Australia Today - Stocks and the Aussie dollar pointing higher

Market Analysis /
Greg McKenna / 20 Aug 2018

Welcome to my Australia Today column where I'll have a look at some economics, the Aussie dollar, and the outlook for the ASX200 and SPI. 

As every Feedback is welcome

THE AUSTRALIAN DOLLAR

The Aussie fairly roared with a 0.8% gain to close the week at 0.7316. It might be time for a run if the tensions between Beijing and Washington are seen to be lifting. Or at least if traders think that way. Of course, this is against a backdrop of overall USD strength in the medium term.

The move in the USD and the Euro’s rally have been significant drivers of the reversal of the Australian dollar off that very long-term trendline around 72 cents I highlighted last week. As I discussed in my weekly video Sunday the Aussie has been moving in lockstep with the Euro but that both, and Dr Copper, have benefitted from the turn in the Yuan which has strengthened from 6.93/94 Wednesday to 6.84/85 odd this morning.

Click on me, I'll expand
Click on me, I'll expand

What you might see – or think I’m making up -  in that chart above though is a very short term head and shoulders for the Aussie and the Euro. As I’ve highlighted that points to further rallies for both pairs and an Aussie dollar around 74 cents. We’ll see, but that would take us back toward the downtrend line from the 81 cent odd highs earlier this year which comes in around 0.7433 this morning. We’d need to see Euro above 1.16 to get that kind of a break. But if the USDCNY somehow finds a way to fall toward 6.70 we might see that kind of move. Something to watch.

Click on me, I'll expand
Click on me, I'll expand

ASX INDEXES

The positivity, the rally in risk assets, and the sentiment shift in markets helped SPI traders add 28 points to Friday’s already solid close on the ASX at 6,339. This is a genuine technical breakout folks. The ASX could run if a bid comes back into the miners. It hasn’t happened yet though, not on Friday night anyway with Metals and Mining stocks finishing the week at the lowest ratio relative to the overall MSCI world market since June last year. Value anyone????

I was on Sky Business at 4pm Friday to round out the week. I was talking to Nadine Blayney and her panel and there was a bit of an air of “what the heck” about the Australian market and the ASX’s performance. Readers know my view, I’ve been rhetorically fighting it for ages but the techs have been supportive for the best part of 6 months now.

Anyway, at the end of the discussion Nadine noticed I was looking at something off screen and asked me what it was, so I said there is no point being bearish the Aussie market unless 2,795 gives out in the S&P 500. I also said, earlier in the chat I think, that given the ASX had ignored Chinese and Asian weakness and instead stuck with the US move that this was the key. And I mentioned that if the SPI finished in positive territory Saturday morning it would confirm a break for the ASX which could drive it toward 6,450ish.

I know I know, after fighting the move here I am talking about another 100 plus points. Credibility alert readers.

Anyway, what’s clear to me over recent months is that there are a lot of folks fighting the markets moves from a fundamental basis. Equally important is we are making these highs without the banks and miners hitting new highs – it’s a broader rally. Which is good news for the local market. And finally lets just go with the charts, they’ve been the best guide for a while now. My rhetorical self is going on holidays for a while I think. Cue market top right :S Anyway here’s the SPI, 6,390 is the 138.2% target of the break.

Click on me, I'll expand
Click on me, I'll expand

 

Oh and it is a massive week of earnings on the local market. Bloomy has a good day by day summary you can find here.

A LITTLE ON THE ECONOMY

The RBA governor tacitly admitted Friday that he’s okay with low inflation at the moment because wages growth are low. He told a parliamentary committee that monetary policy is aimed at encouraging wages growth. But he seems to miss the fact that there is zero incentive for businesses to pay employees more unless they have to. Of course Lowe and his colleagues at the RBA are hoping that the unemployment – and underemployment – rate fall far enough to achieve the type of labour market tightness that will eventually see wages rise faster than they are now at just 2.1% a year – on average.

So I thought Sam Jacobs over at Business Insider got it right on Friday in his piece saying the RBA seems to think missing its inflation target is a good thing.  But as AMP’s Shane Oliver told Paul Colgan in a podcast I listened to over the weekend the entire lift from 1.9% to 2.1% wages growth comes from the regulated markets and wages that have been moved not from employers paying more.

So that means debt and debt reduction might remain top of mind for a little while yet. And that’s why we have to watch where property prices and the dynamics of supply and demand go over the spring season that’s just around the corner.

DATA:

It’s quiet on the data front today, indeed this week save for the minutes of the RBA, ECB, and FOMC meetings. The flash PMI’s later this week might be of interest as well. ON the day though it’s German PPI and a speech from Atlanta Fed President Bostic which are the highlights. We haven’t heard from the Fed in a while. That might be interesting.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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