The Australian equities market wrapped up its best week in over a month, mainly driven by gains in technology and rising energy stocks.
In signs of recovery Australian shares managed to hold the line against an amazing fall on Wall Street which saw Meta, previously Facebook, slumping by 27% after it revealed that user growth had stalled and it faced higher costs and weaker revenue.
The Facebook plunge resulted in technology shares around the global slump, however surprisingly Australian technology stocks held the line to enjoy their biggest weekly gain since December.
The energy stocks also helped boost the market with the energy sector ending almost 5% higher for the week with rising energy shares pushing up shares in Santos and Woodside Petroleum.
Newscorp was another company that did well with shares up 5.7% after announcing record revenues and highest profits since the company was formed in 2013.
Australia did however have its own mini version of Facebook last week with building products group Boral falling 41% to hit a 17-month low.
RA Governor Dr Phillip Lowe’s speech on Tuesday certainly helped calm the markets, with his cautious approach in raising interest rates and insistence that it is too early to tell if inflation is sustainably within the target range seen as welcome news.
RBA’s statement on monetary policy on Friday further backed up Dr Lowe’s bullish stance and predicted a strong economy.
Looking ahead company results will be a major influencing factor this week with CBA, AMP, Baby Bunting, Insurance Australia Group, Suncorp, AGL, MIRVAC, ASX, CIMIC, Downer EDI and Argo Investments all announcing their results this week.
The traders will also be keeping an eye on retail spending data, consumer and business sentiment, job advertisements, household spending intentions, payroll jobs and building approvals data coming out this week.
The data should give major clues to how the Omicron wave has hit consumer confidence and spending.
Gold prices too rallied last week as a weaker US Dollar, concerns over stubborn inflation and tensions surrounding Ukraine lifted demand for the safe-haven bullion.
The US Dollar index saw its biggest weekly drop since March 2020, thus boosting appeal for the greenback priced yellow metal among buyers of other currencies.
Inflation remains a top concern globally and it seems Russia has been formulating several options as an excuse to invade Ukraine. The latest is the potential use of a propaganda video showing a staged attack according to US President Joe Biden.
Gold is considered a hedge against inflation and geopolitical risks, but interest rate hikes would raise the opportunity costs holding non-interest bearing bullion.
The European Central Bank last week opened its door to a 2022 interest rate hike, while the Bank of England raised interest rates.
As such while we expect gold to rise on geopolitical tensions, the rising interest rates may cap any gains.
Oil prices surged to a seven-year high, extending their rally into the seventh week on ongoing worries about supply disruptions fuelled by frigid US weather and ongoing political turmoil among major oil producers.
Brent ended the week 3.6% higher while the US Crude posted a 6.3% rise in their longest rally since October. The surge in oil prices accelerated on Thursday and Friday as buyers piled into crude contracts on expectations that the suppliers will continue to struggle to meet demand.
According to most strategists crude prices which have already gone up by more than 20% so far this year are likely to surpass $100 per barrel on strong global demand.
Winter storms bringing icy conditions in the US also fuelled supply concerns as extreme cold can cause production to shut temporarily. Oil markets have also gained from geopolitical risks as major oil producer Russia has amassed thousands of troops on Ukraine’s border and is accusing the US and its allies of fanning tensions.
The Australian Dollar rallied for most of the week, however, gave up on gains on Friday to close the week at 0.7070 against the US Dollar.
The gains in the Australian Dollar made during the week only seem to be corrective in nature from a technical point of view and with strong job numbers in the US and higher interest rates it should not be a surprise if it heads south again.
In a stronger than expected jobs report on Friday, the US economy added 467K new jobs in January, against 150K expected. The upbeat report plus the fact that the Federal Reserve currently has the most aggressive tightening programme at the moment makes the greenback far more attractive than the Aussie at the current situation.
The RBA on the other hand decided to maintain rates at record lows and kept its monetary policy unchanged in its February meeting. The dovish stance of Australia’s central bank prevented the Australian dollar from rallying despite broader weakness in the US Dollar.
RBA’s stubbornness and refusal to raise interest rates hint at a mid-term bearish extension in the AUD/USD pair. The technical indicators for the pair too remain well into negative territory with the daily chart hinting at a lower low ahead.
The Indian Rupee recovered some ground against the US Dollar last week. The USD/INR pair recorded their first weekly loss in three, however, the pair found strong support around the 74.70 mark.
Broad-based weakness in the US Dollar and improving CoVid19 situation in India and escalating concerns over the RBI’s rate hike added to the strength of Indian currency.
The multi-year highs of oil prices and India’s latest fuel excise cuts have kept the bears hopeful. Recently the Chairman of India’s Central Board of Indirect Taxes and Customs said to NewsRise that the tax body estimates the government will lose about 600 billion Rupees in annual revenue next fiscal year following excise duty cut on auto fuel.
Moving on to digital currencies. This time last week things were looking quite gloomy for the crypto asset. Bitcoin was threatening to fall further and with price dipping on Monday bears did manage to push the price below $37K. All of the things change as the week approached a close with the cryptocurrency market recovering a major chunk of its capitalisation as Bitcoin pushed above the US $40,000 mark.
Needless to say, the rest of the market followed with Ethereum up 22.4% for the week, Solana rising by 23% and DOT surging by 12%.
This came amidst a notable correlation with the global markets as cryptocurrencies basked in recovery in risk appetite.
Friday’s 11% gain in Bitcoin was the biggest single-day gain for the coin since June and the first major bounce after weeks of getting roiled.
In Agricultural products, soybean futures recorded their biggest weekly gains since June on expectations of strong buying demand from China once they return from their Lunar New Year holiday.
Corn and wheat also surged for the week however they could not match the advances on soybeans.
United Nations food agency reported on Thursday that world food prices have rebounded in January and now remain near 10-year highs.
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 on their trading journey how to trade. He can be contacted at [email protected].
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