22 November 2023
Aussie equity markets have tempered themselves this week after the S&P 500 retreated -5.33% over the past five trading days, with the XJO shedding a modest -0.81% during the same period. The VIX stacked on over 13% as everyone braces for further volatility.
This was spurred on by concerning jobs data that showed the unemployed rate declined to its July level of 3.5% alongside non-farm jobs increasing by 263,000 in September. Markets are now expecting yet another supersized 75 basis point rate hike by the US Fed next month.
Third-quarter earnings reports will ramp up this week in the US, so investors will be watching carefully to assess how higher interest rates are affecting corporate profits.
The price of gold, which briefly came up for a gasp of air above US$1,700/oz last week, is once again banished below this key support level. With many analysts believing gold is deeply undervalued, and attributing the global precious metal sell-off to a surging US dollar, there could be opportunities that present themselves as fundamentals fall out of balance.
The GDX, a Vaneck Index that closely tracks the performance of gold miners, reported a 19.7% year-on-year rise in the All-In-Sustaining-Cost of their top 25 gold producers, averaging US$1,281/oz for Q2 CY22.
The resource-heavy thematic that underpins the Aussie dollar has been punishing for the local currency, as it put it in a fresh 2.5-year low yesterday at US$62.45.
While concerns for global growth worsen, it is becoming apparent that the US might have to raise rates higher than Australia in the worldwide battle against inflation – which could send the US dollar surging even higher.
The XJO has erased nearly half of the 5.7% gains it had made at the start of the week. The rally saw the XJO close to testing the 50-day moving average, and now it looks to test strong multi-month support at 6405.
The market has been trading between the support at 6405 and resistance at 6894 since mid September. Investors’ main focus at the moment still seems to be inflation, with many keenly awaiting the influx of global market news flow expected later this week.
Implied volatility is currently at 20.02% with an IV rank of 57. Any unfavourable news, such as higher-than-expected inflation, may see the XJO push much lower and test support, similar to June and September this year.
This would push volatility higher as the index falls. If investors think that might happen, now would be a good time to purchase some insurance.
As the energy crisis worsens, nuclear energy is gaining more attention. With Germany re-evaluating its decision to switch off its nuclear power supply, it is becoming apparent that the catastrophic cost of a long-term broken gas market combined with insufficient renewable energy supply might be begging for nuclear intervention.
Australia has a blanket ban on nuclear power, but with retail energy prices potentially facing another 35% increase over the course of next year, some industry experts are calling for a temporary allowance of small modular nuclear reactors.
France has around 70% nuclear energy currently available to its grid, and the UK has set a 25% nuclear energy target by 2050. It will be interesting to see how this plays out in Australia.
With the TGA greenlighting over-the-counter, prescription-free sales of low-dose cannabidiol products in pharmacies, companies are expecting the market to grow 14 times its current size to over $3 billion.
To discuss which businesses are positioned to benefit from this decision and how the market could develop, we are hosting a two-part The Insider: Future of Medicinal Cannabis summit – the first part will feature first-hand insights from industry leaders Zack Bozinovski, CSO of Wellnex Life, and Shane Duncan, COO of Cann Group.
Zack and Shane will be joining us tomorrow, Thursday 13th October at 12pm (AEDT), where they will discuss why we can expect more money to move into medicinal cannabis stocks and how this may create a huge potential opportunity for the first movers. To join us for this session, click here.
Reach Corporate provides Corporate Advisory Services to WNX and have been engaged by them to manage their investor communications.