Australian shares finished the week slightly lower to record their second consecutive weekly loss with retail in the spotlight as spending is curbed by continuing lockdowns. Wesfarmers was the biggest drag on the index despite recording a record profit.
Wesfarmers which owns Officeworks, Kmart and Bunnings booked a 40.2% surge in full-year net profit and declared a $2 per share return on capital, amounting to $2.3 bn to investors.
Wesfarmers also reported that sales in Bunnings have so far declined 4.7% in the current financial year with sales on Target and Kmart down 14.3% over the same period last year as lockdowns continue to impact the retailers.
Australia’s other leading retailer Woolworth also delivered bumper full-year earnings and rewarded shareholders but cautioned that sales were down so far in 2021/22 due to lockdowns.
The Australian Bureau of Statistics has also unsurprisingly reported a 2.7% seasonally adjusted fall in retail turnover in July, the biggest monthly fall this year, as lockdowns continue to impact most parts of the nation.
The retail sector was particularly hard hit in NSW where the month of July resulted in a 9% decline in turnover. It was the third biggest monthly decline in retail ever recorded in Australia and the largest monthly decline for any state or territory since August last year.
With about 35% of potential trading days lost in the first seven weeks of this financial year and with lockdowns dragging in NSW and Victoria retail spending is likely to continue to fall in August and September.
Reece Plumbing also shed 15.3% despite booking a 25% increase in profit as the company said the December half of the year remains highly uncertain.
Lynas, the world’s largest rare earth miner outside China was another drag on the market. Even though Lynas recorded an eightfold increase from the prior year at $157 million, the shares were dumped by the investors after it did not declare a final dividend.
The major banks however balanced the falls with all four bans rising for the week. Qantas also gained 21.2% for the week after it laid out plans to restart international travel by end of the year.
The announcement from Qantas also boosted other travel stocks with Webjet gaining 15.9%, Flight Centre advancing 22.9% and Corporate travel adding 10.9% for the week.
Gold recorded its third straight weekly rise to close above the USD 1800 mark on Friday as super dovish Federal provided clarity that it is in no hurry to raise interest rates any time soon. Gold investors geared up all week in preparation for US Federal Reserve’s Jackson Hole symposium on Friday.
Gold, which is usually considered a haven has had a volatile year so far with US policymakers continuously shifted focus from wanting to begin tapering sooner and pushing it beyond 2021.
With Jerome Powell easing concerns that the policymakers will soon tighten monetary policy the US Dollar sank against most major currencies making the yellow metal attractive for holders of other currencies.
With Treasury yields also declining it also boosted the non-interest bearing precious metal’s appeal further and helped gold reach $1819.50/ounce.
Strong demand for gold jewellery from China also helped in gold recovery. A strong surge in patriotism especially amongst people in their 20s and 30s and the e-commerce boom have fuelled a strong demand in demand for heritage Chinese gold jewellery thus helping the nation recover from a pandemic induced slump.
According to World Gold Council a surge in demand for Chinese heritage gold jewellery, which can command premiums of 20% or more, have resulted in China – the world’s largest consumer of the metal- more than doubling its gold sales compared to the first half of the year in 2021. Major Chinese jewellers have reported that their heritage gold collections are doing well especially among young customers.
Part of heritage gold jewellery’s appeal, especially amongst younger customers, reflects a desire to be patriotic and is considered by many Western countries as a symbol of the Chinese younger generation’s backlash against Western brands in China who raised concerns over allegations of human rights abuse in the region of Xingjiang.
The strong demand from China has also eased concerns raised by the World Gold Council about demand from India, the world’s second-largest gold consumer, declining as the pandemic hits the wedding season. Gold is traditionally included as a gift to daughters during weddings in India.
After a temporary reversal in prices, oil too resumed its bullish momentum last week. Boosted by a strong hurricane forecast in the Gulf of Mexico, which ignited supply disruptions concerns the oil recorded its best weekly gains in over a year.
With hurricane Ida expected to hit over the weekend, the energy companies began winding up the production thus boosting oil prices.
Historically speaking oil prices always rises when the hurricane season approaches even though the refineries do not need oil when they are shut down due to the storm.
A fall in the US dollar following comments from US Federal Reserve Chair Jerome Powell and simmering tensions in Afghanistan also supported oil prices.
Energy traders are pushing crude prices higher in anticipation of disruptions in output and supplies due to weather and political events. In addition, there are growing expectations that with a continuous rise in Delta variant cases globally the OPEC+ nations may resist raising oil output.
Technically speaking with the Crude Oil taking over the 100 DMA at $68.06 the energy traders will be eyeing a fresh upswing towards 50-day DMA at $70.40 with $67.61 providing fresh support.
The 14 day RSI holds firmer above the midline, suggesting there is room for more upside.
