27 September 2021 23:04

Market Mantra: PM Morrison’s reopening plan gives oxygen to Australian shares

Gold rose for a fourth consecutive week to reach its highest price in two and a half months as a slower than expected US jobs data in August drove the US Dollar lower.

Australian shares gained 0.5% for the week, thus clawing back some of their losses from the previous two weeks.

The Australian market was down for most of the week, however, investors got a boost after Scott Morrison flagged a quicker reopening following a vaccine swap deal with England.

The Australian PM announced a swap deal with Britain for 4 million doses of Pfizer COVID19 and said that he was looking to convince states and territories to stick to the agreed National reopening plan.

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The announcement was strongly welcomed by the investors who looked past a plunge in Australian retail sales due to lockdowns in NSW and Victoria to end the two-week losing streak for Australian shares.

The mining stocks also got a boost after steel prices in China soared as an increase in production curbs into the traditional peak demand season, thus stoking supply concerns. A rise in oil prices also helped energy stocks climb 0.8% for the week.

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Image source: mines.gov.in

Australian shares however paled in comparison to Japanese stocks, which reached a new 30 year high last week. Japan Topix index reached its highest level since April 1991 following reports that Prime Minister Yoshihide Suga has offered to resign. Prime Minister Suga has faced intense criticism for his handling of pandemics, the Japanese economy and the Tokyo Olympics.

This week the investors will be keeping a strong eye on the Reserve Bank of Australia’s policy meeting for hints to see if it will delay tapering plans. A poll of 37 analysts conducted by Reuters showed that while 36 of the analysts expect the interest rate to remain at 0.10%, more of them are uncertain whether RBA will delay a taper in its 5 billion dollars weekly bond buying.

Gold rose for a fourth consecutive week to reach its highest price in two and a half months as a slower than expected US jobs data in August drove the US Dollar lower.

Market Mantra Gold 2

US job growths came in well below the expectations in August amid a jump in Delta strain across the nation.

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The US Dollar slipped soon after the report, thus making gold more appealing for holders of other currencies.

Gold which had to fight with a rising US Dollar for haven received a much-needed boost from weak US jobs data. A decline in US Dollar and rising COVID numbers in the US impacting its economy may be just the news gold was looking for and puts gold on course for a break towards USD 1850.

The demand for physical gold across Asia was however largely muted as a rise in gold prices kept buyers at bay. As per data from bullion based Mumbai banks the retail demand for gold was quite weak across India as prices were going up.

The dealers however expect jewellers to start purchasing gold soon and provide more jolt to gold prices with the festival season fast approaching.

With muted sales in physical gold, gold investors will be turning their focus on the FOMC meeting in September for hints about market taper.

oil price going up; Picture Source: @Canva
oil price going up; Picture Source: @Canva

Oil prices closed marginally lower last week after nonfarm payrolls data from the USA showed that the country added only 235,000 jobs through the middle of August instead of the expected gain of 750,000, thus raising concerns about economic recovery from COVID 19 pandemic.

The oil prices were up for most of the week last week following a reduction in supplies due to Hurricane Ida in the Gulf of Mexico and OPEC+ countries raising demand forecast for 2022 earlier in the week.

However, continuously rising COVID19 cases globally and weak US data indicated a patchy recovery and slower fuel demand amidst a resurgent pandemic.

Moving forward we believe a fall in US Dollar might help lift commodities including the oil in general. As such a break above USD 70.50 for Crude oil opens up the possibility to move towards $74.00 otherwise a break of below $67 a barrel opens up the possibility for the US Crude to fall to the next support level at $62.00

Australian Dollar 3

The Australian Dollar recorded a strong weakly gain as signs of progress with vaccinations raised hopes that the economy was closer to reopening.

The Australian Dollar hovered near its 04 August high and have now gained 4% in the last two weeks. Sentiments have further improved after the Australian PM Scott Morrison announced that the reopening might be brought forward after securing a deal to double the stock of Pfizer doses.

At current vaccination rates, around 80% of the adult population could be vaccinated by November, which could put the economy back on track closer to Christmas.

A second-quarter increase in GDP also helped the Australian Dollar. However, the investors were varied that the Q2 data did not include the impact of lockdowns as NSW went into lockdown during the last week of June followed by Victoria in July and August.

The trade numbers also revealed the dependence of the Australian economy on commodity exports to China with Iron ore alone accounting for a sale of $26.6 billion in July alone to China.

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With increasing Delta numbers and disparate commodity price action the traders will keep a strong eye on the RBA meeting on Tuesday. In July RBA announced that they would reduce bond-buying from AUD 5 billion per week to AUD 4 billion per week in September. A continuous rise in Delta infections, however, despite vaccination rate progressing well, may mean that the RBA may need to re-consider tapering for the time being.

Along with RBA, a reduction in US Dollar and rising demand for risk assets may also continue to support the local currency.

A rally in risk assets also supported the Indian Rupee against the US Dollar. The importers in India welcomed the move from RBI setting the reference rate for USD/INR at 73.07 levels. The rupee however depreciated compared to both Euro as well as the Australian Dollar as a rise in oil prices capped gain in Rupee against other currencies.

In the world of Cryptocurrencies, Bitcoin eventually managed to break the $50,000 mark again.

There is tremendous stimulus support surrounding Bitcoin which could lift it further above the USD 52,000 mark.

Market 2 bitcoin 5

A broad USD weakness further makes Bitcoin and other cryptocurrencies more attractive. Bitcoin is now up 81% from this years low of $27,734 on Jan 4. Moving forwards the traders will be keeping a keen eye on $51,919 which sits at 38.2% Fibonacci levels of March 2020 low and previous record highs. A takeover of bulls of this target may provide sufficient stimulus to lift Bitcoin to new records of $66,325 and $89,645.

It was Ethereum however which was the major driving force for cryptocurrency last week. Ethereum rallied 25% between 31 August and 03 September alone to retest the psychological USD 4,000 mark. With a resurgence in buying pressure ETH looks set to break its next resistance at U$4,071 and retest an all-time high of $4,372.

As per technical analysts, Ethereum may continue to climb and test the 100% Fibonacci extension at $4,699.

Previously we have provided our bullish bias towards Cardano, Stellar Lumens, Polka Dot and IOTA. Cardano in particular has continued to provide us with great returns over the last weeks. After finding support around the $1 mark on 20 July Cardano has rallied all the way to a new all-time high of the $3.10 mark. While Cardano has started to trade sideways following this resistance the formation of a new higher low at $2.80 over the weekend have raised expectations that Cardano is now set to test further upsides.

Agricultural concerns over US exports following damage to grain terminals from Hurricane Ida resulted in corn and wheat ending the week in negative territory. Continuous drought also forced US farmers to sell their futures contract in corn resulting in a 5.5% fall in corn prices for the week.

Wheat futures were down 2% for the week while soybeans gave up 2.8% for the week. Grain shippers from the US continued to report damage from Ida to their terminals. However, a strong surge in export demand for food grains may limit the price decline.

Commodity investors have also welcomed widespread rains across major farming regions in Argentina after a drier than normal winter in the South American Nation.

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 [email protected].

Disclaimer:

The opinions in the above article are the authors own and do not constitute any financial advice whatsoever. Nothing published by The Australia Today constitutes an investment recommendation, nor should any data or content publication be relied upon for any investment activities.

We strongly recommend that you perform your own independent research and/or speak with a financial advisor or qualified investment professional before making any financial decisions.

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