Short XTL.ASX (update)

Short XTL (update)

XTL

I suggested shorting the XTL on 2nd June 2016 and now I believe that Central Banks will have no choice but to embark on a more aggressive stance. BoJ, BoE and ECB will be looking to reduce volatility, inject liquidity, depreciate ¥ and avoid excessive US$ appreciation. The Fed will work hard to reduce the degree of monetary policy divergence.

This means we are getting ready to close out the XTL short and bank the profit.

 

Australian market finished the week…

Australian market finished the week…

The Australian market S&P ASX 200 finished the week to Friday down 1.0%. Small companies underperformed larger companies, with the Small Ordinaries Index down 1.7%.

Strong performance from the Energy sector, up 0.9%. Santos (STO) rallying by 9.1%. Information Technology sector down 3.1% with IRESS LTD down over 7%.

Short AZJ.ASX

Short AZJ.ASX

AZJ

Time to look at AZJ on the short side. $4.80 range is the target I’ve been waiting for, the stock has pushed higher against a backdrop of selling in the broader equity market but with no revenue growth, 100% payout ratio on the dividend, I think AZJ is susceptible to a pullback into the July/Aug earnings result. Target pullback to $4.40 – $4.50

 

 

 

 

US Macro

US Macro

In less than a week, citizens of the UK will make their biggest decision in more than a generation when they go the polls to vote on whether to stay in the European Union (EU), or to leave it. It’s conceivable that the political and economic future of the entire 28 member EU could be reshaped by the June 23rd referendum. 

Those in favor of leaving the EU, known as the “Brexit” option, say EU elitist rules restrict UK companies and leaving would boost the UK economy. They also say that leaving the EU would give Britons control of their borders and limit immigration. Those campaigning to stay (including the PM David Cameron) paint a very grim picture of life outside the EU.  

The result of the vote could have acute and far reaching consequences not just for the British and EU economies, but also for global FX markets and G-7 stock markets in particular. At this point, the polls suggest that UK voters are spilt down the middle without an outright majority on either side. Further, it seems the only clear consensus is that a win for the Brexit camp would reshape the future of the UK and EU for decades to come……….the problem is that nobody knows exactly how.  

Long TLS.ASX

Long TLS. ASX

TLS

Income buyers will start to look at TLS ahead of the August dividend. Buyers are redescent at the moment due to macro issues with Brexit but now is the time to start looking at long exposure in TLS on this exhaustion in the pullback to $5.25 – $5.30.

 

 

AUD/USD

AUD/USD

Since the start of 2016, significant turns in the direction of the AUD/USD have worked as a good leading indicator to trend changes in the other G-7 currency pairs and the USD, in general.

Some foreign exchange commentators pin this forward looking correlation to the fact that over the last six months the AUD/USD trend has been acutely sensitive to Central Bank policy expectations and price swings of commodity metals and minerals……..Which have also driven the USD versus the other G-7 pairs.

Recall that the AUD/USD bottomed out at around the .6850 level in Mid-January over a month before the EUR/USD turned higher from the 1.0820 level in early March. More recently, the Aussie peaked out at .7835 on April 21st while the broader turn in the Major pairs didn’t reach the highs until May 3rd. Further, over the last two weeks, the AUD/USD bottomed on May 24th while the others didn’t turn until May 30th.

This is significant because the AUD/USD rejected the .7500 level during yesterday’s Asian session and posted a key reversal lower during the NY session with the close below .7430. And while the RBA held on rates on Tuesday, the price of copper extended its recent slide to 4-month lows just above $2.00 per pound.

Whether or not AUD maintains its role as a leading indicator for price action will be determined over the next few sessions.  We still prefer the short side of the pair.

Long QUB.ASX

Long QUB.ASX

QUB

The market appears to be under heavy sell side pressure at present with Asian markets down almost 3% today, therefore, any buy side transactions carry added risk.  To combat this, reduce position size and/or leg into the trade in two transactions at different entry points. QUB has been on my radar and I’ve been waiting for it to pull back into the $2.25 level.

Tomorrow when the ASX resumes trading, start checking QUB out for an initial buy at or near the open.  Remember, ease up on the dollar allocation.

News on AMC.ASX

News on AMC.ASX

Packaging giant Amcor will take a hit of between $US170 million and $US200 million ($A227.49 million-$A267.63 million) in pre-tax profits over the 2017 and 2018 financial years, after announcing several measures to streamline its flexibles business.

Keep this one on your radar. It’s likely that a buy signal will occur  following the aggressive sell-side  response to the earnings news. This is a market darling and leveraged investors will be getting squeezed. An oversold condition will soon emerge and we expect to see a signal within the $14.25 to $15.00 range.

 

Long SEK.ASX

Long SEK.ASX

SEK

This is a difficult one to pinpoint the ideal entry level, so you may want to think about managing the entry price with two separate buy transactions. The momentum supports a bounce at or near the $14.50 to $15.00 range as an entry point. This will be a slow consolidation, followed by a bounce higher. Be patient, mange the entry price and SEK should deliver further upside momentum.

US Macro

Over the last few months, it’s become evident that FED Chair Janet Yellen, along with other voting FOMC members, have placed more emphasis on the wages and unemployment components of the labor matrix, and less emphasis on the new jobs in reference to their “data dependent” analysis of the overall US economy.

However, after last Friday’s shocking 38,000 new jobs on the headline Non-Farm Payroll (NFP) number, it’s likely that Ms Yellen will make some direct reference to the data miss when she speaks at the World Affairs Council today in Philadelphia at 12:30 NY time.

After Friday’s steep sell off in the USDX, FX investors will be listening for comments which clarify whether the FED chief is looking at Friday’s report as an outlier, and not consistent with the vast majority of economic indicators, or as a signal that Q2 growth will not rebound as briskly as expected.

Our base case has been that a June rate adjustment was not particularly likely given the proximity to the UK referendum and the fact that FED officials have very little stomach for taking controversial positions. However, given the broader economic information set, we are reluctant to rule out a July rate hike and see no compelling reason not to expect the weakness in the May report to be a statistical fluke; which is not uncommon from the Bureau of Labor Statistics.

For example, In March of 2015 the headline NFP number was 84k, in December, 2013, there were 45k jobs created and in April 2012 job growth fell to 75k. In none of these cases did the disappointing headline number signal the end of the economic or labor cycle. In fact, in two of the four examples given, the following month’s headline NFP jobs growth was over 200k.

As a labor economist and experienced FED Governor, Ms Yellen will likely look past the noise of high frequency data and focus on the underlying positive growth signals. From that perspective, very little changed last Friday. Less than two weeks ago, Ms Yellen acknowledged that it might be appropriate to raise rates again in coming months. Without being too specific, if she simply maintains that type general assessment, it would be sufficient to keep the July FOMC meeting alive.

As such, with the ECB still expanding their QE and the Japanese economy still contracting, once the dust settles from last week’s terrible NFP report we expect the USD to re-emerge as the cleanest shirt in a dirty pile and recover last week’s losses.