Australian share market tumbled to record its first negative week in almost a month as investors worried about the havoc being wreaked by the coronavirus pandemic.
On Thursday alone Australian market recorded its worst single-day fall since February with news that the virus is threatening to derail the global pandemic recovery.
All industry sectors ended in red for Australia with heavyweights mining, bank and oil stocks pulling down the market.
According to Julia Lee, Chief Investment Officer at Burman Invest, “The concern is that Delta is eating into economic growth.” She also noted that the stock markets were trading near record highs and are due for a correction. Usually, correction is said to occur when the share market falls 10% from its peak.
The miners were big concerned with Rio and BHP recording big losses on declining iron ore prices. With Beijing continuing to clamp down on steel production for environmental reasons ahead of the Winter Olympics in February next year there could be more pain for Australian miners in the coming weeks and months.
The National Australia Bank also told that the Delta strain is taking its toll on the Australian market. Ross McEwan told a parliamentary committee that the number of customers in financial hardship had risen since the outbreak of the Delta variant of the virus.
The market did recover some losses on Friday, however, it was mainly on the back of bargain hunting by some investors. The bounce, however, seems to be only tentative and temporary with the Australian market all set to resume its decline until Delta situation improves.
This week a series of crucial events such as the RBA Governor’s speech at the ANIKA Foundation, August jobless rate data and Westpac’s consumer sentiment data will drive the market sentiment.
We believe however that the scale of damage to the local economy from lockdowns will be evident in Thursday’s employment data.
Victoria, NSW and ACT have all endured lengthy, extended lockdowns and it is expected it will reflect in job decline.
Gold investors remained on the sidelines most of the week as uncertainty over the US Federal Reserve’s next moves on tapering left investors listless.
Overall gains in the US Dollar however did put pressure on gold to mark its first weekly decline in five.
Gold seems to have been stuck in a tight range all week as investors lookup for Fed taper cues. While gold is competing with the US Dollar for haven status and it seems that it is moving up or down in a range in opposite direction to the move in the greenback, in reality, it is the Fed that will have a bigger impact on the gold price.
With the Federal Open Market Committee next scheduled to meet on September 21 to 22, it seems everyone is waiting for the next Fed announcement. Gold investors very strongly follow cues from the Fed, as gold usually gains when interest rates are low. While weaker job numbers from the US helped gold in weeks before, the statement from several Fed officials last week that the August slowdown in job growth should not impact plans to reduce purchases this year downshifted the price movement in the yellow metal.
Platinum and palladium also had a notable fall last week on concerns of falling auto demand. Palladium is particularly fell by 10% after announcements from automakers globally that they would be shuttering some production due to chip shortages.
Both palladium and platinum are used for car production and with increasing concerns over automobile manufacturing in China and elsewhere they both were sold heavily by the investors.
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.
More than 1 million barrels a day of US crude production remains shut-in since Ida swept the region two weeks ago.
In an unprecedented move, China intervened in the oil market last week resulting in a fall in oil prices on Thursday. The ever-present risk of increasing virus cases globally also raised concerns regarding oil demand.
China’s bold declaration to release oil reserves did take the market by surprise last week. China is the biggest importer of oil, however, over the years it has also built huge oil reserves at 3.5 billion metric tonnes. China currently has proven reserves equivalent to 5.4 times its annual consumption, however, many analysts believe China may be holding oil reserves double the size of known reserves.
The Chinese Food and Strategic Reserves Administration this week also said that China will normalise selling some of its reserves in a bid to lower oil prices globally. Overall the actions from China suggest that see the $75 a barrel mark in Brent oil prices is a red line for the price of oil.
However, with traders now fully focussed on the supply situation in the US and with production shutdown from Ida continuing and falling US stockpiles they looked past the concerns to boost oil prices.
The Australian Dollar gave up some of the gains from the previous two weeks to close the week at 0.73546 against the US Dollar after the Reserve Bank of Australia announced it will maintain its policy to taper by lowering the bonds purchasing to $4 billion from the previous $5 billion every week. However, it also announced that it will maintain this policy until February 2022.
