17 October 2021
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Reuters Photo/Max Rossi

Market in tug-of-war with several competing influences

Gemma Dale
8 October 2021

The bulls and bears continue to tussle over the direction of the market in an attempt to make heads to tails of an overseas energy crisis and Australia's imminent reopening of its highly populous eastern states.

The ASX200 closed up 0.7% on Thursday but remains down 1% over five days. After 11 consecutive months of gains, the market is now down over one month (by 3.6%), and one quarter (by a little over 1%), and investors are unsure how soon the XJO will return to its winning formula.

With reopening on the agenda in Australia’s two most populous states, job ads point to a strong return to growth in the economy, however, an energy crisis in China and Europe, supply-driven inflation and the path of interest rates are all weighing on global markets.

With continuing weakness in the materials sector, nabtrade investors remained true to form and actively traded Fortescue Metals Group (FMG), as its price fell below $14 for the first time in a year. A large number of small buys outweighed the larger sells. The iron ore price has stabilised above $US100 a tonne ($117 at the time of writing), ensuring that Fortescue remains highly profitable at these prices but considerably less profitable than it was just six months ago, when the iron ore price was well above $200. Iron ore exports fell 4% in August, and concerns remain that the potential collapse of not just Evergrande, but several other substantial Chinese property developers, could severely crimp demand for Australia’s biggest export. A slowdown – rather than a collapse - in residential property development would have a similar effect.

While demand for iron ore fell, the energy crisis enveloping China as well as many developed economies as the northern hemisphere heads into winter has proved a boon for Australian coal exporters. China’s unofficial ban on Australian coal has seen an estimated 1 million tonnes stored in Chinese warehouses, waiting for a customs clearance that did not appear to be coming. Coal prices have skyrocketed to $US230 per tonne, up from $50 a year ago, inventories have been depleted and stranded containers of Australian coal are expected to be released shortly. Nabtrade investors have been tuning in to the news, buying Whitehaven Coal (WHC), which is up 200% over a year but fell 7% on Thursday after the coal price fell 13% overnight.

In addition to coal, oil and natural gas prices have also soared in recent weeks. WTI Crude Oil was trading around $77 a barrel at the time of writing, up from a low of $36 last October. Investors have been buying Woodside Petroleum (WPL) and Beach Energy (BPT), while Santos (STO) has been sold.

The banking sector continues to show strength despite APRA’s announcement designed to curb the borrowing capacity of homebuyers in an attempt to slow the extraordinary growth in house prices. At over $103, Commonwealth Bank of Australia (CBA) remains a heavy sell, on large average trade sizes. Nab (NAB) and Westpac (WBC) were also heavily sold, albeit in smaller volumes and in smaller parcels, as investors take profits on the sector. The big four banks are up around 50% on average over twelve months and were all among the top ten most bought stocks in 2020. At $180, Macquarie Group (MQG) has been sold.

On international markets, the mega cap news was Facebook’s (FB.US) global outage on Tuesday, when literally billions of users were unable to access Facebook, Instagram and WhatsApp. While the impact may seem trivial to light or non-users, WhatsApp provides a near-critical communication platform in developing countries, and many small businesses are heavily or entirely dependent on Facebook and Instagram for their advertising and marketing. The company is also facing condemnation after a whistleblower revealed significant governance and user safety concerns. The outage and publicity resulted in a 5% fall in the company’s share price; many nabtrade investors were buyers.

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