UNIT University Network for Investing and Trading UniMelb

Market Wrap 13/04/2018

By: Michael Lee


Equities:

The ASX 200 finished 1% higher for the week at 5820 points. Throughout the week, news emerged that China had prepared a comprehensive plan to hit back and could potentially retaliate in the forms of devaluation of the Yuan. However, at the Boao Forum for Asia, President Xi remarks that “The cold war and zero-sum mentality looks out of place in today’s world. Arrogance or only focusing one’s own interests will get nowhere. Only peaceful development and cooperation can truly bring win-win or all-win results,” signalled a potential dial-back from their US-China trade war rhetoric. The speech was welcomed by President Trump. In fact, President Trump seemed to have backed away from the trade war stand by saying that “the two countries may not end up levying new tariffs on each other”. He also signalled his intention to re-enter the Trans-Pacific Partnership trade accord, after asking top economic advisers this option. With the sign of ease in trade conflicts between US and China, major stock markets such as S&P 500 and DAX index advanced by 1.6% and 1%, respectively for the week. In the Middle East, the potential use of chemical weapon in Syria has prompted the possibility of US military strike against the Syrian government, though no decision has been made, according to US Defense Secretary, Jim Mattis. This might have added to the selling pressure on ASX 200 on Thursday.

Commodities:

WTI Crude price peaked and reaching one-year highs at around $67.12 US dollar/bbl on Friday. Gold price recovered but fluctuated around $1338/oz., amid the conflict between US and Russian’s stand on Syria’s chemical attack on Douma, a rebel-held city which could force US to respond in military actions.

Forex:

As RBA kept the interest rate on hold at a record low of 1.5%, AUD/USD  fluctuated around 0.779. Pound/USD continued its ascend to $1.42 amid rising optimism that UK’s option to wait and delay the final decision until the end of 2020 could provide more certainty over the economic impact of Brexit.

Bonds:

Three-month US Treasury yields currently stand at 1.73% with the yield curve showing strong rising rates with 12-month yield at 2.08% and 24-month at 2.34%. Historically, the Australia bonds have a higher yield than US counterparts. Continuous rising yields of US bonds, with 24-month US treasuries exceeding the 24-month yield on Australia bonds at 2.02%, could potentially indicate weakening of the AUD due to investors preferring to purchase bonds in USD over comparable lower yielding Australian bonds in AUD.

Other Assets:

Bitcoin’s wild fluctuation started the week with a plunge into the region of $6700 on Monday from above $7000, before rocketing more than 10% to around $7700 on Thursday before trading at $8200 on Friday. The extreme volatility in the value of Bitcoin continues to raise the question of the feasibility of its role as a medium of exchange, given the stability of a currency is usually a critical factor for businesses and customers to adopt a currency for trade.

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