Macro Afternoon

by Chris Becker

Volume is starting to build as the trading year builds and we get the first the US NFP and the huge moves in offshore Yuan that needs to be absorbed by Asian markets after an eventless weekend. Bull markets are popping up everywhere in stocks, and that’s no different here with local and Chinese shares lifting higher as Japan has a holiday.

The Shanghai Composite is up almost half a percent on the other side of its long lunch, at 3167 points, remaining above its high moving average and stabilising. The Hang Seng is not doing much better, up 0.1% and hovering around ATR resistance on the daily chart, with momentum just positive – but this looks like the beginnings of a rollover:

HSI.fsDaily

No stocks traded in Japan today, but the Yen is selling off as the USDJPY heads backs above the 117 handle after strengthening late last week. My short term target is the 118 handle itself:

USDJPYH1

S&P Futures are steady and look positive going into the London open with the NFP absorbed:

S&P.fsH1

The ASX200 is going gangbusters, closing up just under 1% to be above 5800 points for the first time in nearly two years, led by bank stocks, but also oil, insurance and healthcare.

The Aussie dollar is wavering around the 73 handle against USD, climbing on the open but coming back as the London open beckons – I’m watching that level to break here as the hourly trendline has been broken:

AUDUSDH1

The data calendar tonight includes German industrial production and trade balance figures, followed by EZ wide unemployment figures.

Comments

    • GunnamattaMEMBER

      Posted initially in the Ley thread about Bronwyn Bishops suggestion that there are socialists running rampant in Australian politics – where I cant recall seeing a live socialist in 25 years…….

      But the stuff at the bottom about the possibility of Generalissimo Gunnamatta taking control of the running of the country would also have implications for Senator Day (and indeed any business on the public teat, and not delivering public outcomes)……..

      This lady?

      Would Bronwyn’s understanding of socialism be

      (a) well developed though regular interactions with socialists?
      (b) well developed through extensive familiarity with the literary works of Karl Marx, RH Tawney, Rudolph Hilferding, Paul Sweezy, Pierre Joseph Proudhon, John Maynard Keynes, Paul Barran, Frederick Engels, etc etc etc – or even Paul Keating or Bob Hawke, or Bernie Sanders?
      (c) well developed through any single intellectual pursuit of policy articulated by her over the course of a parliamentary career which ran 22 years?
      (d) an epithet to be tossed in the direction of anybody suggesting anything about any issue which Bronwyn doesn’t like

      There are moments I still sometimes think I would like to run for the senate purely on a platform of auditing every last single item of expenditure Bronwyn incurred on the public tab over that 22 years, while auditing every last policy position advocated by her, and finding whatever plausible excuse I could for removing her entitlement to every last cent of taxpayer funded milky wilkies.

      Then as I get more delusional I have visions of being the single senator between either side having a majority – and being able to extract as a price a similar audit of a particular parliamentarian every time the government wanted my vote.

      And finally I occasionally find myself in the mood of one who is announcing that he has taken over the running of the nation (for its own benefit) and announcing said development to the electorate via the TV (with beret on, sunglasses, a suitably military demeanour, and ‘tache) and slipping into the conversation (after announcing the introduction of a land tax, the audit and public tabling of every last real estate transaction for 50 years, a Royal Commission into the bank, a Royal Commission into the property holdings of Australian Federal and State politicians, a Royal Commission into Australia’s economy, a Royal Commission into Australia’s media, a Royal Commission into Australia’s population policies – and temporary slowing of net immigration to less than 50K per year until such RC establishes a purpose for higher levels – a Royal Commission into Australia’s pension & superannuation arrangements, increased funding for the ABC – with a rider that they re establish a serious news room and current affairs capacity in every state, the wholesale movement of APS agencies to regional locations, and a carbon tax) that Australia’s new ambassador to Nauru will be Bronwyn Bishop, where she will take up residence on Australian government facilities already in situ, and be expected to offset the outlays for her residence by providing pastoral services for other Australian government funded residents in the vicinity….

      a fella can dream cant he?

  1. boomengineeringMEMBER

    Ashamed to say years ago helped her campaign, and at after party which was crashed by Godfrey Bigot.
    Looking back, what was I thinking.

  2. @TTW – see your honour, the gloves really don’t fit – 25-life is only for those too poor for good defence team or dumb enough to get caught ?

    • The Traveling Wilbur

      Until you get laddered-up on a ludicrous kidnapping charge years later… which sticks, because, you know, you’re black, not cool anymore and the jury vaguely remembers something about you being found guilty of murder or something. Too wrongs make a right. Apparently.

      Christ, it’s like Mig’s taken hold… must, must logout.

      • Two wongs did try to make a wright but the geniuses at Ellis Island screwed it up and marked them down as a white.

