Despite no end to the war in Ukraine and a string of rate rises forecasted for the US, Australian shares recorded their best week since February last year.
Driven by gains in mining and energy the ASX 200 index gained more than 3% on the week in which the US Federal Reserve raised interest rates for the first time since 2018 and projected six more increases to come this year.
Helped by geopolitical tensions energy stocks led to the gains in Australia as crude prices rose on renewed fears of supply crunch due to growing sanctions on Russia. Paladin, Ampol, Woodside Petroleum Ltd, Beach Energy Ltd were the major beneficiaries of rising fuel prices.
Iron miners also rallied after China’s promise of a new fiscal stimulus to prop its economy boosted investor sentiment. BHP, RIO and FMG all gained on rising sentiment.
Increasing expectations of higher rates helped financial stocks improve by six per cent last week. Banks usually benefit more from higher interest rates as they can charge more.
It was gold stocks however that recorded their first loss in six weeks as investors moved towards riskier assets after chances of Russia’s default diminished.
Looking ahead ASX looks set to open higher and continue its move up on Monday after a strong session in the US on Friday. This week is a fairly quiet week for economic announcements, however, one date that will keep traders on the edge is the fast-approaching Federal Budget date on 29 March.
With economists expecting some sort of assistance arriving to help with the rising cost of living, it would be unusual if some indications and/or leaks does not start to appear this week.
The consumer confidence figures will also come out this week. It would be a surprise though if consumer confidence has not taken a hit given zooming petrol prices, floods, the Ukraine war, speculation of interest rate and the ongoing COVID19 pandemic.
Hit by interest rate hikes in the US and hopes of progress in peace talks between Russia and Ukraine the safe-haven gold recorded its biggest weekly drop since November.
Gold is fairly sensitive to rising interest rates as higher interest rates tend to raise the opportunity cost of holding non-interest paying bullion.
Media headlines of progress in peace talks between Russia and Ukraine and new financial package stimulus announcement from China also lifted risk sentiments in wider financial markets last week, denting demand for safe-haven assets.
Having said that while the current geopolitical risks and inflationary concerns remain in place the longer-term interest in gold remains intact.
Oil declined for a second week straight, its first back-to-back decline since December, as intense volatility and geopolitical risks continued to upend markets.
Both Brent and WTI crude ended the week more than 5% down after trading in a $16 range. Prices hit 14-year highs about two weeks ago, encouraging bouts of profit-taking since then. Having said that oil seems to have found its floor above $100 a barrel with no easy replacement for Russian barrels insight in a market already marked by tight supply.
The supply crunch from traders trying to avoid Russian barrels, stuttering nuclear talks with ran, dwindling oil stockpiles and worries of rising coronavirus cases in China hitting oil demand have all combined to create a roller-coaster ride for oil prices.
The volatility in oil recently has scared many players out of the oil market, which in turn have exacerbated price swings. The output from OPEC+ producer group in February undershot targets more than in the previous month as IEA has that oil markets could lose three million barrels per day of Russian oil from April.
The agency also noted in a statement on Friday that advanced economies could curb their oil demand by reducing speed limits and encouraging the use of public transport to ease potential strains on the market.
One of the most volatile corners of the oil market has been diesel, as Russia is a major exporter of diesel to the rest of Europe. Buyers continue to treat Russian crude with extreme caution as they are worried about damage to their reputation or falling foul of sanctions.
As such open interest in Europe’s main diesel contract have fallen by more than half from its high last year.
The Australian Dollar was all over the place during the course of last week as we continued to see a lot of noise in both directions.
The AUD/USD pair is highly volatile to risk sentiment and also levered to commodities, this combination makes it a bit of a headache to trade the pair at the moment.
Rising interest rates in US and investor cautiousness due to geopolitical risks have provided quite a bit of US dollar strength lately, whereas a rise in commodity prices have been providing a boost to Australian currency.
The AUD/USD pair started the week lower and continued its move down reaching a low of 0.7165 on Tuesday. From there, the pair appreciated more than 3% to end the week above 0.7400.
The AUD has continued to rally against a basket of other currencies this week as the positive employment data released last week spurred fresh hopes of monetary tightening by the Reserve Bank of Australia.
The number of employed workers increased by 77K in February, according to the Australian Bureau of Statistics, way above the 37K expected by the market. Last week also saw the unemployment rate drop to 4%. These figures have boosted hopes that the Australian Central Bank might consider accelerating its monetary normalisation plans, boosting demand for the Aussie.
Technically speaking the AUD/USD pair is now approaching resistance at the March 7 high of 0.7440. Once above 0.7450, the traders will be aiming for October 2021 highs of 0.7550.
On the downside, a bearish reaction from current levels might seek support at 200 SMA levels, now around 0.7300.
Last week in our report we mentioned that ex-pats from India living in Australia will be keeping a close eye to see if the local currency will go above 56.00 against the Indian currency in order to remit more money back home. That level was finally breached with the Australian Dollar closing at 56.39 against the Indian counterpart.
The Indian currency has been under huge pressure recently as high oil prices continue to hamper the nation’s growth. Last week RBI sold large quantities of foreign reserves to prevent the Rupee’s value from falling further.
The move saw India’s foreign exchange reserve fall by 9.64 billion, the most in two years. The week also saw India’s Special Drawing Rights with the IMF declined by $53 million and India’s reserve position in the IMF drop by $7 million.
The Indian rupee had plunged to a record low of 77.02 against the US Dollar, before RBI’s selling of foreign reserves helped the Rupee advance to 75.89 against the US Dollar.
Moving on to digital currencies, the crypto assets had a strong week with Bitcoin gaining 7% last week as the interest rate hike by US Federal Reserve has had a minimal effect on the market.
Ethereum too surged 14% for the week and is now inching towards $3000. While Avalanche added 22% in the last seven days. In fact, not a single top 30 currency was down over the week.
The breakout story of the week however belonged to ApeCoin. The newly launched APE token immediately took off and is already amongst the top 40 cryptocurrencies by market cap.
In a positive week for the digital assets, Meta CEO Mark Zuckerberg confirmed that NFTs will be coming to Instagram. Rumours of a potential NFT pivot have swirled since January.
Ukrainian President Volodymyr Zelensky also officially signed a law called ‘On Virtual Assets’ last week, that legalises cryptocurrency in his country, as it continues to resist Russia’s invasion.
In agricultural products, grain prices underwent major corrections after media houses reported progress in peace talks between Russia and Ukraine. After high price spikes during the previous week, the grains market took a breather as traders monitored diplomatic efforts to end Russia’s invasion of Ukraine.
More than three weeks since launching its invasion which Moscow calls a ‘special military operation’, the Russian invasion has stalled and failed to capture a single big city. A World Food Programme official however said that food supply chains in Ukraine were collapsing with infrastructure destroyed.
Grain prices have been extremely volatile since the invasion as importers are heavily reliant on supplies shipped from Russia and Ukraine through the Black Sea. It seems it will be quite a while before grain moves out of Russia and Ukraine.
As such, any fall in prices should give traders an opportunity to buy grain futures as the market is likely to consolidate at high prices until it becomes clearer how long the Ukraine crisis may last.
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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