ASX 300 Metals & Mining Archives - Page 2 of 5

November 15, 2019November 15, 2019

ASX 200 diverges from fundamentals

Seasonally adjusted labour force estimates show a decline in October 2019:

Employment decreased by 19,000 to 12,919,200 people
(full-time -10,300 and part-time -8,700).
Unemployment rate increased by 0.1 pts to 5.3%.
Monthly hours worked in all jobs decreased by 2.8 million hours to 1,783.9 million hours.

The leading indicator of employment has been predicting a down-turn in employment for some time, recording its sixteenth consecutive monthly fall in November.

Australia: Leading Employment Indicator

Job advertisements have also declined since late 2018.

Australia: Job Ads & Vacancies

Falling employment has a knock-on effect in other areas of the economy:

According to Tony Weber, chief executive of the FCAI, new vehicles have now seen the nineteenth consecutive month of decreasing sales in the Australian market, with October 2019 sales down 9.1% compared to October 2018.

“Year to date sales of new motor vehicles in 2019 are almost 78,000 units (eight per cent) lower than the same period in 2018…”

Retail sales are also soft:

In volume terms, the seasonally adjusted estimate for the September quarter 2019 fell 0.1%. This follows a 0.1% rise in the June quarter 2019, and a 0.1% fall in the March quarter 2019.

But the ASX 200, seemingly unperturbed, is testing resistance at 6800. Breakout would signal a primary advance with a target of 7200. Breach of support at 6400 seems unlikely but would warn of a decline with a target of 5400.

ASX 200

There are, however, signs of weakness in the largest two sectors.

ASX 300 Banks index penetrated its rising trendline, warning of a correction. Declining peaks on the Trend Index indicate secondary selling pressure. Follow-through of the index below 7600 would strengthen the bear signal.

ASX 300 Banks

A hanging man candlestick warns the ASX 300 Metals & Mining index is likely to again test support at 4100 ( the neckline of a large head-and-shoulders reversal pattern ). A Trend Index peak near zero would indicate continued selling pressure.

ASX 300 Metals & Mining

Iron ore continues its primary decline, since breaking support at 90. Our long-term target is 65.

Iron Ore

We maintain low exposure to Australian equities, with a focus on defensive and contra-cyclical stocks, because of our bearish outlook. But ASX 200 breakout above 6800 would force us to re-examine our outlook.

November 8, 2019

ASX banks profit squeeze but miners bullish

Iron ore continues its primary decline, having broken support at 90. Expect a test of the long-term target at 65.

Iron Ore

ASX 300 Metals & Mining index rallied during the week. I was expecting another test of support at 4100 ( the neckline of a large head-and-shoulders reversal pattern ) but a higher Money Flow trough near zero indicates buying pressure. A large divergence between iron ore and the Metals & Mining index warns that something is afoot.

ASX 300 Metals & Mining

The CEOs of ANZ, Westpac and NAB this week all mentioned pressure on net interest margins in their earnings announcements.

Net Interest Margins

But as this chart of fee and other income to March 2019 shows, it is not just interest margins that are under pressure. Transaction fees are steadily declining, while low book growth in recent years has resulted in declining lending fees. The recent sharp fall in other fee-based activity is also unlikely to recover as banks shed their troublesome wealth management business units.

Majors: Fees
Source APRA: Major Banks

ASX 300 Banks index retreated below its rising trendline, warning of a correction. Declining peaks on the Trend Index indicate secondary selling pressure. Follow-through below 7600 would strengthen the signal.

ASX 300 Banks

REITs have been experiencing selling pressure in the last few months despite the scramble for yield, with descending peaks on Twiggs Money Flow and a bearish descending triangle. Breach of support at 1600 would offer a short-term target of 1500.

ASX 200 REITs

ASX 200

Financials are mildly bearish but miners are surprisingly bullish. An ascending triangle on the ASX 200 signals buying pressure, while the declining peaks on Money Flow are modest in relation to the overall up-trend. Breakout above 6800 would signal another advance with a target of 7200. Breach of support at 6400 is now less likely but would warn of a decline with a target of 5400. As always, the two biggest sectors, Financials and Mining, are likely to point the way.

