ASX Weekly Wrap 10/07 - 14/07

The XJO had a healthy week, albeit on lower than average volumes. The index finished up 61.50 points or 1.08%. Our high was 5,778.80 on Friday and our low was 5,665.60 on Wednesday. The XJO was able to gain momentum as the week progressed making most of its gains on Thursday and Friday.

Very quiet week for data of any sort so this week’s wrap will be brief. The main data points came the way of CPI/PPI figures for both China and the USA. Once again both sets of figures came in a little soft showing that reflation has yet to really gain momentum again. To start with China’s CPI came in at 1.5% year on year (yoy), right on estimates. The month on month (mom) figure came in at -0.2%, below the forecast of -0.1%. Their PPI figure came dead on estimates at 5.5% and the same as the previous month. Overall a soft read for China.

The US showed much of the same if not a bit weaker. The yoy CPI figures in the US came in at 1.6% for June. This was below estimates of 1.7% and the previous month’s 1.9% read. The mom figure came in flat with no gain. It was expected that there would be a 0.1% gain. After an initial climbing around this time last year global CPI figures have stalled. I dare say as a result of oil prices remaining low and commodity prices coming off recent highs. Also massive disruption by technology such as Amazon keeping prices of food, clothing, IT etc. low all are pushing back against inflation. However one would expect with the increased global activity in manufacturing it will be only a matter of time before inflation figures start to pick up again as demand continues to increase.

Some bullish data from China came in the form of their trade balance which again showed that the economy is travelling along at a healthy pace. Exports rose 11.3%, well ahead of the +8.7% expected and the previous month’s +8.7% read as well. Imports, likewise, beat forecasts rising 17.2% yoy ahead of the +13.1% expected and accelerating on the +14.8% figure in May. As you can see from the chart above export and import growth have been steadily rising after bottoming out at the end of 2015. This is very bullish for the Chinese and global economy alike. It shows China is consuming more with an accelerated import rate and the globe is also consuming more as it buys more goods and services from China via exports. This obviously bodes well for Australia as a healthy Chinese economy only means positive days ahead for us.

The headline surplus figure ballooned from $US40.81bill in May to $42.77bill in June. This was ahead of the surplus expectations of $42.44bill. Breaking down some of their commodity imports Iron Ore volumes rose to 94.43mt from 91.52mt a month earlier. For the first half of 2017 Iron Imports sat at 539mt, a 9.3% rise on a year earlier. I wrote in my first newsletter of the year (you can find it here) that if China were to match 2016’s increase of +7.5% of Iron ore imports on 2015 that they would soak up most of the 90mt of extra supply expected to come onto market this year. Thus far they have increased imports by +9.3%, in the weakest part of the year, which means they are on track to import 1.12bt of Iron ore in 2017 (1.024bt in 2016). This is what will support the price and keep it from tumbling to 2015/16 lows and maybe send it back above that $80 level again. It also bodes well for companies such as RIO, BHP & FMG.

Like economic data company news was equally as brief this week. Bellamy’s Australia (BAL), the makers of infant formula, again made headline last week with more troubling news. They announced a few weeks ago they would be taking over Camperdown Powder Pty Ltd in Victoria, who make food items. The main reason they looked to take ownership of the company is due to their CNCA license and ability to export their products into China. Something BAL has had major trouble obtaining. Well it was announced last week that Camperdown’s CNCA license was to be suspended due to complaints received by a third party over their processing procedures. This is just another kick in the guts for BAL who basically went in with the sole intention of buying Camperdown due to this license and an easy way around to fixing their problems. BAL went into a trading halt for three days and has since gone into a suspension until they get further clarification over the license suspension.

BAL have made it clear this in no way effects their Australian operations and its business as usual there. One has to wonder who they have rubbed the wrong way over in China because it’s just been one road block after another for them and getting their infant formula exported over there. The conspiracy theorist in me thinks this could be a ploy by Chinese officials to keep BAL share price down so eventually one of their own could make a takeover play, but that really is tin foil hat stuff. Let’s hope for shareholders BAL can get this cleared up quickly.

Most sectors finished in the green barring health care, telecommunications, property trusts and gold. This follows the move into ‘risk on’ type sectors such as financials and resources. Surprisingly retail stocks kicked on after stronger than expected retail data over a week ago. I am still an avoid on this sector and feel it is giving investors another chance to exit here on this rally. We also saw energy perform strongly as oil made some gains and commentary surrounding the commodity turned slightly bullish. Once again I am still bearish oil in the long term but feel it will present us with trading opportunities in the short term.

Most commodities had a decent week with Oil, Iron Ore, Copper, Zinc & Gold making gains. Gold seems to still be in a lot of trouble technically. Just over a week ago it broke below the latest uptrend (green line) and fell through the 200dma. As with the XJO the 200dma is a very pivotal one as it’s a longer term indicator. We only have to look at the chart above to see what Gold did last time it broke it and could recover. It fell from 1280 to 1140. Its trading right on the 200dma right now (red line) so if it can’t hold it, it looks like it’s headed to the 1180 – 1190 range. Copper is still looking extremely bullish. If it’s able to clear 2.72 it should kick on to 2.80. Currently it’s trading about 2.70lb.

A big week ahead in terms of data as we have Chinese retail sales, industrial production, fixed asset investment and GDP out all to start the week. We also have Australian unemployment figures out on Thursday which have recently been very strong. Company wise we have CIM reporting tomorrow and then production numbers for RIO, BHP, OSH, EVN, STO & WPL spread out throughout the week. Next week’s wrap should have a bit more meat on the bones.

As most of you know I spent a large chunk of Friday and Saturday away with my lovely wife in the Adelaide Hills, as part of her birthday celebrations. More specifically we stayed in Hahndorf. It was also our first night away from our son. Whilst that part was hard we still had a wonderful time. The Adelaide Hills are a great place to visit and enjoy a short holiday. Even in winter, despite the cold, they look so beautiful with a fresh, wet smell about the place and lots of brown, oranges and yellows littering the streets. I highly recommend it to anyone who is looking for a small getaway. We also had dinner at ‘The Haus’ restaurant which is always a treat. Always great coming home to the big smile and cuddle from our little man though. Hope you all enjoy your week. Keep safe and I’ll speak to you all soon. Go Crows!

heath@hlminvestments.com.au

0413 799 315

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Any advice in this article should be considered General Advice only and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. I am happy to assist you in this process. To do so, I will need to collect personal and financial details from you before providing my recommendations. Please note the author may own shares in the companies mentioned in the above blog.