30 November 2021 20:29

Market Mantra: The equity market leads Australian shares on a high

Indian Prime Minister Narendra Modi lauded the promise of jabbing the majority of the nation’s population and taming the virus risk also added to Rupee optimism.

Australian shares rallied for a third week in a row with Macquarie Bank hitting a record price of $199.06, just a whisker below the $200 mark.

More importantly, the Australian market gained in four out of five trading days last week, even as miners tried to weigh down on the index with lower iron ore and energy prices.

The Volatility Index known as VIX has fallen all week last week and hence signals that the market is getting closer to more settled trading conditions.

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With iron prices going lower it was a tough week for mining giants BHP which fell by 2.2% and Rio which saw its value reduce by 1.8%.

equity market 1
Market Mantra- Equity Market; Picture Source: @CANVA

Australia also entered its reporting period last week with Lynas reporting a decline of 35% in quarterly sales. The world’s largest rare earth producer outside China immediately fell 8.1% after the news.

The Travel stocks continued to get bought as Qantas said it is preparing to bring forward a restart of flights.

There is a lot of optimism on economic recovery and growth post -lockdowns and investors have been buying Blue chip stocks on optimism. Woolworth, Wesfarmers, CSL have all been beneficiaries of investor optimism.

Having said that we believe we will see a bit of up-and-down this week with uncertainty surrounding the Evergrande property group in China continues to be a worry.

equity market 2 2

Australia relies considerably on exports to China and any offshore defaults from Evergrande will impact the Australian market more than any other global market.

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The news that Evergrande had come up with cash to pay a bond payment due over the past weekend did settle investors’ nerves. At the time of writing, this report Evergrande did make a last-minute payment and the news should provide the boost on Monday morning.

In regards to gold, gold surged to its highest levels in 6 weeks, lifted on a weaker US Dollar and a pick-up in inflation expectations bolstered demand for the safe-haven asset.

evergrande 1 3

A second consecutive week of decline in the US dollar index also bolstered the appeal of gold by making it less expensive for buyers holding other currencies.

There is a perception in the market that Federal Reserve is behind the curve when it comes to tackling inflation and is not doing enough to slow inflation. Many investors view gold as a hedge against inflation and with inflation being the talk of the town at the moment gold may find some more support.

With Atlanta, US Fed President Raphael Bostic said he expects high inflation to persist into 2022 the investors will be focusing on Fed Chair Jerome Powell’s comments in a panel discussion on Friday.

Oil extended the gain for a ninth consecutive week, thus recording the longest stretch of weekly gains since 2015, as US crude supplies shrink and OPEC+ continues to remain cautious with the supply.

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

US President Joe Biden said on Thursday that Americans should expect high gasoline prices to continue next year because of supply being withheld by OPEC and other foreign oil producers.

With no signs in the market that OPEC+ is going to come forward with any meaningful amount of additional crude oil in the near future, oil soared to its highest price since 2014 on concerns that rising consumption is racing ahead of supply. The shortage of natural gas and coal globally is also triggering extra demand for oil products.

With OPEC+ nations, however, refusing to increase supply as they believe the Coronavirus pandemic is not over and the lockdowns may return have bolstered the imbalances between supply and demand in recent months.

In regards to the local currency, the Australian Dollar rallied for a fourth consecutive week with soaring equities reflecting the risk-on mood that backs the Aussie.

The Australian Dollar has been tracking momentum in Wall Street’s higher and firmer gold prices also supported the commodity-driven currency. Also providing a boost to the local currency was easing of COVID restrictions across Australia.

Australian-Dollar; Picture Source: @CANVA
Australian-Dollar; Picture Source: @CANVA

COVID restrictions are easing around across Australia with Victoria recently coming out of the world’s longest lockdown. Last time when this happened in Quarter 4 last year the GDP saw a strong pickup. Analysts believe it will be the same this year thus providing favourable conditions for the Aussie.

This week the currency traders will be keeping a close eye on Australia’s CPI numbers, due Wednesday. The CPI numbers will provide important information on the impact of lockdown on economic activity. Retail sales figures are also due on Friday.

For the Indian currency, it was a mixed week. The higher oil prices and inflation fears pushed the Rupee lower to reach 75.65 against the US Dollar. However, as the week progressed INR reversed its losses with INR bulls cheering one billion COVID vaccinations at home.

Indian-Rupee; Picture Source: @CANVA
Indian-Rupee; Picture Source: @CANVA

Indian Prime Minister Narendra Modi lauded the promise of jabbing the majority of the nation’s population and taming the virus risk also added to Rupee optimism.

The Rupee, however, lost against the Australian Dollar as the risk-on sentiment was more in favour of the Australian currency. With inflation fears continuing in the market, the INR traders will wait for the US PMIs due later in the week.

In the world of Cryptocurrencies, the week went by saw Bitcoin price reaching a new all-time high around the US $67K. The week also saw the approval of the first-ever futures BTC ETF in the US, an 87% flash crash on BinanceUS due to an algorithm error, and a correction towards US$60,000.

Altcoins also followed suit with Bitcoin rising and coming to a couple of dollars away from marking an all-time high. However, they failed to do so as markets corrected by almost 10-12%.

Bitcoin; Picture Source: @CANVA
Bitcoin; Picture Source: @CANVA

All in all, we feel the time-to-time corrections in the Crypto world are important as not everyone in the market can make money. As such when there is too much greed or fear where almost everyone is either long or short market often changes directions to flush people out. It was the same instance here. The recent 10-12% correction that we saw towards the close of the week was necessary for the healthy price rise of Bitcoin.

The crypto market had been in the greed stage and many times such corrections come to flush out overleveraged traders. It seems the current correction may have brought greed levels to an acceptable number.

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Agriculture; Picture Source: @CANVA

In agricultural products, wheat has continued to rally higher amid tight supply and food shortage concerns. Adverse weather conditions in Russia, the world’s largest wheat exporter, and a rise in Russian export taxes have raised serious concerns about food shortage in the coming months and have been pushing the price of grains higher.

A slow US corn and wheat harvest progress with both sectors falling well behind last year’s pace has provided another bullish catalyst to both wheat and corn.

Agriculture; Picture Source: @CANVA
Agriculture; Picture Source: @CANVA

Adding to the bullish run for the food grains last week was the confirmation of a strong week of soy and corn exports from the US to China. China bought 2.9 million tonnes of soybean from the US recently and has added more confidence for soybean demand.

Author: Ateev Dang is a trader and trading coach by profession. He runs a 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].

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 providing 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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