ASX 200

October 26, 2019

ASX mixed signals

Residential mortgage activity is recovering in response to recent rate cuts. Buyers are unable to resist the ultra-low finance costs, while APRA is sitting on its hands regarding macro-prudential measures (e.g. reducing maximum LVRs) to prevent another credit/housing bubble. Again, we see a two-speed economy, with mortgage stress in newer suburbs and inner-city units, where homeowners are unable to take advantage of lower rates, and rising prices in older, more established suburbs with lower mortgage exposure.

ASX 200 Financials index is testing resistance at 6500. Higher troughs on the Trend Index indicate buying pressure. There is no sign of a reversal at present but keep a weather eye on primary support at 6000; breach would warn of a primary decline with a target of 5200.

ASX 200 Financials

Banks face headwinds from pressure on interest margins, increased competition from disruptors in the form of neobanks (digital banking service providers), and demands to increase capital buffers which could lead to dividend cuts.

Iron ore is testing support at 90. Breach of support would warn of a decline with a long-term target of 65.

Iron Ore

ASX 300 Metals & Mining index is testing support at 4100, the neckline of a large head-and-shoulders reversal pattern. Declining peaks on the Trend Index signal selling pressure. Breach of support would warn of a decline with a target of 3400.

ASX 300 Metals & Mining

REITs recovered slightly from their recent sell-off but downside risk remains. Breach of support at 1600 would warn of a decline to 1500.

ASX 200 REITs

ASX 200

The ASX 200 continues to give mixed signals. An ascending triangle on the index chart is bullish, but the Trend Index also shows declining peaks, warning of selling pressure. Breakout above 6800 would signal another advance, while breach of support at 6400 would warn of a decline with a target of 5400.

ASX 200

We maintain low exposure to Australian equities, with a focus on defensive and contra-cyclical stocks, because of our bearish outlook.

October 19, 2019October 19, 2019

ASX and 3 headwinds

Despite recent strong performance, investor enthusiasm may be cooling, with the Australian economy facing three headwinds.

Declining Household Spending

Household income growth is faltering and weighing down consumption. Household spending would have fallen even further, dragging the economy into recession, if households were not digging into savings to maintain their living standards.

Australia: Disposable Income, Consumption and Savings

But households are only likely to draw down on savings when housing prices are high. Commonly known as the “wealth effect” there is a clear relationship between household wealth and consumption. If housing prices were to continue falling then households are likely to cut back on spending and boost savings (including higher mortgage repayments).

Consumption is one of the few remaining contributors to GDP growth. If that falls, the economy is likely to go into recession.

Australia: GDP growth contribution by sector

Housing Construction

The RBA is desperately trying to prevent a further fall in house prices because of the negative effect this will have on household spending (consumption). But rate cuts are not being passed on to borrowers, and households are maintaining their existing mortgage repayments (increasing savings) if they do benefit, rather than increasing spending.

House prices ticked up after the recent fall, in response to RBA interest rate cuts. But Martin North reports that the recovery is only evident in more affluent suburbs with lower mortgage exposure (e.g. Eastern suburbs in Sydney) and that newer suburbs and inner city high-density units are experiencing record levels of mortgage stress.

Housing

Building approvals reflect this, with a down-turn in detached housing and a sharp plunge in high density unit construction.

Dwelling investment is likely to remain a drag on GDP growth over the next year.

Falling Commodity Prices

Iron ore and coal, Australia’s two largest commodity exports, are falling in price as the global economic growth slows. Dalian Commodity Exchange’s most-traded iron ore contract , with January 2020 expiry, closed at 616 yuan ($86.99) per tonne, close to a seven-month low. Falling prices are likely to inhibit further mining investment.

Iron Ore and Coal Prices

Metals & Mining

The ASX 300 Metals & Mining index is testing long-term support at 4100. Breach would complete a head and shoulders reversal, with a target of 3400.

ASX 300 Metals & Mining

Financials

The Financial sector recovered this year, trending upwards since January, but faces a number of issues in the year ahead:

customer remediation flowing from issues exposed by the Royal Commission;
net interest margins squeezed as the RBA lowers interest rates;
continued pressure to increase capital ratios are also likely to impact on dividend payout ratios;
low housing (construction and sales) activity rates impact on fee income; and
high levels of mortgage stress impact on borrower default rates.

