty is unlikely to fade before the November US election. And economic uncertainty, fueled by Chinese instability, is likely to last a lot longer.
Capital outflows from China continue, with USDCNY running into resistance at 6.60. This is a sign that PBOC sale of foreign reserves has resumed, weakening the Dollar and boosting demand for Gold.
Gold’s up-trend is likely to continue. And breakout above $1300 would offer a long-term target of $1550/ounce*.
Disclosure: Our Australian managed portfolios are invested in gold stocks.
Odds Are U.K. Will Stay In E.U. | NPR
Peter Kenyon at NPR:
Britain’s bookies say the smart money is on Remain.
“At the moment, Remain is the odds-on favorite at 1 to 4, so that equates to about a 76 percent chance of the U.K. voting to remain in the EU,” says Jessica Bridge, spokeswoman for Ladbrokes, one of the U.K.’s larger betting firms.
The Leave side, meanwhile, “is drifting like a barge,” she says, with the odds 3 to 1 against.
Source: Britain’s Bookies: Odds Are U.K. Will Stay In E.U. : Parallels : NPR
Hope isn’t a strategy
Cautious optimism has evaporated after poor recent polls favoring a BREXIT. I hope that sanity prevails but, as the saying goes: “Hope isn’t a strategy”.
Better to have a Plan A and a Plan B to cope with the two alternatives. But if enough investors decide their money is safer in the bank, then expectations of a fall are likely to become a self-fulfilling prophecy.
The S&P 500 does not appear unduly alarmed but a sharp fall on 13-week Money Flow warns of selling pressure. Reversal below 2000 would warn of another test of primary support (1820 to 1870).
Dow Jones Industrial Average shows a similar picture. Breach of medium-term support at 17400 to 17500 would warn of another test of primary support at 15500 to 16000.
A CBOE Volatility Index (VIX) spiked to 20, indicating increased market risk. Long-term measures remain unaffected.
Europe
Germany’s DAX retreated below medium-term support, warning of another test of primary support. 13-Week Money Flow below zero suggests a primary down-trend.
The Footsie broke support at 6000 warning of a test of 5500. Reversal of Money Flow below zero would suggest a primary down-trend.
* Target calculation: 6400 + ( 6400 – 6000 ) = 6800
Asia
The Shanghai Composite Index continues to range between 2700 and 3100.
Japan’s Nikkei 225 Index broke support at 16000 and its lower trend channel, warning of another decline.
* Target calculation: 15000 – ( 18000 – 15000 ) = 12000
India’s Sensex remains bullish, with a short retracement below 27000. Bearish divergence on 13-week Money Flow would end if the descending trendline is penetrated.
Australia
The ASX 200 broke medium-term support at 5200, warning of another test of primary support at 4750. Expect support at the former level of 4900 to 5000 but it is questionable whether this will hold. Combination of a seasonal sell-off and BREXIT fears are going to test buyers’ commitment.
The Banks Index fell sharply and breach of support at 7200 would offer a target of 6400*.
* Target calculation: 7200 – ( 8000 – 7200 ) = 6400
Health Care is experiencing a strong sell-off, led by CSL. This is a good long-term stock but exposure to the UK/Europe has spooked the market.
Why BREXIT matters
From The Guardian, June 14th:
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 ]).
- 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.
- 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
BREXIT: Stocks to watch
From Bell Potter:
Australian stocks with more than 80% of revenue derived from UK/Europe:
- Macquarie Atlas Roads
- Hendersons
- Ansell
- Amcor
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
Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing | Zero Hedge
Goldman Sachs has cut its long-term crude oil forecasts:
The inflection phase of the oil market continues to deliver its share of surprises, with low prices driving disruptions in Nigeria, higher output in Iran and better demand. With each of these shifts significant in magnitude, the oil market has gone from nearing storage saturation to being in deficit much earlier than we expected and we are pulling forward our price forecast, with 2Q/2H16 WTI now $45/bbl and $50/bbl. However, we expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast. As a result, we now forecast a more gradual decline in inventories in 2H than previously and a return into surplus in 1Q17, with low-cost production continuing to grow in the New Oil Order. This leads us to lower our 2017 forecast with prices in 1Q17 at $45/bbl and only reaching $60/bbl by 4Q2017.
But these forecasts are premised on a Chinese recovery:
Stronger vehicle sales, activity and a bigger harvest are leading us to raise our Indian and Russia demand forecasts for the year. And while we are reducing our US and EU forecasts on the combination of weaker activity and higher prices than previously assumed, we are raising our China demand forecasts to reflect the expected support from the recent transient stimulus. Net, our 2016 oil demand growth forecast is now 1.4 mb/d, up from 1.2 mb/d previously. Our bias for strong demand growth since October 2014 leaves us seeing risks to this forecast as skewed to the upside although lesser fuel and crude burn for power generation in Brazil, Japan and likely Saudi are large headwinds this year.
