A Busy Data Week In Australian Markets

The AUD/USD reached a 2.5 year high of .8065 last week.

Comments from RBA chief, Philip Lowe, that the central bank is not compelled to follow the USA’s higher interest rate policy only had a temporary effect on the Aussie.

This week’s data calendar has several potentially market moving reports.

The RBA is not expected to adjust interest rates on Tuesday.  However, if the board re-affirms their neutral-to-easing bias, the AUD/USD could retreat from recent highs.

Wednesday’s building approval data is usually a second-tier report but will be closely watched this month.

Thursday’s trade balance numbers are expected to remain in surplus, but the $1.77 billion consensus number is half of last month’s amount. This release would not have included the recent rally in the AUD, which would have a dampening effect on exports.

Friday’s Retail Sales data will have more impact on ASX stocks than the AUD. The forecast is an increase of .2%, which will keep the yearly sales pace barely in positive territory.

On balance, we expect the RBA and trade balance numbers to weigh on the AUD/USD,  and potentially turn the trend back to the downside.

Investors looking to profit from the AUD/USD trading lower can look to buy the BetaShare ETF with the symbol: YANK.

YANK is an inverse ETF, which means the unit price increases as the price of the AUD/USD decreases. YANK also has a 2.5% weighting, which means a 1% change in the AUD/USD will correspond to a 2.5% move in the unit price.

The current price of YANK is $12.60. We calculate that when the AUD/USD trades back to the January low near .7300, the unit price will trade at $16.75.

BetaShare ETF: YANK

Gold Continues To Climb

Gold posted a low of $1204.50 on July 10th. Since then, the yellow metal has rallied over 5% and hit an intra-day high of $1270.70 in last night’s New York trade.

This marks the 3rd straight week of higher prices and internal momentum indicators are now pointing to the June high of $1295.75.

However, share prices of local gold miners NCM and EVN have not reflected this stronger trade in the spot Gold price.

Both NCM and EVN announced positive quarterly production numbers last week, and we expect both names will break out their recent ranges on the topside.

Over the medium-term, we have price targets of $22.10 for NCM and $2.60 for EVN.Gold

Newcrest.

Evolution Mining

Chart Update – XJO

The S&P/ASX 200 Index finished the week down 0.4%.

The best performer was the Materials sector, up 1.7% and the worst performer was the Utilities sector, down 2.2%.

The XJO chart below shows the index remains in a “lower high” formation.

Chart – XJO

Amazon Falls 2% On Lower Earnings

Amazon reported much lower earnings than expected and shares declined more than 2% in late trading.

The e-commerce giant reported net income of $197 million, or 40 cents a share, on sales of $38 billion, a profit decline of 77% from the same quarter a year ago. Analysts on average expected Amazon to report earnings of $1.41 a share on sales of $37.2 billion.

The company’s spending cut into profit, as fulfilment costs — the amount Amazon spends to fill customers’ orders on its e-commerce platform — rose about 33% from a year ago and spending on technology and content increased by about 43%. Amazon stock traded at all-time highs of $1083.00 before settling at $1046.00.

The next key support level will  be found at $975.00. A break of that price could extend down to the June low of $920.00.

Amazon

 

How Long Will The XJO Range Trade?

Over the last 12 weeks, the XJO index has traded in a range bound, pennant formation.

In technical terms, this is known as an “indecision” pattern and is usually resolved by a measured move through the top of the range, or broken through the bottom of the range.

The current price set-up has been bound by the June 8th low of 5606 and capped by the June 15th high of 5850.

After one of these levels are breached, the measured move would be expected to reach the May 2nd high of 5950, or drop down through the low price of 5606 posted on February 6th.

The banking sector is the heaviest weighted group of stocks in the XJO. As such, the direction of the banking shares will largely determine the direction of the XJO index.

Our base case has been that the major banks will face challenges to grow revenue in the current market environment and that pricing risks are skewed to the downside.

These valuation concerns apply even stronger to the regional banks; BOQ and BEN. After recent price rebounds in these two stocks, we believe that they could trade lower and reach $10.50 and $10.00, respectfully.

XJO

BOQ

Bendigo