Our thoughts and prays are will all the innocent in all conflicted regions.

Comments from Israeli Prime Minister Benjamin Netanyahu were not encouraging over the weekend. Israelis can expect a “long and hard” military campaign. The ground offensive is on the way and with this the conflict enters another phase. The US has sent further military assets to the region in hoping that this will deter other Arab states from joining the conflict. A “long and hard” campaign from a market’s perspective is challenging. Heightened risk of instability in the region has the potential to keep oil elevated, prompting fears that energy inflation will bounce back, gold has gone bid on a flight to safety, interest rates will increase, and equity markets will fall. Central Banks have ushered in a tightening bias and expectations are that we will have another rate increase. In Australia, possibly two more as the recent CPI data reversed its trend with the YoY rate at 5.4% and QoQ rate at 1.2% all outside expectations and higher than consensus. The local Central Bank (CB) virtually promised a rate increase at the next meeting. All CBs are guided by the data, good CBs will take pre exemptive moves to lessen the volatility.  Hence, the current feeling that we are in for another bout of interest rate increases. The global economy has already been spluttering and equity markets are offered. Have we entered a bear market or are we about too as there is little inspiration in going long equities. The generally accepted definition of a bear market is when the S+P slips more the 20% from its highs and then finds a base and generally from here rockets on to new highs. Ever since the S+P Index was launched, which was 1957, we have seen 12 bear markets which is roughly 1 every 5.5 years. The most recent bear market ended in Oct 2022 when the market over the previous 10 months slipped 25%. The longest bear market was 31 months between March 2000 and October 2002 where the market lost 49%. The October 2007 - March 2009 bear market lost the most at 56%. Has the last bear market actual left us or are we about to enter another phase? 

From a statistical point of view, it has. We should be in for on average 59.2 months of positive returns and a new historic high. The next rally should produce an average cumulative gain of 169.3%.  So by all rights the current play book should involve a long equity strategy. However, perhaps this time around it may be prudent to wait until we have a bit more clarity what is happening in Ukraine v Russia, Israeli v Hamas conflicts, the new House of Representative speaker which apparently is taken a hard-line approach to budgets in the US and the current state of play in the Chinese property sector which seems to have gone very quiet. Up until last week.

Last week, Country Garden seems to have taken over from Evergrande as the bad boy in Chinese property sector. It once again failed to pay investors back on an international bond for the first time, even when it was given a grace period. Nobody from the company is talking as it tries to find funds to hold up US$190 billion in liabilities and tries to find liquidity to service $15 billion of debt which is due in June 2024.  The property sector in China is slowly falling apart. As the largest builder in China reported sales of new apartments fell by 81% in the last month and the company reported a $7 billion loss in the first half of the year.  The IMF in a statement last week note that the real estate is a major drag on the Chinese economy that it will have a drag on global growth. New Home sales in China fell again for the third straight month in a row reiterating this point. There is a lot more clarity that is needed to be confident about putting equities back in the play book.

In the Calendar this week’s focus will be on Chinas NBS Manufacturing and later Caixin Manufacturing all posted to be slightly better on the day. In the US it’s a big week. On Wednesday we have the House Price Index, which is tipped to be softer, then Thursday a raft of data that that culminates in the US Feds deciding on interest rates. The consensus is on hold at 5.5%, however given any pre exemptive lift in energy inflation due the Middle East it may be prudent that the Fed lifts rates.

On our positions, we continue to hold onto our short equities (Dow ... ASX …). Stops are all in place at levels that provide a return. On the commodities front, Gold ... If gold can maintain the US 2000 level on a daily basis today, then this bodes well. It’s a hefty level so expect to see some volatility. 

AUD/USD … and AUD/CHF … positions they continue to track sideways however we have seen them come to life and we are slowly clawing back gains. Still happy to …

Trade Focus:

…

Technical Analysis:

There is not much you can say about the technicals. They have been oversold for some time so we could expect a lift as to whether or not this is the start to a record high is another story that will only come once we secure a bounce. 

Support          …

Resistance     …

Momentum   …