While production growth continues to surprise:
…..This expectation for a return into surplus in 1Q17 is not dependent on a sharp price recovery beyond the $45-$55/bbl trading range that we now expect in 2016. First, it reflects our view that low-cost producers will continue to drive production growth in the New Oil Order – with growth driven by Saudi Arabia, Kuwait, Iran, the UAE and Russia. Second, non-OPEC producers had mostly budgeted such price levels and there remains a pipeline of already sanctioned non-OPEC projects. In fact, we see risks to our production forecasts as skewed to the upside as we remain conservative on Saudi’s ineluctable ramp up and Iran’s recovery.
We expect continued growth in low-cost producer output
Saudi Arabia, Kuwait, UAE, Iraq, Iran (crude) and Russia (oil) production (kb/d)
Tyler Durden has a more bearish view:
While there is much more in the full note, the bottom line is simple: near-term disruptions have led to a premature bounce in the price of oil, however as millions more in oil barrels come online (and as Chinese demand fades contrary to what Goldman believes), the next leg in oil will not be higher, but flat or lower, in what increasingly is shaping up to be a rerun of the summer of 2015.
Source: Goldman Cuts 2017 Oil Price Forecast Due To Slower Market Rebalancing | Zero Hedge
Europe fizzles
The Dow Jones Euro Stoxx 50 rally of the last few weeks fizzled without making much headway over the previous peak before retreating below 3000. Failure of support at 2850 would warn of another test of primary support. Reversal of 13-week Money Flow below zero would warn of another decline.
Plenty of bottom signals
Global
Dow Jones Global Index is headed for a test of resistance at 320 after penetrating its descending trendline. Respect of 320 is likely but a bottom is forming and a higher trough would suggest an inverted head-and-shoulders formation. 13-Week Twiggs Momentum recovery above zero is bullish but another low peak would indicate that bears still dominate.
North America
The S&P 500 continues to test the band of resistance at 2100 to 2130. Money Flow remains bullish but I expect stubborn resistance at this level, further strengthened by poor quarterly results, so far, in the earnings season.
A CBOE Volatility Index (VIX) at a low 14 indicates that (short-term) market risk is low. Long-term measures are also starting to ease but we maintain high cash levels in our portfolios.
Canada’s TSX 60 is headed for a test of resistance at 825. Penetration of the descending trendline suggests that a bottom is forming. Resistance is likely to hold but an ensuing higher trough would be a bullish sign. Rising 13-week Twiggs Momentum is encouraging but a low peak above zero would indicate that bears still dominate.
Europe
Germany’s DAX broke resistance at 10000 and is headed for a test of the descending trendline. Rising Money Flow indicates medium-term buying pressure. Retreat below 10000 would warn of another decline.
* Target calculation: 9500 – ( 11000 – 9500 ) = 8000
The Footsie is headed for a test of 6500. Rising Money Flow suggests decent buying pressure. Respect of resistance is likely but a bottom is forming and an ensuing higher trough would suggest a primary up-trend.
* Target calculation: 6000 – ( 6500 – 6000 ) = 5500
Asia
The Shanghai Composite Index retreated below 3000. Breach of medium-term support at 2900 would warn of another test of primary support at 2700. Rising Money Flow suggests that breach of primary support is unlikely.
* Target calculation: 3000 – ( 3600 – 3000 ) = 2400
Japan’s Nikkei 225 Index broke resistance at 17000, a higher trough signaling a primary up-trend. Expect retracement to test the new support level at 17000. Rising Money Flow confirms buying pressure.
* Target calculation: 17000 – ( 20000 – 17500 ) = 15000
India’s Sensex is testing its upper trend channel at 26000. Penetration of the descending trendline would suggest that a bottom is forming. Respect, indicated by reversal below 25000, would warn of another test of primary support.
* Target calculation: 23000 – ( 25000 – 23000 ) = 21000
Australia
A sharp fall in the Australian Dollar as result of record low inflation numbers may precipitate some selling by international buyers. Further weakness in iron ore would impact both the ASX and the Aussie Dollar.
The ASX 200 has also penetrated its descending trendline, suggesting that a bottom is forming. But bearish divergence on 13-week Money Flow warns of selling pressure. Retreat below 5000 would warn of another test of primary support at 4700.
* Target calculation: 4700 – ( 5200 – 4700 ) = 4200