The Australian Dollar found some support this week as risk assets strengthened after US Dollar pulled back across the board. While data from Australia was mixed with retail figures disappointing but private Capex beating expectations, it was a rise in iron ore prices that provided much-needed stability to the Australian Dollar.
China re-opening its ports was also seen as a piece of positive news for the Australian Dollar. Over the last fortnight, we saw the devastating impact the closure of Chinese ports had on the local currency. Iron ore, by far Australia’s largest export, is highly dependant on China and traders will be keeping a close eye on China for any changes that may impact iron price in the future.
Commodities such as gold, iron, copper, oil are all priced in US dollars. As such when US Dollar goes down it boosts commodity prices as the commodities become more attractive for holders of other currencies. With Australia being one of the largest exporters of iron, gold and copper it is no surprise that the fall in the Greenback following Jerome Powell’s speech on Friday resulted in a strong rally for the Australian Dollar.
Looking ahead, however, the inter-relation between various markets is expected to impact the Australian Dollar, with the Delta strain raging havoc in NSW and Victoria the upside seems to be capped for the time being.
The ongoing pandemic continues to disrupt the local economy and any change in global risk status may see the Australian Dollar getting sold first. With Australian trade data out this week, the market will be focussing on monthly building numbers and second-quarter GDP numbers. The investors will also be looking at the RBA meeting on 07 September for further direction on the Australian Dollar.
In regards to the Indian Rupee, like all other currencies, Rupee too benefited from a fall in US Dollar and move towards risk assets. The Rupee’s resurgence in recent weeks is largely been supported by recent IPO-related inflows in the Indian market, which also saw the Indian Sensex reach new record highs.
Uncertainty over Delta variant of COVID and a potential third wave in October as forecasted by analysts may however impact the foreign portfolio investments. Despite a strong surge in the Indian stock market, foreign investors are cautious. An increase in COVID cases or the onset of the third wave as predicted in October may dent the investor risk appetite and urge foreign investors to move towards safety.
The Rupees recent gains were also supported by a fall in global oil prices which saw oil drop as much as $11 a barrel in the first three weeks of August with China imposing lockdown. That situation has since reversed with oil prices reversing the trend last week. India imports 70% of its oil requirements and oil prices amount to the most important source of forex outflow for India. As such any rise in oil prices impacts Rupee negatively.
Even though the RBI governor in his recent monetary policy announced measures to curb inflationary prices through absorption of excess liquidity in the banking system, many analysts believe a continuously rising inflation remains a threat to the Rupee’s gains against other currencies such as Australian and US Dollar in the weeks and months ahead.
In the world of Cryptocurrencies, the inability of Bitcoin to clear the USD 50,000 mark saw traders losing patience and collecting profits. The slide however was limited as traders reacted positively to Jerome Powell’s comments on tapering of asset purchases. As US stocks surged to an all-time high following the Fed reserve Chairman’s comments Bitcoin too rallied $1500 in less than an hour.
If Bitcoin can reclaim the $50,000 mark it will set itself up for a phenomenal bull run next week. A repeated failure however to break above the $50,000 mark may prove to be damaging in the short-run however and could see Bitcoin retrace back to Fibonacci retrace levels of 38.2% at $45,495 and 50% at $43,931.
A break and close above $50,000 may however see Bitcoin rally to its next key fib target at $58,849.
In regards to the altcoins, most altcoins were down for the week, however, a strong rally in Bitcoin on Friday meant they recovered most of their losses to end the week marginally lower. We have had a bullish bias on Stellar Lumens, Cardano and Polka Dot and would continue to keep our bullish bias in these coins until unless there is a major turnaround in crypto prices.
In agricultural products a worsening outlook for crop season in the US and Canada, a poor start to harvest season in Russia, tightening supplies of crop grains and fears that Hurricane Ida could stall the harvest and disrupt vessel loadings in New Orleans all combined to raise prices for soy, corn and wheat.
The weaker wheat supply outlook as a result of dry, hot weather conditions in the Northern Hemisphere have continued to raise concerns about food supplies.
While corn prices found strong support from demand for US supplies after declines in the size of Brazil harvest. Severe drought conditions in Brazil, the world’s second-largest exporter of corn, resulted in 88% of the 2.46 million hectares of corn being harvested in poor conditions thus resulting in a significant reduction in expected production.
USA soybean also found itself in demand from China with the US Department of Agriculture confirming private sales for 129,000 tonnes of US soybeans to China for delivery in 2021/22 marketing year beginning from 01 September.
Author: Ateev Dang is a trader and trading coach by profession. He runs Glow trades Pty Ltd where he teaches anyone interested in starting their trading journey how to trade. He can be contacted at adang@glowtrades.com.au.
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