By: Sean Cartwright
Equity markets are preparing for a second week of high volatility after the shake they got over the last 7 days. A nice close on Friday had the weekly SPX candle looking reasonably strong and a push higher this week may suggest that this correction may be over just as quick as it started. Closer to home, our market didn’t quite have the reversal that we saw in the US, but the magnitude of the fall was much smaller, and we are sitting on strong support. We need those lows that we made last week to hold if we are going higher here, the last thing we want to see is violations of moving averages and the start of a trend down. I am cautious, however, I did take a few positions on Friday as I have seen this minor correction as a time to weed out the poor performing stocks and rotate into those acting with real alpha. These positions have reasonably tight stops and will be quickly cut if we start seeing the indexes break down further.S&P500 Weekly Chart. Source: ProRealTime
XJO Weekly Chart. Source: ProRealTime
We are in the midst of reporting season here in Australia and we expect to see a lot of FY and HY 19 reports coming out this week. Below are estimated dates of some reports (Source: Bloomberg):
Monday 12th: AZJ, ARG, ANN, BEN, CLW, GPT, JBH
Tuesday 13th: CGF, MFG
Wednesday 14th: CPU, CSL, DXS, TAH
Thursday 15th: ASX, BKL, EVN, IVC, QBE, SYD, TLS, WHC, WPL
Friday 16th: BBN, COH, CQR, NCM, SGR
Gold continues to be the commodity of choice for investors as the global currency weakening sees some finding stability in the precious metal. The Gold price continues to be strong as real yields fall. Some are proposing a currency crisis is on the cards here with global banks all cutting interest rates and are heavily buying Gold as a result. I feel the Gold price is quite extended here in the short term and may need some consolidation at these higher levels, however if the market remains volatile and there is uncertainty around currencies it looks like it will continue to act strongly.
Gold Weekly Chart. Source: ProRealTime
Iron Ore’s run of being up 72% YTD on the back of the Vale disaster came to a crashing halt down 17% for the week and now 25% for the month. With the Vale restart and more supply coming to market I wouldn’t be surprised to see the ores price trend down slowly and consolidate here, especially given the large gains it has provided to investors over the year.
Nickel, a battery metal, ended the week +8% (after a high of +17%, +34% for the month). This is an incredible run and it is unusual to see moves of such magnitude in underlying commodity prices (unless there is a clear strong catalyst). I believe the Nickel price is reacting to fears that Indonesia may ban exports. However, it is interesting to see nickel acting so strongly in a period where many markets are unsure of where to go. I am definitely keeping an eye on this moving forward.
On the Forex front we see a few important dates this week which may result in high volatility in the Forex markets.
On Tuesday, we expect to see the German CPI figures to come out. Expect some volatility as Germany is a good indicator to the current strength of the Euro and a consensus miss here could see a further decline in the value of the euro, which is already struggling. The US CPI figures will also be released on Tuesday and this will give us a better indication of whether we can expect further rate cuts in the US.
On Wednesday, the Euro GDP figures are released as well as the British CPI numbers and again we expect some volatility in the markets around the time of these releases.
On Thursday, the Aussie employment figures (July) are released, expectations are an unemployment rate of 5.2%. This will give us an indication on where the Australian housing market is at, and also inform the RBA as to whether they will feel the need to cut rates again, I am of the opinion that we are looking at least one more rate cut before the end of the year and the chance of two cuts by the years end increases almost daily.
Have a nice week all, trade well.
Sources: Bloomberg, Commsec, Financial Times, FXStreet, ProRealTime