China Lowers Their GDP Growth Target

Posted on | by Todd | Leave a Comment on China Lowers Their GDP Growth Target

While addressing the 3,000 members of the National People’s Congress (NPC) in Beijing, Premier Li Keqiang announced that China’s economic growth target has been cut to around 6.5% from last year’s estimate of 7%.

China’s GDP grew at the slowest rate in 26 years last year, and Mr Li pledged he would address the state sponsored “zombie enterprises” which produce more coal and steel than the market needed.

Similar pledges have proved hard to fulfill in the past.

However,  it appears that NPC leaders are more committed to slower growth to deal with the painful reforms triggered by the rapid build-up in debt from both the official and shadow banking sectors.

Against the backdrop of last week’s disappointing Australian trade balance numbers, it will be worth watching to see if the RBA makes reference to this development during their monthly statement tomorrow.

A contracting Chinese economy would increase the likelihood of another RBA rate cut and a lower Australian Dollar.

 

 

ETF Watch: Gains In BBOZ and YANK

Posted on | by Todd | Leave a Comment on ETF Watch: Gains In BBOZ and YANK

As the AUD/USD broke down through the .7600 support level, and the XJO dropped over 1% on the day, the two biggest gainers in the local ETF market were BBOZ and YANK.

The BBOZ is an ASX listed inverse Exchange Traded Fund tied to the local share market, which means the price of the shares rose over 2% to $18.05 as the shares on the  XJO index traded lower.

Similarly, the YANK is an inverse fund based on the price of the AUD/USD. It has a weighting of 2.5%.

As such, shares of the YANK ETF rose 3.15% to $14.60 as the price of the AUD/USD fell close to 1.5% to .7550.

Chart – BBOZ
Chart – YANK

 

 

Yellen Signals A Rate Hike

Posted on | by Todd | Leave a Comment on Yellen Signals A Rate Hike

In remarks earlier today, Fed President Janet Yellen indicated a readiness to raise the US funds rate at the FOMC’s March 14-15 meeting.

In fairly explicit language, she said that as long as “employment and inflation are continuing to evolve in line with expectations”, “a further adjustment of the federal funds rate would likely be appropriate”.

As a result, we now see a hike at the March meeting as close to a done deal, and see the market probability raised to 95%.

Considering the fact that the Fed Funds futures contract was reflecting a probability of around 30% just over a week ago, this has been a very sharp turn in policy sentiment.

As a result, US 10-year yields touched 2.52%; close to a 3-month high.

In typical market conditions, a US rate hike is Bullish for the US Dollar and Bearish for Stocks, Commodities and Crude Oil

Chart -Dow Jones
Chart – OOO (Oil ETF)

 

Aussie Dollar Falls Hard On Trade Data

Posted on | by Todd | Leave a Comment on Aussie Dollar Falls Hard On Trade Data

The Aussie Dollar fell hard last night breaking the key support area of .7600 versus the US Dollar and closing the NY session down almost 1.5% for the day.

After consolidating for several weeks above .7650, the AUD/USD finally broke down. Although recent economic reports have been fairly good, yesterday’s weaker trade balance figures were a sharp reminder of the damage a stronger currency can do to an export dependent economy.

Analysts were looking for the January trade surplus to increase to 3.8 billion, but instead it shrank to 1.3 billion; less than a third of the expected level. The main draw on the trade balance were exports, which fell over 3% for the month.

The RBA has been clear that a stronger AUD will act as an economic headwind as Australia moves away from a mining-based economy.

Over the last 18 months, the AUD/USD has traded in a broad range between .7000 and .7750. Technically, last week’s high of .7740 could stand as a medium-term top as US Dollar strength pushes the AUD toward the bottom end of the range.

Investors looking to benefit from a move lower in the AUD/USD can consider the BetaShares AUD-based Exchange Traded Funds.

BetaShares offers two ASX-listed ETFs which increase in value as the AUD trades lower against the USD.

These two ETFs are called: USD, which is unweighted, and YANK, which has an approximate weighting of 2.5 to 1.

Contact us for more information about these AUD-based ETFs.

Chart – YANK