Expect More Debt Stress From Italy

Posted on | by Todd

One of the first lessons that we learned working on a dealing desk is that instability in sovereign bond markets can create sudden turmoil across a wide range of financial products.

The reason for this is because the aggregate amount of global bonds outstanding dwarfs the value of all the shares of stock in the world, combined.

Last Tuesday, global financial markets were spun into a frenzy as Italian sovereign bond yields exploded to the upside.

The catalyst for the move was President Mattarella’s rejection of the new government’s candidate for Finance minister, Paolo Savona.

Mr Savona is an outspoken critic of the EU and the Euro currency

As a result, Italian 2-yr bond yields rose from .68% to 2.42% in one day. That’s a rise of 250% in just 24 hours!!

Looking past the political aspect of this week’s events, Italy is well on its way to becoming the next financial basket-case in Europe.

Regardless of who governs Italy, the country will need to re-finance over 350 billion worth of debt maturities and close to 300 billion worth of non-performing loans over the next five years.

We consider the ongoing debt stress in Italy as a potential source of contagion for global equity markets, including the ASX 200 Index.

Italian Sovereign Yields

ALGO Update: Stay Long BBOZ

Posted on | by Todd

Our ALGO engine triggered a buy signal on BBOZ at $14.50 on May 3rd. This “higher low” formation is referenced to the low trade of $14.40 on January 10th.

BBOZ is the BetaShare ETF linked to the ASX 200 Stock Index. When the index falls, the price of BBOZ will rise, and vice versa.

We calculate that the price of BBOZ will be near $16.90 when the ASX 200 trades back to the April 3rd low of 5680.

Since reaching a high of 6135 on May 18th, internal momentum indicators have been trending lower for the ASX 200 Index.

For more information about BBOZ and opportunities to trade ETFs, in general, call our office on 1-300-614-002.

 BetaShare ETF BBOZ

 

 

S&P/ASX 200 finished the week down 0.47%

Posted on | by Leon Hinde | Leave a Comment on S&P/ASX 200 finished the week down 0.47%

The S&P/ASX 200 Index finished the week down 0.47%. 

The best performer was the Health Care sector, up 2.4% and the the worst performer was the Telecoms sector, down 10.1%. 

Telstra Corporation down 11.6% and Vocus Group Ltd down 10.9%.

The XJO index is running into resistance at the prior high of 6150, (reached in January). With resources and the banking sector looking fully valued and the industrial sector trading on stretched price to earnings ratio, we see little upside potential for the index.

Investors should be looking at using a derivative overlay to enhance the income from their existing portfolios.

 

 

 

 

 

 

 

 

XJO – S&P/ASX 200 Road Map

Posted on | by Leon Hinde | Leave a Comment on XJO – S&P/ASX 200 Road Map

The S&P/ASX 200 index finished the week up 0.5%. 

The best performer was the Energy sector, up 3.3% and the worst performer was Utilities sector, down 1.9%. 

With global equity markets selling-off again in the overnight session, (following ongoing concerns around trade wars), index traders should stay short the market and run a stop-loss on a reversal back through 5806 on the XJO.

US large cap financials will kick-off March quarter earnings later next week and with solid earnings expected, we may see a late week reprieve in selling.

5630 will likely become a mid-week support level for the XJO.