Market Mantra: Australian shares rise to three weeks high as risk sentiment rebounds

Qantas also added that it would also bring forward the restart of its international flights by two weeks to November 1.

Australian shares rallied for a second week in a row with travel stocks taking off after New South Wales announced the resumption of international travel from 01 November.

With COVID 19 restrictions starting to ease and the US entering into earnings season with solid profits from Morgan Stanley and Citi group it seems that the capital markets are picking up steam as we head into the Christmas period.

A heavily oversubscribed Judo Bank was also welcomed positively by the investors as ASX recorded its first week-on-week gains since September. The SME lender is listing on 01 November and set a record in bidding value.

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The announcement by NSW Premier Dominic Perrottet also put a spring up in travel stocks with Flight Centre jumping 3.77%, Regional Express rallying 6.12%, Webjet gaining 4.05%, Corporate Travel Management lifting by 2.69% and Qantas rising 1.97%.

Qantas also added that it would also bring forward the restart of its international flights by two weeks to November 1.

Even though Prime Minister Scott Morrison somewhat spoiled the party by clarifying it would be only Australian citizens, residents and their immediate family members who would be allowed in, rather than tourists, students and skilled workers, it did not reduce the momentum.

The travel stocks in Australia have been rising for a couple of months in Australia anticipation of the opening of international borders and we believe they may continue their journey North as more and more restrictions are eased.

The week also saw a rise in mining giants BHP and FMG as iron prices continued to firm again. Rio Tinto however missed out on rally and dropped after posting its third-quarter production results and downgrading its full-year Pilbara shipping guidance. Rio Tinto also cut guidance on iron ore production in Canada.

The banks also recovered after dips in the week before. With inflation being the talk of the town any increase in interest rate rise should be beneficial for banks and thus we can see any dips in banking prices to be quickly bought up by investors looking to bag a blue-chip stock on discount.

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The investors will be keeping a close watch on banking stocks with three of the four banks reporting annual results end of this month, while Commonwealth Bank of Australia will provide its quarterly update in November.

Moving forward continuing progress in the battle to contain COVID-19 infections and opening up further will be vital in helping to continue the market momentum.

In regards to gold, it was another week of aggressive swings. A dip in US Dollar Index and falling Treasury bonds helped gold gain ground during the start of the week. As the week closed, however, gold’s historical investment function, as a hedge against inflation, returned to relevance to pull the yellow metal down.

With investors lacking conviction during the start of the week gold found buyers around $1760 region and briefly went above US$1800/ounce. However, a rebound in US bond yields as the week closed and a surprise increase in September retail sales dented traders confidence in the precious metal.

As per Phillip Streible, chief market strategist at Blue Line Futures in Chicago ‘Gold has everything going against it. Real rates are rising, equities are higher, so is Bitcoin.”

Reduced stimulus and talks of interest rates rise also go against the bullion as the opportunity cost of holding the precious metal goes up. Moving forward, investors will be keeping a close eye on the physical gold market and hoping that the festival season in India will bolster the demand for gold and in return flip the prices back up for gold.

Oil extended its gains for an eighth consecutive week, to reach new multi-year highs. The eight straight weeks of gains also marked the longest streak of weekly gains for the black gold since 1999.

Image source: mines.gov.in

A massive shortage of coal and natural gas in Asia and Europe has left the power plants reluctantly having to choose crude oil over natural gas. This is a pattern not seen in over a decade and a stark reversal from the foregone conclusion of natural gas being the preferred fuel for power generation.

The current increase in oil demand from power producers has further squeezed the already tight oil supplies. With OPEC nations in no hurry to increase oil prices, Valendara Energy Partners have forecasted that crude oil prices to test US $90 level or higher by next month.

Given the rise in natural gas prices recently they believe even if crude oil prices climb above $100 per barrel, they would still be more economical than natural gas. Thus exerting upward pressure on oil prices.

