Tag: Iron Ore

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ASX 200: Iron ore tailwinds continue

The ASX continues to enjoy a massive tailwind, with iron ore spot prices holding above $120/tonne. Prices are expected to moderate, with Brazilian exports recovering. Clyde Russell at Mining.com comments:

“Even if Brazil’s exports do remain slightly below normal, it may be the case that the iron ore forward curve is currently too optimistic. The Singapore Exchange front-month contract closed at $121.24 a tonne on Wednesday, while the six-month contract was at $100.52 and the 12-month at $89.52. This shows traders do expect prices to moderate…”

Iron Ore

The Materials index continues to climb, with rising troughs on the Trend Index signaling buying pressure.

ASX 200 Materials

REITs continue their strong up-trend, in expectation of lower interest rates. The equity (dividend) yield on VAP/ASX 300 REITs has fallen to 4.3%.

ASX 200 REITs

Financials are testing resistance at 6450 but face headwinds from declining house prices and construction work.

ASX 200 Financials

The ASX 200 is headed for a test of its 2007 high at 6830, with a rising Trend index indicating buying pressure. Penetration of the rising trendline on the index chart is not likely but would warn of a correction to test support at 6000.

ASX 200

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

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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.

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ASX: Iron ore at $120

The ASX is still enjoying a massive tailwind from iron ore prices, with  spot prices close to $120/tonne.

Iron Ore

My concern is how long this tailwind will last. But the ASX 200 advances unperturbed, heading for a test of its 2007 high at 6830. Penetration of the rising trendline is unlikely but would warn of a correction to test support at 6000.

ASX 200

I continue to maintain a high level of cash in my Australian Growth portfolio because of long-term headwinds.

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ASX 200 plain sailing at present

Iron ore tailwinds show no signs of abating, with spot prices close to $110/tonne.

Iron Ore

It’s all plain sailing, with the ASX 200 advancing towards its 2007 high at 6830. Penetration of the rising trendline is unlikely but would warn of a correction to test support at 6000.

ASX 200

I continue to maintain a high level of cash in my Australian Growth portfolio because of long-term headwinds.

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ASX 200: Materials rocket but Financials fade

Last week I wrote that I had zero confidence in the ASX 200 breakout but you can’t argue with the tape. The ASX 200 retracement respected its new support level at 6350 and commenced a fresh advance. Money Flow completed a trough high above zero, signaling strong buying pressure.

ASX 200

Iron ore is a big contributor, rocketing to $106/tonne.

Iron Ore

Materials followed suit, breaking resistance at 13,500 suggesting a fresh advance.

ASX 200 Materials

The housing rally in response to the recent RBA rate cut has fizzled out, with CoreLogic reporting lower auction clearance rates last weekend:

The combined capital city final auction clearance rate came in at 48.3 per cent last week, which was lower than the 58 per cent the previous week. The lower clearance rate was across a lower volume of auctions over what was the Queen’s birthday long weekend, which saw 805 homes taken to auction, down on the 1,661 auctions the prior week.

The Financials advance has also lost impetus, with lower peaks on the Money Flow Index warning of increased selling pressure. Reversal below 6000 would warn of another correction.

ASX 200 Financials

The market is discounting the potential impact of a US-China trade war on Australia, relying on a large Chinese injection of fiscal stimulus to steady the ship. They may be right but Chinese officials have been talking this down for the past few months.

We hold 46% of our Australian Growth portfolio in cash and fixed income securities because of high uncertainty from (1) the US-China trade war; and (2) declining house prices and their potential impact on under-capitalised banks — leveraged at nearly 20 times common equity (CET1).

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Iron ore bounce lifts the ASX

Iron ore spot prices bounced off support at $63/tonne. Follow-through above $68 would suggest another rally to test resistance at $80 but that seems unlikely given the current threat of a trade war.

Iron Ore Spot Price

The ASX 300 Metals & Mining index found support at 3750. Breakout above 4000 would signal another advance but reversal below 3750 and a correction to test primary support at 3400 are more likely if iron ore retreats.

ASX 300 Metals & Mining

The ASX 300 Banks index continues to consolidate in a bullish narrow band above its new support level at 8000. Follow-through above 8100 would suggest another advance, with a target of 8700. The index is still in a primary down-trend but it is evident that a bottom is forming. A higher low on the next correction, followed by a new high, would signal the start of a primary up-trend.

ASX 300 Banks Index

The banking sector faces the prospect of higher funding costs, falling credit growth and rising default risk and I remain wary.

The ASX 200 is again testing resistance at 6300. Breakout would signal a primary advance with a target of the October 2007 high at 6750.

