Developments in financial markets
Written and accurate as at: Nov 11, 2021 Current Stats & Facts
Australian Equity
Australian markets were mixed this month as the ASX300 Accumulation returned 0.10%. Earnings announcements defined the tides of sectors, as Healthcare returned a strong (+3.05%) spurred on by companies such as CSL and ResMed beating their quarterly estimates. Financials, Consumer Discretionary and Materials all had solid months, returning (+2.78%), (+2.15%) and (+2.49%) respectively. Energy saw a downturn (-0.36%) as markets reacted to Australia’s Energy Security Board announcing their forecasting that coal powered energy to be off the grid by 2030.
Chart 1: Australian Equity October Performance, rebased to 100
Source: BTIS / Bloomberg
International Equity
Overall, global markets finished in a mixed position this month. US markets showed fully recovery from September spookiness, booming as the S&P returned 7.01%, the NASDAQ 7.29% and the Dow Jones 5.93%. These bullish runs were spurred on by earnings seasons where much like the Australian market, many companies exceeded expectations. According to market analysts, earnings by S&P500 companies have beaten estimates by 10% in the September quarter.
Europe had a weaker bull run than the US but still showed overall strength, as the Europe 600 STOXX reported 4.55%, the French CAC 40 4.76%, the German DAX - 2.81% and the UK’s FTSE100 2.13%. Asian markets reported mixed returns as while the Hang Seng showed strength in its 3.26% October return, the Japanese Nikkei 225, Shanghai Composite and Korean KOSPI all finished negative, reporting -1.89%, -3.20% and -0.58% respectively.
Chart 2: International Equity October Performance, rebased to 100
Source: BTIS / Bloomberg
Fixed Interest
With continued concerns in the global economy over energy prices uplifting inflation, markets are paying close attention central banks’ sentiments and policies. The Bloomberg AusBond Composite (0+Y) index declined during the month to return -3.55% - This was one of the worst monthly performances in history for the Australian market. Higher and more persistent than expected inflation, the abrupt end to the RBA’s bond purchasing targeting short term yields and the economy emerging from lockdown sooner than expected led to a significant bear steepening of the yield curve. In international fixed income markets, the Barclays Global Aggregate TR Hedged index’s returned -0.26% over the month.
Foreign Exchange
The Australian dollar showed considerable strength this month across most currencies. Markets responded to Australia’ core inflation announcement as it sped to its fastest annual pace since 2015 for the September quarter. This prompted a mid-month sharp jump in the Aussie that soon re stabilised for the remainder of October. Against the USD, Aussie returned 4.0% over the month as well as 4.2% against Euro. Strongest momentum was seen in the AUD/JPY as returns topped to 6.6% over the month.
Chart 3: Foreign Exchange October Performance, rebased to 100
Source: BTIS / Bloomberg
Commodities
Iron ore was a big loser this month as it returned -8.4%. Though this softens September’s downward momentum (where the commodity returned -23.72% for that month), many economists believe this is not a depreciation of the metal but instead a mean reversion given the strong growth over the past 18-24 months. Yet, persistent Chinese steel production continues to be a headwind for iron.
Oil showed strength in October as Brent Crude returned 7.5% and WTI Crude 11.4%. Gold remained relatively flat in the face of the US Fed announcing tapering to pandemic stimulus measures as it finished the month returning 1.5%.
Chart 4: Commodity Markets October Performance, rebased to 100
Source: BTIS / Bloomberg
Cryptocurrency
Crypto had a strong run this month as the major coins all finished higher than they started. The historic appreciation followed a similar cadence to listed US markets as Bitcoin and Ethereum both hit all-time highs. Notably, the new social media driven coin Shiba Inu (the rival to Dogecoin, dubbed the “Dogecoin killer”) reported a more than 750% gain this month. Chatter within markets have pegged Bitcoin as a hedge against inflation and attributes this bull run as an indication that the US is facing real inflation.
Australian investors began to prepare for the impending November launch of a crypto ETF, CRYP, managed by BetaShares. This fund has been designed to give investors access to the volatile but lucrative crypto markets in a regulated format and will be the first ASX listed investment product to provide exposure to crypto markets while not investing directly into the digital tokens. Rather, BetaShares will back the ETF will globally listed companies with a market capitalisation of at least $100million that service the “digital asset economy”.
Chart 5: Cryptocurrency October Performance, rebased to 100
Source: Bfinance