27 September 2021 22:23

Market Mantra: Record-high ASX, Cryptocurrencies surge and reasons behind it

The RBA positively surprised investors by stating that Australia will avoid another recession, despite lockdowns imposed because of rising Coronavirus cases.

The Australian share market finished its best week since May boosted by takeover target Afterpay and a strong set of results from Rupert Murdoch’s News Corp.

The market’s weekly gains of 1.9% was the strongest rise since May, with financials and technology stocks leading the gains.

Acquisitions and mergers were the big catalysts providing a boost to the markets, namely Square’s impending acquisition of buy now, pay later firm Afterpay. The company had one of its best weeks following the takeover news thus bringing its weekly gains to 36.7%.

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Afterpay added more than $10 billion to its market capitalisation during the week, which in turn helped the tech sector record its biggest gains in 18 years.

Afterpay 1

As Australia entered into its reporting season a slew of strong earnings reports confirmed that the nation’s biggest companies have had a strong year, thus further helping the market sentiment.

Rupert Murdoch’s Newscorp led the earnings season with a stellar full-year result resulting in a 7.9% gain on Friday to a record high of $35.20.

Similarly, ResMed, Nick Scali, GUD Holdings, Pinnacle and REA Group all rose higher after better-than-expected results.

However, not all was bright for the Australian shares. With China ramping up efforts to reduce the impact of steel on the environment iron ore prices continued to decline which in return continued to knock the big miners. BHP, Rio Tinto, Fortescue Metals all ended down during the week.

Gold stocks also declined as gold prices declined. With gold crashing late on Friday night after crucial US jobs data, the gold miners are expected to continue the decline this week.

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The focus however will be on major results lined up this week from two of the nation’s largest banks Commonwealth Bank and National Australia Bank, Australia’s largest telecom firm Telstra Corp, and the largest Australian general insurer Insurance Australia Group Ltd.

Friday night also saw US stocks reach record highs following a positive jobs report. With Delta variant perking up around the US, the excellent payroll numbers added much more confidence building for the market. A parallel rise in Treasury yields signalled a downside: that the Federal Reserve could curtail its massive stimulus policies faster than expected.

Some investors believe that the robust job numbers could support the view that the Fed may need to unwind its ultra-easy monetary policy sooner than expected. Such a move could push yields and US Dollars higher while denting growth stocks.

Australian Dollar 1 2

As such US Dollar’s value relative to other currencies rose sharply on Friday. The stronger dollar and potential for higher yields from Bonds however hurt gold with yellow metal sliding to its lowest in a month. According to Edward Moya, a senior market analyst at OANDA said gold could fall towards $1,700 in the near term before support comes in.

Triggered by rising Coronavirus cases in the US and China oil prices declined to register their biggest weekly loss since October. With Delta variant continuing to rise globally and cases in the US climbing to a six-month high risk aversion has started to set in.

BHP 3

With Japan also expanding emergency restrictions to more regions of the country and China imposing curbs in some cities and cancelling flights fear have set in that travel restrictions to curb the spread of the Delta variant will derail the global recovery in energy demand.

Increased travel restrictions in China, World’s second-largest oil consumer will be under the microscope of oil traders and could become a key oil price mover in the coming weeks.

In regards to the Australian Dollar, the RBA positively surprised investors with the RBA Governor stating that Australia will avoid another recession, despite lockdowns imposed because of rising Coronavirus cases. A surge in US treasury yields also further added pressure to the Australian dollar along with other risk currencies.

However, with Australia’s three largest cities Melbourne, Sydney and Brisbane all going into lockdown on Friday due to COVID-19 cases Australian dollar continues to look weak against all other major currencies.

As mentioned before last week saw the USA registered their highest number of COVID cases in 6 months, China has also had a significant increase in the rate of Coronavirus infections, while Australia also registered its highest numbers since August 2020. In addition, Central banks from the US, UK and Australia are giving some thought to concerns about the Delta variant of COVID, thus resulting in a bearish outlook for the Australian Dollar.

In terms of technical analysis, the short-term looks bearish with the price turning South of 0.7400 and sliding below the 20-day moving average on the 4 hourly charts. The 50-day moving average however continues to provide interim support for the local currency.

In comparison to Indian currency, the Australian Dollar has continued to trade below the 55 Rupee mark, ending the week at 54.58 Rupees.

Indian Rupee1 4

The Rupee however continued to come under pressure against other major currencies. Domestic inflationary figures and high oil prices have continued to weaken the Indian currency.

A strong US Dollar has resulted in downward bias for the Rupee and all eyes will be on RBI to interfere. RBI’s reserves swelled to more than $620 billion this week after adding another $9 billion and there is a strong expectation that it will intervene to provide strength to the under-pressure Indian Rupee.

In the world of Cryptocurrencies, one of the most significant upgrades to the Ethereum network, popularly known as the London Fork happened successfully last week. The upgrade provided a much-needed boost to the Crypto market. The London fork also acts as a prelude to ETH 2.0 or ‘Serenity’, which is likely to go live by end of the year. As such even though Bitcoin finally managed to break out of its prolonged consolidation phase by reaching USD 45,000 at the time of writing the article it was Ethereum that stole the show to reach a high of USD 3,200.

Market Mantra Bitcoin 3 5

Ethereum has now seen a rally for 12 consecutive days, thus signalling the form was well received.

Amongst the Top 10 Cryptocurrencies, however, it was Uniswap that had the best week rising 26% to touch the 30 dollar mark. In terms of the currencies, we expect the bullish momentum to continue and looking to add green currencies such as Polkadot, Cardano and Stellar Lumens to our portfolio.

In agricultural products, the prices rallied last week as reduced harvest expectations due to ongoing heatwaves across Northern Hemisphere continued to raise concerns about diminishing food supplies. A lower expectation of production of wheat in Russia, the world’s largest wheat exporter, and a downgrade by the French Ministry about wheat harvest outlook have weighed heavily on global grain supply.

A constant pandemic globally though has continued to raise a question about the grain demand and kept the price rise in check. Egypt, the world’s largest wheat importer, only booked a single grain freight on Monday, its lowest order in an entire year, Turkey has cancelled its order for 515,000 tonnes of Barley and Pakistan only purchased half the amount of wheat it purchased the weak before.

An increase in COVID-19 cases worldwide is expected to limit consumption in the coming weeks.

Having said that currently there is a drought in the Northern Plains of the USA, drought in Canada, drought in Russia and too much moisture in the European Union. With all of these factors, there are too many legitimate questions in regards to world food supplies which could see the price for agricultural commodities continue to rise this week. 

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 writers’ opinions in the above article are their 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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