  3. Chris is actually correct in his above ‘Bull markets are popping up everywhere in stocks’.

    We are now entering the 3rd – and final – stage of global equity bull markets. America has taken the lead in having decisively broken-out = the former S&P resistance levels of 2100 – 2200 now forms solid support. Particular other markets – including Australia – is trending to follow this American lead.

    The new growth-oriented/tax-cut/infrastructure spending/inflation paradigm will propel shares here also to new highs.

    Over the next 18 months to 2 years, on an average trend basis :
    1. You won’t make any money waiting for interest rates to fall to zero.
    2. You WILL lose money waiting for property to collapse.
    3. You won’t make any money shorting the AUD
    4. You won’t make any money shorting FMG or RIO
    5. You WILL lose money shorting the banks, as you wait and hope and pray for a debt-driven financial implosion
    6. You won’t make any money preparing for an apocalypse

    6. You will make money buying long-dated share index calls.

    This 3rd and final stage of the bull market is the one that ends in euphoria … much later

    about 25-30% upward price move away yet , and

    can last for quite some time.

    • If in this environment one remains committed to Doomsday Prepping, then it may be taken that the medical condition of ‘depression’ is the actual explanatory factor.

      +1, Funky

    • Uptown Funk

      Yes … I buy your views. The sky’s not going to fall in. In actual fact, blue skies ahead for shares, generally.

      But as you are going to be correct, what’s going to happen with the MB Fund. Really hope for investors sake that off-market-makers create and issue put options on the Fund.

    • I tend to agree with the assumptions built on the US market, there is a clear pull going on there, though a pull back in the short term would not be a surprise. The assumptions though for Australia are less clear. Where do you see the growth side of the equation coming for Australia? What will happen to the Euro zone and its markets? How about the British exit and impacts there?

      I don’t subscribe to a China collapse, never have. But there are definitive signs that the economy up there is so heavily impacted by raging inflation (and not only of the asset type but real bread and butter inflation) that the government will need to act and act decisively to smash it and many of the asset bubbles that have formed. This will have a material impact on businesses (such as mine) who derive significant income from the China trade. We all like to think that the Chinese politicians are not accountable to the people but history shows that the biggest fear that politicians there have is from the people. The ineptitude demonstrated over the current handling of the pollution crisis in Northern China is one example. At some point self preservation will kick in and they will act, the question is will be benevolently or belligerently against the people. In either case, these are not Australia positive options and will have dramatic effects on the likes of FMG and RIO (and me, though I am hedged through South America so I expect I can ride it out).

      Shorting our banks has always been called a widowmakers trade – and while ever they are going up, the main index will advance. But rising interest rates around the world are not in the banks best interests given the high dependency on external borrowing and highly concentrated loan books in Australia. Without a clear economic growth driver that pulls up wages and continues to support the elevated property prices, surely there is a point at which yield returns are better in the US at a lower risk point dragging funds out of Australia and subsequently lowering the AUD despite the RBA trying to raise interest rates? This would also coincide with a ratings downgrade just as the government attempts to grow through infrastructure spending. And in case you want to use the argument that US infrastructure will keep iron ore prices elevated benefiting Australia through extra demand, remember that the US is mostly self-sufficient for the red dirt and can get it cheaper from Brazil if it needs it or Mexico or numerous other small close producers.

      I write a lot about the impact of China on the local property markets. I strongly suggest having a close look at the revised regulations for moving money out of China. This apparent innocuous change is already having an impact. Business currency movements have been restricted for the last 6 months. Approval times for SOE foreign asset purchases is now out around 120 days with no guarantees of payment. The actual transfers of funds can take forever, I had one series of USD$5 million take 20 days to complete from first transfer to balance received. But the change in reporting for use of funds is a big one. Not only does the central government take destination account details but now they require you to sign a binding document as to the use of funds. Legally, this can be used by the Chinese government in any extradition case to demonstrate fraud. Also, previous rules allowed a family group to combine quota and remit to complete a large purchase or investment have been revoked. In cases where a destination account is matched to a number of transfers, the transfers can be blocked under Chinese banking rules pending further details from the sender (I have experienced this when we did consulting work for the owner of a company rather than the company itself). All of these little changes on top of the restricted lending practices from Australian banks to foreign borrowers may not lead to a property price collapse, but it will have an impact on off the plan sales. And before you write this risk off, remember that the latest figures showed an increase in approvals. If as a student I can no longer get funds out to buy a property, and the chances of securing a job in Australia is diminishing vs say the US or UK, the attractiveness of Australia as an immigration destination declines. Not every Chinese immigrant is a rich corrupt person laundering money. So fewer students starting in 2018, quite a number in 2017 who can not afford to settle makes for a dodgy construction market in 2017 to say the least.

