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Market Wrap 05/10/2018

By: Jason Shao


Equities:

The ASX 200 finished slightly lower during the week, closing down 0.3 per cent. After a brief recovery last week from the banks when the Banking Royal Commission released their interim report, bank shares fell lower over the week, with banking stocks reaching their lowest point in over three months.

Major news with Tesla, as Elon Musk stepped down as chairman from the company last week, the company shed 14 per cent of its value. This comes after the Securities Exchange Commission (SEC) alleged Elon Musk mislead investors with false claims of taking the company private on Twitter, fining the company and Mr Musk a combined $40 million USD. But the stock rebounded 17 per cent the next day, the biggest one-day gain in five years as a settlement allows him to stay on as the CEO of the company. Since then, the stock has traded lower, closing at $281.83 USD on the previous day.

Recent reports by Bloomberg saying that China had hacked US computer networks using a malicious chip built by spies has sent some Asian tech stocks lower, as scares of US slowing down imports from Asian tech companies arise. Lenovo fell 23 per cent over fears of reduced exports into the US, and the MSCI Asian Pacific Infotech index fell to its lowest point since mid-2017.

Commodities:

WTI crude oil continued its surge over the week, trading at $74.91 USD a barrel on Friday evening, reaching a high of $76.41 on Thursday. It has now gained over 50 per cent over the past 52 weeks. The discount between WTI and Brent crude (different blends of oil) furthered its gap, as Brent reached a high of $86 during the week.

Despite looming trade wars and uncertainty, gold price has tumbled from $1350 to $1200 USD per pound. Unhelped by past and future anticipation of Fed rate hikes, gold has traded in a tight range for the past month, and may continue to do so as fundamentals remain the same for the commodity.

Forex:

The AUD/USD now only trades at 0.707, hitting its lowest point in nearly two years. It reached its highest conversion rate of 81 US cents in January, tumbling since then. The RBA announcement to hold rates were no surprise to investors, but who were potentially looking at news of rate hikes in the near future, as the Aussie dollar fell from 72.3 to 71.7 US cents during the announcement by the Reserve Bank,

Bonds:

The US Federal Reserve has hiked its rates for the third time in 2018 from 2 per cent to 2.25 per cent. The Fed has removed its previous description of its monetary policy as “accommodative” into a rate that is now regarded as “neutral”. Policymakers predicted another rate hike in December this year, and three more in 2019. The announcements have pushed the 10-year US Treasury yields to a high of 3.21 per cent, its highest point in seven years.

Australian 10-year Government bond yields have risen over the past month from 2.52 per cent to 2.71 per cent, but still trail US yields by 50-basis points.

Other Assets:

House prices continue to fall, with CoreLogic monthly home price index shows a national capital city price fall of 0.4 per cent over the month of August, and nearly 3 per cent over the past year. Melbourne led the decline in house prices over the past few months, falling 2 per cent over the past quarter. Sydney, however, still leads the annual decline, falling 5.6 per cent over the past 12 months. Clearance rates for homes (percentage of auctioned homes which are sold) fell below 60 per cent over the past week. Recent scares of credit crunch from the fallout of the Banking royal commission provides no solace to the falling house prices in capital cities.


Sources: Bloomberg, AFR, ABC, Reuters, CNBC

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