Australian shares recorded a second straight weekly drop after a fall in iron ore prices dragged the miners to multi-month lows and surging Coronavirus cases across the eastern coast of the country raised concerns over delay in Australian economic recovery.
China has recently continued its crackdown on steel production ahead of the Winter Olympics in February 2022. The prices of iron ore continued to decline all through the week as China mulled to add more cities under its environmental control.
With iron prices falling more than 20% for the week, a decline last seen during GFC in 2008, the move sent ripples across Australian miners with BHP, Rio and Fortescue all falling to multi-month lows. While BHP and Rio slumped to their nine-month low, Fortescue Metals declined by 12% to reach its lowest price in 14 months.
According to some of the analysts as more and more Chinese provinces look forward to curtailing steel production to meet their environmental targets there may be more weakness to come in iron ore pressure and as such any further weakness in mining stocks should not come as a surprise.
The rising Delta variant cases in Australia was also on the mind of investors all week. The weekly employment report though showed a dip in unemployment level to its lowest level in almost 13 years, it was majorly due to a sharp decline in several people seeking work.
The lockdown has forced many businesses to slash working hours right across NSW and Victoria and it would be interesting to see how the investors react to the re-opening roadmap in the coming weeks.
With US markets also turning south on President Biden’s plan to raise corporate taxes by 5.5% to 26.5%, there may be some weakness in Australian markets when the week opens.
In regards to gold, we mentioned last week how the gold investors were likely to remain on the sidelines till the next Federal Open Market Committee on September 21 and 22.
With most investors focussing on US Federal Reserve a firm US Dollar kept bullion on course for a second weekly decline.
The US Dollar rose to a three-week peak last week. The rise in US Dollar made gold unattractive and expensive for holders of other currencies and thus resulted in a 1.2% decline in the price of gold.
According to StoneX analyst Rhona OÇonnell “Everybody is watching Fed like hawks.” Investor’s looking to scour Jay Powell’s press conference for tapering a hawkish shift from the FOMC may result in another knee-jerk downward reaction in gold.
Oil posted its fourth consecutive weekly gain, thanks to unexpected supply shortages in the USA arising as an aftermath of Hurricane Ida three weeks ago.
Hurricane Ida forced the closure of 90% of oil-producing fields in the US Gulf of Mexico. As of last week, 28.24% of oil production in the US Gulf coast remained closed.
Oil continued to rally to record a third consecutive week of gains as investors focussed on tight US oil supplies with ongoing production shut-ins in the US Gulf of Mexico following Hurricane Ida. A move towards safer assets in the market on fears of economic recovery due to coronavirus fears may cap gains in oil prices.
A recent survey of economists by Reuters suggested that the economic recovery in the US may have been dented in the third quarter due to the spread of the Delta variant. Chinese data earlier last week also suggested growth slowing in the second half of the year for the World’s second-largest economy.
As such there is too much caution and if Europe also shows signs of slowing markets both oil and stocks may fall at a rapid pace.
The Australian Dollar kept falling all week against most currencies as traders looked for safer havens. China’s crackdown on iron ore has not helped the local currency recently. With Chinese retail and industrial production also falling in China, Australia’s largest trade partner and closures and lockdowns in multiple locations across the country the Australian Dollar has been under a lot of pressure all week.
In the recent Evergrande saga, with one of the largest property developers in China getting ready to default, the risks for China and Australia, the largest supplier of raw materials to the Red Dragon have significantly increased.
With no significant data coming out from Australia this week, the currency will be at mercy of news from China and the US. The Australian currency is particularly susceptible to a risk environment. With traders looking for next taper clues from the Fed, the risk is likely to remain off the table till at least Wednesday.
Moving forward should Powell announce Fed’s tapering plans the US Treasury yields may rise, which will result in the Australian dollar falling to 0.7200. His decision will however be driven by US data.
In regards to the Indian Rupee, the Rupee ended flat against the US Dollar as dollar buying by oil companies was balanced by strong corporate inflows. An increasing oil price negatively impacts the Indian rupee, however with India recently witnessing a strong inflow of foreign corporate earnings it helped the Rupee to counter any negative impact.
The Rupee is right where RBI wants it, trading at a range between 72 and 75 against the US dollar. A rise in imports, however, taper worries and persistently high crude prices all have Rupee traders on the edge.
As per Sejal Gupta, head of Forex and Rates at Edelweiss Securities, “Accelerated imports, increasing bond yields in India, global economic anxiety and rising crude oil prices over $75 per week is expected to weaken the Rupee.”
In the world of Cryptocurrencies, the week gone by saw consolidation for Bitcoin following a minor crash on September 7. At the time of writing the report, Bitcoin had risen 3% for the week. The optimism in the market returned as Cuba joined El Salvador to recognise crypto as a legal method of payment for commercial transactions in the country. El Salvador also announced plans to exempt investors from paying a CGT or income tax on Bitcoin.
Turkey, however, reiterated its ban on cryptocurrencies with President Erdogan declaring on Saturday that his country is at war with cryptocurrency.
With IMF also snubbing El Salvador and indicating it may suffer a rating downgrade there is concern that it would dissuade other developing nations from adopting crypto.
Technically speaking Bitcoin outlook looks positive with the 100/200 moving averages crossover forming. However, Bitcoin would need to break the $49,943 level to enter the Bollinger uptrend channel and start the next bull run.
In terms of altcoins, the week was a mixed bag. Solano had to shut down their network for some time following technical issues resulting in the coin getting sold heavily. Shiba Inu on the other hand rose by 40% on news that it is getting listed on Coin base.
In agricultural products corn, oil and wheat all consolidated from the losses the week before as grain traders await US harvest news and further clues on Chinese demand.
Harvest is getting ready underway in the United States and grain importer China is also preparing to gather its domestic crop. AS per grain traders, this is the time in the market when corn is about to come in, however, the corn prices need to be competitive against feed wheat for world markets to balance out.
Author: Ateev Dang is a trader and trading coach by profession. He runs a business called Glow trades Pty Ltd where he teaches anyone interested in starting their trading journey on how to trade. He can be contacted at adang@glowtrades.com.au.
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