A fast rate of vaccination in Australia, which is expected to surpass the USA in terms of percentage population vaccinated and news that some regions of Australia will be easing lockdowns raised hopes for traders for a recovery in the Australian Dollar on Friday. However, strong Price Producer Index data from the US raised speculations that the US Federal Reserve would taper their asset purchase policy sooner than expected, thus sinking the local currency again.
A rising number of coronavirus cases of various variants and slowing growth in China also poses various concerns for the Australian dollar moving forward. The Australian currency is highly sensitive to global growth outlook and currently, with the Mu variant wreaking havoc in 42 countries and the Delta variant continuing to grow in numbers there are a lot of concerns about whether or not the global economy can recover fast enough from the economic impact of the ongoing pandemic.
Moving forward the traders will be keeping a close eye on Australia’s Reserve Bank Governor, Phillip Lowe’s speech on Monday. Iron ore prices will be another area where the traders will keep an eye. The Iron ore prices hit record prices early this year, resulting in a rally of the Australian Dollar to 0.79 cents against the greenback.
The common metal has since fallen 40% from its 2021 high as demand from Chinese manufacturers declined, resulting in a fall in the local currency. With China continuing to clamp down hard on steel manufacturing ahead of Winter Olympics in Beijing it may prevent AUD from rallying too far. Technically speaking the 0.7300 mark will be important for traders as a support base.
A break below the 0.73 level may see the Australian dollar tumble further.
In regards to the Indian Rupee, and increasing inflation and rising oil prices continued to impact the Indian currency negatively. However, there is a strong indication that the Reserve Bank will continue to intervene to help provide stability to the Indian Rupee. RBI has long managed a range roughly between 72-75 against the US Dollar.
The RBI however will also be keeping an eye across the border before any intervention as Rupee may benefit from China’s unprecedented intervention to reduce rising oil prices.
In the world of Cryptocurrencies, the Bitcoin rally took a breather as a rising US dollar made traders rush towards safer assets. The price of Bitcoin now seems to be consolidating against the greenback around the US $46,000 mark. To start afresh and resume its bullish run Bitcoin would need to clear this mark and capture back $47,000.
A failure to clear this mark may see Bitcoin continue its declining streak and test the next support levels at $42,000 and $40,000 marks.
El Salvador earlier last week adopted Bitcoin as its official currency. The nation also distributed $30 worth of BTC to each of its citizens who downloaded a state-issued crypto wallet called Chivo.
While these developments are encouraging for the price and confidence of cryptocurrencies and will improve the remittance process from foreign countries, it is seen as disastrous for companies like Money gram and Western Union that make these remittances happen. Currently, El Salvador receives about $6 billion worth of remittances through these providers every year. The change is expected to cost them about $400 million in fees every year if large scale adoption of Bitcoin picks up in the country.
Having said that the Bitcoin price is currently stuck in the middle. While most altcoins such as Cardano, IOTA and to some extent Ethereum have rallied to new highs, Bitcoin is still struggling to rise to the pre-crash levels.
From its current prices, a strong close on a daily candle above $47,157 can help the largest cryptocurrency rally back to $52,672. A failure to capture this level may see BTC retest support around $42,000 where bulls may have another opportunity to make a comeback. A failure to rally from this point however will invalidate the bullish trend and push Bitcoin to $38,000.
In agricultural products prices of corn, wheat and soybeans declined on expectations of higher production.
While wheat recorded its biggest weekly price drop in two months, the price of corn fell to its lowest price since 22 January.
Prices in soybeans and corn declined on a higher production outlook in the US and Canada. Wheat prices on the other hand tumbled after reports from Canada showed a 3.7% increase in wheat production supplies.
As per grain marketers, the growing conditions in Ontario especially were reported to be so good that there may not be enough storage issues when corn and soybean are harvested later this year. The strong production also eased food supply concerns which had arisen falling severe dry drought-like conditions in the Northern Hemisphere during the summer season.
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 how to trade. He can be contacted at adang@glowtrades.com.au.
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