      Anyway, buy houses not apartments (unless you are me and want to buy the penthouse next door to make yours even bigger), not all stocks move up in a bull market, iron ore no longer follows fundamentals, China needs to address inflation and this is not a positive for Australia, funds movement out of China is very difficult (even when you do have access to alternate means, the costs are approaching 10% right now and will possibly go a lot higher as the PBoC attempts to block this clever, legal but definitely a loophole) and most of all, LEAVE AUSTRALIA!!!!

      • Very informative as always.
        “But the change in reporting for use of funds is a big one. Not only does the central government take destination account details but now they require you to sign a binding document as to the use of funds. Legally, this can be used by the Chinese government in any extradition case to demonstrate fraud.”
        I picked on this the moment I read the Bloomberg article few days ago.. China is really determined to defend their foreign reserves as they can’t afford to lose ground any further.

    • The Traveling Wilbur

      While, subject to timeframe, I concur verily with your pithy analysis, it would have been aided by having successfully iterated your points as 1. – 7. Other than that, +1.

      Guess we can’t all beperfe

    • GunnamattaMEMBER

      Thats all possible……

      However I find myself wondering about this chart (being tweeted this eve by the Economist) on US wage growth

      At long last it does appear that it is getting some traction overall – which I think explains the reception for the NFP the other night when the actual jobs numbers was a clear undershoot.

      But then there’s this chart (courtesy twitter and Danny Blanchflower)

      Which suggests that those blue collar Joe sixpack types that voted Trump in their droves still arent feeling the wage love.

      So from there I have myself wondering not so much if Trump really is going to outlay stimulus (which the Fed at least seems to be suggesting the US doesnt actually need), but rather if he will want it to underpin further wage gains in the US.

      And that sort of has me wondering if the Fed is starting to get sweaty palms vis the need for that first rate hike.

      That sort of dichotomy could play havoc with asset classes, notably crude (where the OPEC agreement to cut productions has a number of question marks about it), gold and other commodities (notably iron ore where stockpiles are uber high and we would have to assume they will start to work them down again soon – with attendant implications for Australia’s budget and the AUD)


      The other rider over the outlook I find myself wondering about is the extent to which Trump will play a pitch with a strengthening US dollar with fairly overt protection (see carmakers backing out of Mexico), which has enormous implications for China (and potentially significant implications transmitted through China to Oz) – if the US starts to call a tune of ‘managed’ trade then Australia is up shite creek, particularly if we assume out current political economy will be the last to react and is highly likely to react in an idiosyncratic manner and where the WA experience is already on the board.

      Sure, I don’t doubt for a second the elites wouldn’t hesitate for a moment to blow the mother of all euphoric bubbles, but in Australia’s case there are a lot of questions about how elite our elites actually are, and about whether the political economy is there to play that. More broadly whether the mother of all euphoric bubbles elsewhere is going to have that big an impact on a nation which has been living in a bubble for a decade (and is evidently starting to lose air in Perth – at least) and has just had a second helping of commodity price bubble to pump into national level private debt (at uber levels), is worth posing a few questions about.

      I reckon I would be inclined to say that Australia can hold the nominal high house prices in place, but that its scope for doing that without getting the AUD down would have to be limited, given we are right up there with the most indebted people on the planet, we have no real income earners apart from those commodities being stockpiled by our one major client (which are also possibly a mechanism for us to become collateral damage in a trade dispute between Trump and China in metals or possibly Trump and OPEC/Russia in energy) with a budget still short odds to lose an A sometime during the year – and with our banks already perspiring under public condemnation, the extra few basis points they may have to pass on to mortgagees, etc etc etc.

      This could play out plenty of ways.

      • The consensus and demand pull from inside the building industry is on a two year horizon, then prices will soften and with it investor demand – interest etc, as long at the 35% up front for funding and the 50% initial build cost can be found.

        From another side of the playing field – there is strong opinion about not buying RE for two years as there is an expectation of oversupply, coupled with other factors that will soften the market notably.

        disheveled…. but as we all know its location location location…..

  4. Last Saturday, I sent Michael McLaren who is on Sydney 2GB radio a LinkedIn message about Michael West’s recent article to Australia dragging the chain on illicit flows of money into Sydney and Melbourne property, http://www.michaelwest.com.au/house-prices-surge-on-china-black-money-authorities-dither/ Also the link to Christine Duhaime article. http://www.antimoneylaunderinglaw.com/china
    lo and behold Michael West was interviewed on 2GB today about the subject by McLaren
    https://twitter.com/2GB873/status/818330336266362880

      • Mining BoganMEMBER

        Thank us for supporting Indonesian occupation so we could still access the oil, or thank us for helping them when those nice Indonesians decided they wanted to themselves set up a special deal over the oil?

        Getting them their independence was never an over-riding concern. It was always about the oil. Much like the Middle East…

    • The Traveling Wilbur

      Wow! This sort of week makes one worry about what it means to be an Australian. Still… maybe St Malc is “doing the right thing” and “showing some leadership”.

      Maybe? Just maybe?