ASX 200 Financials index faces strong resistance at 6500. There is no sign of a reversal at present but keep a weather eye on primary support at 6000. We remain bearish in our outlook for the sector and breach of 6000 would warn of a primary decline with a target of 5200.

ASX 200 Financials

REITs are experiencing selling pressure despite an investment market desperate for yield. Dexus (DXS) may be partly responsible after the office and industrial fund reported a 26% profit fall in the first half of 2019.

ASX 200 REITs

ASX 200

The ASX 200 is showing signs of (secondary) selling pressure, with a tall shadow on this week’s candle and a lower peak on the Trend index. Expect a test of support at 6400; breach would offer a target of 5400.

ASX 200

We maintain exposure to Australian equities at 22% of portfolio value, with a focus on defensive and contra-cyclical stocks, because of our bearish outlook.

October 12, 2019

ASX hesitates in its downward slide

There is a hint of optimism in the air, with the year-on-year decline in housing prices slowing, to around -5% nationally, on the back of lower interest rates.

Housing

The ASX 200 hesitated in its downward slide but is still likely to test support at 6400. Breach would offer a target of 5400.

ASX 200

Iron ore continues to trade in a narrow range above short-term support at $90, suggesting continuation of the down-trend. Breach would offer a medium-term target of $80 per ton.

Iron Ore

The ASX 300 Metals & Mining index is testing long-term support at 4100. Breach would complete a head and shoulders reversal, with a target of 3400.

ASX 300 Metals & Mining

The Financial sector hesitated slightly, after a sharp fall last week. The rebound was undermined by an ANZ profit downgrade:

ANZ today announced its second half 2019 Cash Profit will be impacted by a charge of $559m (after-tax) as a result of increased provisions for customer related remediation.

Major banks’ net interest margins are also under increasing pressure as the RBA lowers interest rates.

Net Interest Margins

Expect ASX 200 Financials to test primary support at 6000. Breach would signal a primary decline, with a target of 5200.

ASX 200 Financials

REITs are surprisingly soft in a financial market desperate for yield. But there is wide disparity in the sector, with BWP for example surging, while office and industrial fund Dexus (DXS) is undergoing a sell-off.

ASX 200 REITs

We maintain exposure to Australian equities at 25% of portfolio value, with a focus on defensive and contra-cyclical stocks, because of our bearish long-term outlook.

October 5, 2019October 5, 2019

ASX 200 hits a brick wall

The ASX 200 retreated sharply from stubborn resistance at the 2007 high of 6800, like hitting a brick wall. Breach of support at 6400, after a lower high, is now more likely and would offer a target of 5400.

ASX 200

Iron ore continues to test short-term support at $90. Breach is likely and would signal another decline, with a medium-term target of $80 per ton.

Iron Ore

The ASX 300 Metals & Mining index is headed for a test of long-term support at 4100. Breach would complete a head and shoulders reversal, with a target of 3400.

ASX 300 Metals & Mining

The Financial sector retreated sharply from resistance at 6500. Expect a test of primary support at 6000. Breach would signal a primary decline, with a target of 5200.

ASX 200 Financials

We maintain exposure to Australian equities at 25% of portfolio value, with a focus on defensive and contra-cyclical stocks, because of our bearish long-term outlook.

September 21, 2019

ASX 200 tests resistance, Iron ore tests support

Iron ore found resistance at $95/ton and is likely to again test short-term support at $90. Support is unlikely to hold and breach would offer a medium-term target of $80 per ton.

Iron Ore

The ASX 300 Metals & Mining index found support at 4100 but the rally is weak. Breach of 4100 would complete a head and shoulders reversal, giving a target of 3400.

ASX 300 Metals & Mining

A fall in iron ore prices would increase downward pressure on the Aussie Dollar.

The Financial sector continues to look bullish, testing resistance at 6500, with Trend Index troughs above zero indicating buying pressure. Housing woes are far from over, despite improved auction clearance rates, and we expect the sector to remain a drag on growth for the next three to five years — unless the RBA & APRA go “all-in” on a housing bubble to “rescue” the economy.

ASX 200 Financials

The ASX 200 is edging upwards, towards a test of resistance at the 2007 high of 6800. Expect stubborn resistance. Reversal below 6400 would warn of a decline to test primary support at 5400.

ASX 200

We maintain exposure to Australian equities at 25% of portfolio value, with a focus on defensive and contra-cyclical stocks, because of our bearish long-term outlook.

