Australian shares ended their five-week rally to record their first weekly loss in six as surging COVID19 cases in New South Wales kept markets on edge throughout the week.
Even though the stock markets rallied globally after US President Joe Biden embraced a bipartisan Senate infrastructure deal thus raising hopes of a faster recovery in the World’s largest economy.
The infrastructure deal means there is expected to be a whole lot of cash injected into the markets. It also would mean an increased demand for materials which will definitely be beneficial for Australian markets.
The news was typically beneficial for Australian miners as the price of iron ore gained following the news with Rio Tinto recording its best weekly gain since early May. We were bullish on BHP, RIO and Fortescue last week and we continue with our bullish bias with them as iron ore prices continue to rise.
The travel stocks, however, took a hammering as COVID cases surged in Sydney. Flight Centre recorded a weekly loss of 6.5% and Webjet lost 4.5% in value last week.
Even though there is a lot of positive sentiment globally on the US bipartisan deal and it seems that where the US goes rest of the world goes, an increasingly concerning COVID situation in Sydney though will do little to improve investor confidence in Australia.
Afterpay rose 12.7% for the week after announcing a digital card strategy, thus opening itself for a wider range of US retailers. However, it may hit the brakes as Australia’s most populous state goes into lockdown.
We will also be keeping an eye on Boral following the takeover bid from Seven Group Holding. Seven Group Holding had previously put in a takeover bid for $6.50 for Boral which the management thought undervalues the company. As the shareholders prepared to reject the deal a twist came in on Friday with Seven Holding raising its offer to $7.30 per share and flagging a second conditional increase to $7.40. This sent share prices from $6.71 at 11:30 am on Friday to $7.34 at the close.
Boral, the building materials company, has had a remarkable turnaround this year rising 47% since January compared to the ASX 20 benchmark which has only risen 9.33% in the same period.
Gold prices stabilised last week as weaker than expected US inflation data and President Biden bipartisan infrastructure agreement with the lawmakers gave a boost to market sentiment. While the bulls have found some momentum to increase the gold prices last week they may struggle around the USD 1789 price level. A break of $1789 may take the price of gold to 1818 an ounce compared to US Dollar, however, if bears oppose the bulls momentum gold prices may go as low as $1680.
This week the gold investors will keep a strong eye on Europe where new rules known as Basil III come into effect from Monday 28 June. While gold has had a decline three weeks in a row on US inflation concerns it would be European banks that may shake up the precious metal market this week.
From Monday gold will become a risk-free tier 1 asset for European banks, meaning gold will have the highest liquidity, on par with cash. While this news is a piece of positive news for gold and shall increase overall liquidity for gold, it only impacts physical gold. As such all eyes will be on European banks on Monday to see if the investment in gold is more prolific at the large and central banks level. A failure to notice an increase in gold sales at the banks level may see gold prices trade sideways till we see real improvements in GDP and unemployment especially in India and China, the two largest gold consumers in the world.
Oil prices continued to rally for the fifth week after reaching their highest price since October 2018. With OPEC+ countries continuing to remain cautious to increase supplies of oil from August 2021 there are expectations that demand will outstrip supplies specially as more economies and countries open up. As such oil prices may continue to rise until unless there is major news that may impact oil demand negatively.
A flat consumer sending data in the US helped all major currencies recover against the greenback. The Australian dollar was especially stronger against all major currencies such as British Pound and Euro. The Australian dollar also gained against the Indian Rupee with 1 Aussie dollar buying 56.31 Indian rupees.
The rising Coronavirus cases in NSW may, however, start the week in slow motion for the Australian dollar as investors may find a better value in the New Zealand dollar and Canadian dollar with their economies continuing to remain open.
In the world of Cryptocurrencies, Bitcoin, Ether and most altcoins remained under pressure. However, the good news for crypto traders is that the prices remain firmly established between the previously established trend between USD 30,000 and USD 41,000.
As Iran joined China in the war against digital assets good news came in the form of El Salvador announcing that Bitcoin will become legal tender as of September 7. While the long term trend for Bitcoin still remains bearish there is a wider acceptance that there is a good chance the coin will head higher to the middle of a $31,000 to $41,000 for Bitcoin. The other coins look like following Bitcoin lead at the time being.
With China, which accounted for 50% of global bitcoin mining, banning mining it was expected the bitcoin transaction fees will go down. However, this triggered a flash bitcoin mining equipment sale and thus made the cost of bitcoin mining equipment cheaper. The miners are now eyeing Texas as the next mining hub and it would be interesting to see how this will impact digital currencies in the future.
For the time being as more countries look at greener technologies, we are also more positive towards greener coins such as Cardano, IOTA and Sterling Lumens than Bitcoin.
In agricultural products price of most commodities declined during the week except soybean which remained steady due to the large demand for soybean from Mexico. The US traders are keeping a keen eye on China to see if the US Department of Agriculture will report more soybean sales to China this week after a string of deals last week.
Corn prices took a big tumble however last week after a US Supreme Court ruling raised concerns about reduced demands for the crops from the biofuel industry.
Wheat prices also continued to tumble as Russia, the world’s largest wheat exporter recorded an excellent year for wheat production. A 400,000 tonnes of optional-origin milling wheat tender from Ethiopia and 395,000 tonnes of red milling wheat tender from Turkey was also not enough to stop the decline in prices as traders are concerned about excess wheat supply. As wheat supplies continue to grow and prices for wheat continue to decline we expect that corn prices will also follow the direction of wheat prices as they both compete for space in animal feed rations globally.
Author: Ateev Dang is a trader and trading coach by profession. He runs Glow trades Pty Ltd where he teaches anyone who is interested in starting on their trading journey on how to trade. He can be contacted at adang@glowtrades.com.au.
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