Australian shares recorded their best week since late May as benefited from higher commodity prices.
The benchmark gained 3.1% for the week as investors also took comfort from the fact that the Bank of England left its benchmark rate at a record low while the US Federal Reserve also signalled it was in no hurry to lift interest rates.
The gold miners like Northern Star Resources (+6.3%), Evolution Mining (+4.8%), St Barbara Mining (+3.6%) and New Crest Mining (+3.6%) were some of the best-performing stocks benefiting by a 0.7% rise in gold prices for the week.
Shares for Newscorp (+6.9%), REA (+5.6%), Pro Medicus (+3.9%) and Cromwell Property (+4.9%) also rose sharply.
However, the week was not so rosy for Westpac which fell 9% for the week and was the only bank amongst the big four to end in red. Westpac shares were dumped in large numbers after it reported high expenses and full-year results missed targets. The fall in share prices means Westpac has now fallen below NAB and is no longer Australia’s second most valuable bank in terms of market capitalisation.
The week also saw both Commonwealth Bank and Westpac raising their fixed interest mortgage rate. On Thursday, Westpac lifted its rate for the second time in a fortnight while CBA has lifted its home loan rate for the second time in just over three weeks.
According to a report published by Rate City, 33 lenders in Australia have so far raised interest rates at least once in the past month. This has further fuelled expectations of sooner than expected rate hikes by the Reserve Bank as a result of higher inflation.
Moving ahead the bullish sentiment is expected to continue on Monday on the back of a positive finish on Wall Street. The investors will be keeping a close eye on Octobers job data.
We expect the unemployment rate to rise a whisker due to Sydney and Melbourne being in lockdown for most of October.
The inflation figures of both China and the US released next week will also keep investors nervous. The inflationary pressures have been on everybody’s mind and the inflation report will provide further direction to the equity markets.
In regards to gold, gold prices also recorded their largest weekly gain since mid-May as major Central Banks across the globe expressed a dovish tone on rate hikes. The market was expecting Central Banks to start lifting interest rates to control the sky-scraping inflation. However, the move disappointed the investors, however in turn restoring safe-haven allure for the yellow metal.
The US Fed Chair Jerome Powell stated last week that the US is in no rush to hike the rate in a near future. The Bank of England then surprised the market by keeping its interest rates on hold. Reserve Bank of Australia also hinted it will raise Australia’s cash rate in 2023, disappointing analysts who were expecting an interest rate rise from as early as November 2022. New Zealand was the only major economy to raise the interest rates last week for the first time in half a decade.
Apart from that, physical demands of gold ramped up in India due to the religious festive season, adding to further bullish waves in gold. The jewellers were hoping for bumper gold sales during Diwali and the numbers did not disappoint.
Moving ahead gold bulls should continue to draw strength from the hesitancy of Central Banks to lift prices and strong physical demand from India.
Oil prices recovered after recording their first weekly loss in 10 the week before as OPEC+ nations rebuffed calls from the US, Japan and India to increase supply and instead maintained plans for a gradual return of output.
OPEC+ nations had a restricted supply of oil after the coronavirus pandemic led to evaporation of demand. The OPEC+ nation on Thursday agreed to stick to their plan to raise oil output 400,000 barrels per day from December, ignoring calls from US President Joe Biden for extra output to reduce rising oil prices. Earlier Japan and India have also raised concerns about rising oil prices and requested an increase in oil supply.
Moving forward all eyes will be on China who stated on Sunday that they will be tapping its state fuel reserve to boost market supply and stabilise prices. The national refiners in refiners in China have also ramped up output sharply to avert fuel shortage in World’s second-largest oil user.
In regards to the local currency, the Australian Dollar recorded its first weekly fall in six after RBA hinted it could lift Australia’s cash rate in 2023.
The move resulted in the local currency falling sharply against the greenback as some of the major bank economists were predicting the nation’s central bank to increase the interest rates as early as November 2022.
The Australian Dollar however rose against the British Pound after Pound Sterling was sold heavily following the Bank of England’s surprise decision to not lift interest rates. For weeks the UK’s Central Bank had been hinting that it would announce an interest rate hike, only to disappoint the market again.
This week the October jobs data on Thursday and inflation numbers from China, Australia’s largest trading partner and the USA on Wednesday will keep investors in AUD nervous. We believe that continuously rising US energy costs and other rising cost pressures will result in higher inflation and will likely serve as a reminder that the Central Banks around the globe would need to start following New Zealand in raising interest rates sooner than expected.
The Indian Rupee, on the other hand, rose against all major currencies including the US and Australian Dollars as customer sentiment improved after the government announced it will reduce taxes on petrol and diesel in an attempt to control inflation.
The announcement comes as oil prices continue to trade at multi-year highs and remain elevated after OPEC+ countries decided to stick to its oil increase output agreed in July.
India is also expected to receive a big increase in revenue. Many economists expect India to exceed the target revenue of US $207.77 billion for 2020/21, which would mark its first beat in four years.
Strong data from India’s dominant service sector, showing that the sector grew at the fastest pace in a decade also boosted the suggestion that India’s economic recovery is on track for the RBI to hike interest rates sooner than expected.
In the world of cryptocurrencies, it was a very dynamic week. While Bitcoin failed to produce any meaningful gains for the past week and struggled to clear the resistance around the US$62,500 mark and is trading near the US$62,000 mark at the time of writing the report.
The Altcoins, specially the meme coins and play to earn projects on the other hand saw a lot of action. Shiba Inu in particular saw a lot of action after one of the biggest holders started moving coins. This sparked fear in the market and resulted in the coin falling close to 30% at one time. The meme coin was down 17% for the week at the time of writing the report.
Elsewhere the play to earn coins took off after Facebook announced its rebranding to Meta. Mark Zuckerberg is often remembered as one of the builders of the Metaverse and the announcement sparked a rally in coins like Decentraland, The Sandbox and Axie Infinity all surged straight away.
The last week also saw CBA becoming the first bank in Australia to support cryptocurrency and allowing users of its CommBank app to trade Cryptocurrencies. In addition in another positive news for the cryptocurrencies the new mayor-elect of New York, Eric Adams announced that he will be taking his first three paychecks entirely in Bitcoin. The mayor-elect also stated on his social media account that he intend to make New York the “Centre of Cryptocurrency Industry.”
In agricultural products, tightening global supplies and strong demand continue to propel wheat prices higher. Corn and soybean prices however recorded a weekly loss as the US report due this week is expected to show bigger harvest estimates.
Dry growing conditions in Russia and Ukraine, the top wheat exporting countries have added to supply concerns while demand continues to strengthen with higher than expected purchases by top buyers led by Saudi Arabia to prepare for any upcoming food shortage.
The recent rains in Argentina have helped in the development of wheat crops and could help in resting some of the food shortage fears. According to Phin Ziebell, an agribusiness economist at National Australia Bank “Inflationary expectations and supply-demand fundamentals are supportive for wheat prices. Corn and soybean prices are likely to be capped at current levels.”
Author: Ateev Dang is a trader and trading coach by profession. He runs his own business called Glow trades Pty Ltd where he teaches anyone who is interested in starting their trading journey how to trade. He can be contacted at adang@glowtrades.com.au.
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