September 14, 2019September 14, 2019

ASX: Iron Ore expected to decline to $55 per ton in next five years

Iron ore found short-term support at $90 per ton but this is unlikely to hold and our medium-term target is $80 per ton.

Iron Ore

Bloomberg published an interesting outlook on iron ore this week from Ed Morse, Global Head of Commodities Research at Citigroup:

“Steel demand is no longer going to be what it was,” Morse said in an interview. “No combination of India, Brazil and any other emerging-market country, no matter how big, is going to replace what China did alone,” he said, referring to spike in demand from the nation’s “fixed-asset investment extravaganza,” between the 1990s to 2010.

….Benchmark prices will end this year at the mid-$90s a ton, before falling to $75 at the end of 2020, he said. Five years out, they are seen at $55 a ton — a level that’s still well above current costs of production at the largest miners.

The ASX 300 Metals & Mining index found support at 4100 but the outlook is increasingly bearish. Breach of 4100 would complete a head and shoulders reversal with a target of 3400.

ASX 300 Metals & Mining

Given the importance of mining exports to the Australian economy, a fall in iron ore prices would be likely to increase downward pressure on the Aussie Dollar.

The Financial sector, on the other hand, is looking bullish at present, with Trend Index troughs above zero indicating buying pressure, in response to improved auction clearance rates. But housing woes are far from over and we expect them to remain a drag on growth for the next three to five years.

ASX 200 Financials

The ASX 200 continues to edge upwards, heading for another test of resistance at its 2007 high of 6800. Hanging man candles over the last three weeks warn of profit-taking, which is slowing the rally’s progress. Expect stubborn resistance at 6800. Reversal below 6400 would warn of a decline to test primary support at 5400.

ASX 200

We increased exposure to Australian equities, to 25% of portfolio value, this week but with an increased focus on defensive stocks, because of our bearish outlook.

January 4, 2019

ASX awaits bear market confirmation

The ASX 200 is testing the former band of primary support between 5650 and 5750. Respect is likely and would confirm a bear market for Australian stocks. Target for a primary decline is 5000.

ASX 200

ASX 300 Metals & Mining Index is testing primary support at 3400. Declining Trend Index peaks warn of selling pressure. Breach of 3400 would confirm a primary down-trend, strengthening the bear signal.

ASX 300 Metals & Mining

House prices are falling but this has not yet had an impact on the record high ratio of household debt to disposable income. Wages growth is slow and it will take a long time for debt ratios to return to saner levels. Expect the housing bear market to last for a similar length of time unless the RBA is desperate enough to make further rate cuts.

RBA: Credit & Broad Money

Bank performance is closely aligned with the housing market. The ASX 300 Banks Index is testing long-term support at 7000. Declining Trend Index peaks warn of selling pressure. Breach of support at 7000 is likely to lead to another decline, with a long-term target of 5000.

ASX 300 Banks Index

I have been cautious on Australian stocks, especially banks, for a while, and hold 40% cash in the Australian Growth portfolio.

December 15, 2018December 15, 2018

ASX 200 breaks support

The ASX 200 broke primary support at 5650, signaling a down-trend. Trend Index peaks at zero warn of selling pressure. Expect retracement to test the new resistance level but respect of 5750 is likely and would confirm a bear market. Target for a primary decline is 5000.

ASX 200

ASX 300 Metals & Mining Index found support at 3400 but declining Trend Index peaks warn of selling pressure. Follow-through below 3400 would confirm a primary down-trend.

ASX 300 Metals & Mining

A falling housing market and declining construction are dragging the market lower. Banks are the catalyst. Tightening credit standards in response to the Royal Commission and pressure from APRA are slowing lending and likely to lead to a contraction. Broad money growth is slowing sharply.

RBA: Credit & Broad Money

Unfortunately the alternative is far worse. A blow-off of the credit-fueled property bubble would threaten stability of the financial system.

The ASX 300 Banks Index broke long-term support at 7000, warning of another decline. Trend Index peaks below zero indicate selling pressure. Expect retracement to test the new resistance level but respect is likely and would confirm another primary decline. The long-term target is 5000.

ASX 300 Banks Index

I have been cautious on Australian stocks, especially banks, for a while, and hold 40% cash in the Australian Growth portfolio.