ASX 200

Technical signals suggest a primary advance while economic indicators warn of rising headwinds and a potential bear market. I remain cautious, with more than 30% cash in the Australian Growth portfolio.

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Trade tariff impact on China & Australia

The yuan is falling as threat of a tariff war rises.

Yuan

The Shanghai Composite Index is testing its 2016 low at 2700. Breach would warn of a decline to the 2014 low at 2000.

Shanghai Composite Index

Commodity prices are plunging in anticipation of falling demand from China.

DJ-UBS Commodity Index

Chinese monthly iron ore imports are down at 83.24 mt, compared to earlier peaks of 100 mt earlier in 2017. Iron ore spot price is testing primary support $63/tonne. A Trend Index peak below zero warns of selling pressure. Breach of support is likely and would warn of a decline to $58/tonne.

Iron Ore

A falling Aussie Dollar may cushion local resources stocks from some of the impact.

Australian Dollar

But ASX 300 Metals & Mining index continues to test medium-term support at 3800. Breach of support is likely and would warn of a correction to test the rising trendline.

ASX 300 Metals & Mining

Resources stocks remain in a primary up-trend but I am bearish on the medium-term outlook.

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Banks lift ASX 200

The ASX 300 Banks index continues to test resistance at 8000. Respect remains likely and would indicate another test of primary support at 7300.

ASX 300 Banks Index

Rising banks lifted the ASX 200. Follow-through above 6250 signals another primary advance, with a target of the October 2007 high at 6750.

ASX 200

This leaves me in a difficult position. Technical signals suggest a primary advance, while economic indicators warn of rising headwinds and a potential bear market.

Banks

The banking sector is being squeezed by higher funding costs, falling credit growth and rising default risk.

Gerard Minack from Minack Advisers warns that the current credit contraction could cause a significant fall in housing prices:

Most houses are bought on credit, so the demand for housing is a function of the supply of credit. Consequently, housing loan approvals have historically led house prices. New loan approvals have fallen by around 20% year-over-year several times over the past 25 years. If the current credit contraction is more severe – say, a decline of up to 30% – then nationwide house prices could fall high single digits over the coming year.

….All this suggests that a high single-digit decline in house prices would put a material dent in domestic demand. If prices were to fall by, say, 15%, and if consumer income growth was as tepid as it now is, there would be a good chance of recession.

Resources

A falling Chinese Yuan highlights the threat of trade tariffs to the Chinese economy.

CNY/USD

Commodity prices have responded, falling to test primary support levels.

DJ-UBS Commodity Index

Including iron ore.

Iron Ore

The ASX 300 Metals & Mining index is testing medium-term support at 3800. Breach is likely and would warn of a correction to test the rising trendline.

ASX 300 Metals & Mining

My approach is to sit with one foot either side of the fence. Focus on growth sectors. Stay away from Banks. Stay away from Resources but stay in Gold. And keep a healthy percentage of the Australian portfolio in Cash and reasonably secure interest-bearing investments. Definitely not hybrids.

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ASX 200 strengthens despite banks and iron prices

Iron ore prices are weakening, with spot testing support at $62/tonne. A Trend Index peak below zero would complete a bearish outlook, warning of strong selling pressure. Breach of support at $58 would confirm a primary down-trend.

Iron Ore

The ASX 300 Metals & Mining index is testing resistance at 4000, remaining in a strong up-trend despite weaker ore prices.

ASX 300 Metals & Mining

Australian banks face a tough time over the next year or two but the ASX 200 index continues to strengthen despite weakness in its largest sector. A Twiggs Money Flow (13-week) trough at the zero line signals interest from buyers and breakout above 6150 would signal a primary advance, with a target of the October 2007 high at 6750.

ASX 200

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Is ASX 200 resurgence sustainable?

The ASX 200 found support at 5950/6000, a bullish sign. Large bearish divergence on Twiggs Money Flow (13-week) continues to warn of selling pressure but breakout above 6150 would signal a fresh primary advance. Breach of 5950 is unlikely at present, but would warn of a test of primary support at 5650/5750.

ASX 200

The ASX 300 Banks decline continues, heading for a test of its 2016 low at 7200.

ASX 300 Banks

The ASX 300 Metals & Mining index breakout above 4000 is likely, offering a target of 4200.

ASX 300 Banks

The broad index looks bullish but I have two concerns. First is the weak banking index, representing the largest sector in the ASX 200. Second, iron ore prices are weakening. Spot prices are testing support at $62/tonne. A Trend Index peak below zero looks likely, and would warn of strong selling pressure. Breach of support at $58 would signal a primary down-trend.

Iron Ore

GDP growth recovered to 3.1% for the year ending 31 March 2018, on the back of strong exports, but the overall report card for the economy remains weak.

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