Many analysts believe that even if oil output is further ramped up in the coming months the oil market will remain undersupplied by roughly 1 million barrels per day in the fourth quarter. With Northern Hemisphere entering into the winter months this should continue to boost oil prices shortly.

In regards to the local currency, the Australian Dollar rallied for a third consecutive week as investors were buoyed by easing COVID restrictions.

Despite another disappointing Australian labour market report, the commodity-based currency was able to capitalise on increasing risk sentiment. The labour report might have been disappointing, however, the traders were looking at the future and with Australia now unwinding restrictions and moving forward with reopening we should see more upward movements in the Aussie dollar.

Having said that the situation remains fluid as COVID cases continue to be on the rise. A reintroduction of lockdowns in case the delta cases explode could derail the optimism. The Australian currency is one of the most sentiment sensitive currency can be left vulnerable if lockdowns make a comeback.

Moving forwards traders of Australian currency will keep a close eye on Chinese GDP data, due this week. China is Australia’s largest trade partner and softer growth for China negatively impacts the Aussie. Having said that power crisis in Asia has meant that China has started to buy Australian coal again. While Australia is also capitalising on coal demand from India to combat power shortages.

For the Indian currency, the week has not been as positive. While the Rupee did make a mild gain against the US Dollar on risk-on sentiment, it fell against a basket of other currencies such as the Euro, Australian Dollar, Canadian Dollar, New Zealand Dollar and Pound Sterling.

As per the data released by the government, India’s trade deficit widened to record levels in September, reaching $22.6 billion as crude oil and gold imports surged.

The widening trade deficit however has currently been cushioned by an inflow of foreign funds in the stock market and IPOs in India, thus keeping the Reserve Bank of India calm.

However, rising oil prices continue to impact the Indian currency. India has about 77% dependency on oil imports and rising oil prices have resulted in Rupee falling about 3.3% against the US Dollar since 1st September. Other major Asian currencies have depreciated only about 1% against the greenback during the same period.

In the world of Cryptocurrencies, the cryptocurrencies surged for the second week in a row to go past the $2.5 trillion mark after expecting to green light from the US regulator.

Bitcoin blazed through the US $60,000 and hit highs of $63,000 on Saturday before falling back slightly. It however was enough to move the combined cryptocurrency market to over $2.5 trillion, thus returning to its May peak.

With Bitcoin, Ethereum and most other altcoins rocketing higher, the analysts are predicting a ludicrously strong rally through the rest of 2021.

As per Nick Spanos, creator of Bitcoin Centre NYC and co-founder of Zap.org, Bitcoin is expected to hit $100,000 before the end of the year. Mr Spanos also expects Ethereum price to more than double to between US$10,000 and $20,000.

Last week also saw Ripple, move back over the US $1. XRP has endured major losses recently and has amassed immense hate from the SEC. It was also shown the door by many exchanges. Despite this, the citizens of the UK invested heavily in Ripple. As per a report published by Finance Magnate, Ripple was the most sought after cryptocurrency in the UK, followed by Cardano.

In agricultural products prices of wheat has continued their record march higher as drought fears in the Northern hemisphere continue to bite. Iran placed an order to buy a record 8 million tonnes of wheat after its domestic crop was hit by drought.

Bread is a staple in Iran and jumps in food imports and high global grain prices are expected to hit the country finances hard. The country is currently suffering its worst drought in 50 years and continue to reflect global food security concerns fuelled partly by economic hardships caused by COVID.

With supply in Russia also hit by drought-like conditions, and the arrival of La Nina conditions the food prices across the globe are now at their highest in 46 years.

September 2021 was Earth’s fifth warmest September since record-keeping began in 1880. This also brought with it drought-like conditions in Russia and Canada, two of the largest wheat producers in the world. As such the 2021 harvest is not expected to meet consumption requirements in 2021/22 thus keeping the price for food grains higher in the foreseeable future.

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 interested in starting on their trading journey on how to trade. He can be contacted at adang@glowtrades.com.au.


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