Macro Morning

See the latest Australian dollar analysis here:

Macro Afternoon

Wall Street is broadcasting correction mode as we head into the next stage of interest rate normalisation, combined with some disappointing earnings and mixed signals coming out of the US economy. The USD continued to firm against all the major currency pairs in a run to safety, while moves in bond markets are still expecting a surge in interest rate rises . Gold remains somewhat resilient to maintain itself above the $1830USD per ounce level while oil markets are heating up again with Brent and WTI both up as commodity prices continue to climb alongside USD.

Bitcoin did not miss out on the frivolity with a major selloff seeing it breakdown below key monthly support levels below $40000. As I warned all last week, this had been setting up as price hovered around that level without any upside breakouts. This correction has been underway since the historic high reached in November last year, having lost nearly 50% so far:

Looking at share markets in Asia from Friday’s session, where mainland Chinese shares felt the risk off move with the Shanghai Composite finishing down 0.9% to 3521 points while the Hang Seng Index also pulled back at first, down 0.7% at one stage before closing dead flat at 24965 points. The previous breakout above the 24000 point level remains in a holding pattern as all other equity markets fall over themselves selling off, so I’m cautious here of potential upside at the previous monthly highs near 26000 points:

Japanese markets flopped, taking back the previous bounce back with the Nikkei 225 closing 0.9% lower at 27520 points. Price action is likely to start lower again on the open this week on the Wall Street selloff with the inability to make a new daily high and breaking daily ATR support at the 28000 point level telling as safe haven Yen buying accelerated. The November lows have been taken out so expect lower soon:

Australian stocks had even worst falls as confidence evaporated with the ASX200 closing more than 2% lower to a new monthly low at 7176 points. SPI futures are ready to break below the 7000 point level on the open this morning,  taking out the previous monthly lows reached in October last year (lower black line) as the complete lack of confidence on Wall Street combines with a local slowing economy. The daily chart shows momentum extremely oversold but with that support line broken, further falls are more than likely:

European shares started off badly and continued throughout the session with the Eurostoxx 50 index finishing as it definitively breaks short term support at the 4300 point level. Post close futures  kept up with the Wall Street selloff to complete the rollover, sending price below the point area where its ready to breakdown completely:

Wall Street has had an extremely bad week, wiping out all of the last quarter’s gains with the NASDAQ leading the way on Friday night, falling some 2.7%, now nearly square for the last 12 months. The S&P500 lost nearly 2% to extend its falls through not just the 4500 point level, but below 4400 points, closing at 4397 and a new monthly low. The daily chart is extremely oversold and ripe for a potential bounceback here but you’d be pretty brave to jump in right now:

The USD continued to firm against everything on currency markets on Friday night, as volatility increased in the wake of the bond and stock market selloffs. Euro had briefly touched the 1.13 handle in the previous session and had a small bounce back but notably this did not create a new session high, failing to breach the mid 1.13 level. Momentum remains negative, if somewhat neutral so I expect another down-leg as we start the new trading week with the next target at the 1.1280 level:

The USDJPY pair continues to rollover here, with Yen safe haven buying offsetting the broader run to the USD. Price fell through trailing ATR support at the 114 handle after the start of week rally failed to clear resistance overhead. Momentum in the short term remains heavily oversold negative with the potential to breakdown further and make a new weekly low as the risk off move accelerates:

The Australian dollar continued to selloff as well, matching its intraweek low at the 71.70 level after briefly surging up through the 72 handle mid week. This is all part of a lower downtrend from a succession of lower weekly highs with the potential for more downside here below to get to the previous weekly low at the 71.20 level with daily momentum about to turn oversold:

Oil markets were taking some heat out of their current big surge, with futures pulling back slightly mid week but Friday night saw a small uptick as Brent markers finish just below the $88USD level. Daily price action was suggesting a potential top (note the failure to make a new daily high, then an intrasession new high that was sold off to the close) and this may still come to pass, but daily momentum remains in overbought territory with price above the previous highs at the highest horizontal black line:

Gold is proving remarkably resilient here in the wake of risk and bond market selloffs and runs to USD as it consolidates around the $1830USD per ounce level after clearing the key $1800USD per ounce level previously. The daily chart is looking somewhat promising with the potential for a run up to the November highs at $1875 possible:

 

 

Glossary of Acronyms and Technical Analysis Terms:

ATR: Average True Range – measures the degree of price volatility averaged over a time period

ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility

CCI:  Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)

Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement

FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)

DOE: US Department of Energy 

Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!

