Author: Todd

The VIX Volatility Index was introduced to investors in 1993. Today the index posted an all-time low weekly closing price of 9.31.

The price of the index reflects the market’s expectation of 30-day volatility in put and call options on the SP 500 stocks. It’s a widely used measure of market risk and often referred to as the “investor fear gauge”.

A price on the VIX greater than 30.00 is generally associated with high market volatility driven by investor uncertainty, while a value of 20.00 or lower corresponds to complacency in the market.

As a point of reference, the VIX has not posted a closing value above 20.00 in over 8 months.

With the SP 500 index trading near all-time highs on declining volume, it’s reasonable to expect a material increase in market volatility over the medium-term.

VIX Index

The price of Gold posted a low of $1208.00 on July 10th.

Since then, the yellow metal has rallied over 3% hitting a high of $1247.00 in last night’s New York trade.

However, shares of NCM have not participated in this recent upswing in Gold and have been trading in a range between $19.50 and $20.00 for the last two weeks.

That could change on Monday after NCM announces their quarterly production report.

Much of the negative sentiment in the stock has centered on the impact of the seismic event and subsequent shutdown of the Cadia mine in April.

And while production numbers from Cadia are expected to fall from forecasts made earlier in the year, it’s also expected that other company assets have been worked harder to make up some of the gap.

On balance, we see the price risk asymmetrically skewed to the upside as the market should be able to look through the one off cost of getting Cadia back in production.

As such, we would expect a neutral-to-positive report to support a move in NCM back into the mid-June price range of $21.50 to $21.75.

Newcrest Mining

Over the last 10 trading sessions, yields in the benchmark 10-yr and 30-yr US bonds have dropped over 5% to 2.26% and 2.82, respectfully.

The quick reversal in yield expectations has had several “knock-on” effects across various markets.

The lower US yields will have a dampening effect on US banks, which has been illustrated by the weaker forward guidance from Goldman Sachs and JP Morgan.

More locally, the weaker US yields has triggered a sharp rally in the AUD/USD up to a 2-year high of .7940 in early trade.

We have written about how a back up in US rates would benefit local yield sensitive names like GPT and negatively impact multinationals like CPU.

US 30-yr Yield

Our ALGO engine triggered a sell signal in CBA on June 29th at $84.10. The share price hit a low of $81.30 yesterday.

Before the market opened this morning, APRA announced new “capital adequacy” targets with the goal of making the domestic banks safer.

The regulator will now require a 150 basis point increase to 10.5% in the minimum safety reserves that must be held by the five major banks.

Shares of the “Big 5” have all opened sharply higher in early trade. However, we believe that the local banking sector faces other market headwinds going forward and that lower share prices are likely over the medium-term.

CBA