ASX tailwinds v. headwinds

The ASX continues to enjoy a massive external tailwind, with iron ore spot prices holding at $120/tonne.

Iron Ore

Headwinds stem mainly from domestic sources. Low employment and disposable income growth have slowed consumption, especially of durables such as housing and motor vehicles. Construction work done in the private engineering sector (mainly mining and energy related) continues to decline after a dramatic fall in 2013-2015. Public sector spending is also tailing off as the NBN roll-out winds down.

Australia: Construction Work Done

Private sector building still shows some resilience but is expected to fall as approvals for new residential construction decline (source: ABS).

Australia: Building Approvals

My concern is that the headwinds will outlast the tailwind, in which case all three construction sectors could fall to 2006 levels.

The ASX 200 continues to advance, headed for a test of its 2007 high at 6830. A declining Trend index would warn of rising selling pressure, while penetration of the rising trendline on the index chart would signal a correction to test support at 6000.

ASX 200

We continue to maintain a high level of cash in our Australian Growth portfolio.