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Comments

  1. More on my quest to actually understand the statistics driving Australia’s low Economic Complexity Index rating.

    As I mentioned last time. I’m starting with Australian Electronic Exports
    ( I’m starting with Electronics for no other reason than that I understand this industry a lot better than some other more important industries like say Pharmaceuticals. I’m starting with what I know and working on a method to extract more detailed and specific information from the aromatized export statistics.)

    OK I’m still stuck trying to actually identify Australian exporters, exporting products with the
    Harmonized Code HS4 8525
    this link is as good as any to understand what types of equipment are exported with this code
    https://www.dripcapital.com/hsn-code/8525

    The actual code covering 22% of 2018 Australian Electronic exports has this description.

    Transmission apparatus for radio-broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television cameras, digital cameras and video camera recorders

    All good so far. the problem is that there’s actually no Australian maker of Television Broadcast equipment that exports more than a few $M per year None.
    So we have almost $600M in exports for a product we don’t make.
    Possible explanations
    – Accounting errors ( someone using comma’s instead of decimal points maybe)
    – Imported items that are being re-exported (maybe with slight adjustment / improvement / reprogramming)
    – Intentionally mislabeled exports (presumably electronic equipment but maybe not really belonging in 8525 code)
    – Maybe something nefarious (we are talking hundreds of millions of dollars each year)
    – Military equipment ? (presumably Radio transmitters just not for Broadcast TV use)
    – way of by passing US Export controls (import to Australia, export where-ever)

    A little additional information
    No Australian company has claimed any Export incentives for developing this business (grown from $100M to $600M in about 6 years) Not begging for Government support / grants when you succeed is almost unAustralian.

    the mystery continues

    • Just to be clear, I’m not trying to expose anyone or solve some mystery
      However, what I am trying to do is build a Connectivity Matrix for these export businesses.
      Who are the components suppliers? who else do they supply? what’s the nature of the unique valued training / skills of participants (within the supply pyramid) as in why does this export product even exist? Who are the Schools / Universities feeding this system.
      For me understanding Complexity is about first understanding Connectivity.

    • lets look at the growth sequence for HS4 8525 and see if this sequence revels any information
      2000 $150M
      2001 $144M
      2002 $107M
      2003 $142M
      2004 $173M
      2005 $228M
      2006 $276M
      2007 $154M
      2008 $200M
      2009 $195M
      2010 $236M
      2011 $319M
      2012 $273M
      2013 $199M
      2014 $282M
      2015 $285M
      2016 $241M
      2017 $474M
      2018 $569M
      2019 $738M

      300% Export Revenue growth in 3 to 4 years 2016 to 2019 wow
      That’s incredible, it’s very hard for any company/industry to achieve anything like doubling revenue each year (2016/17)
      think about it as a production problem. It means that you need to double your facilities, double your at invested capital (fund the make process), double your product support teams
      typically for a product like this one would expect about $500K to $1M revenue per employee, so $738M implies a company with over 1000 employees before you take into consideration this insane growth rate. You would probably need to double the employee count to sustain this growth .
      So this mystery company has grown from a steady-ish $230M revenue with no growth (lets say 300 employees) to a high growth company with say 2000 employees.
      That’s amazing especially when you consider how few Australian’s graduate each year with degrees in Electrical engineering …they must have employeed every single graduate..

        • Probably true, and atm that’s the direction that I’m leaning
          BUT Revenue Growth is Revenue Growth it doesn’t matter why or how you grew your revenue it still takes skilled people and lots of them to support high growth (for any Tech product)
          Any company (military or otherwise) that triples its size (revenue / product exports) in as many years will need to also triple its employee base and that’s something that you can’t hide
          During the Manhattan project the Russian knew that an atomic weapon was being developed in the US because everyone with any knowledge in this area suddenly disappeared from their former public lives.
          It’s the same wrt graduates from top universities. If a given field of engineering suddenly explodes you’ll find that they snap up all the best graduates (look at what is happening in Quantum Computing in Sydney at the moment)
          Bottom line is that you can’t hide success, you can obfuscate all you like but success leaves its own indelible stain.

          • Growth like that in that category is a bit strange, can’t think of any, company big enough, so must be some other product falling under that category eg satellite tech? More recently there as been the joint strike fighter, I used to work for a company that supplied some electronics to the US Navy, also Boeing but nothing like enough to reach those sort of figures, though this was several years ago.