ASX hits 10-year high as cannabis and commodities lead the way in 2018
WEEKLY MARKET REPORT
The Australian share market has closed out the first week of 2018 at a ten year high of 6,122 points, sparking optimism amongst investors.
Whilst the ASX still needs to climb at least another 10% if it’s to touch 2007 pre-GFC highs, early signs bode well for achieving that goal.
Overseas markets, including the US, have helped boost the market here at home.
Dow 25,000 points
The bulls are on parade over at Wall Street as the US stock market continues to make all-time highs, with the DOW surging past 25,000 points.
The most recent rise was fueled by private sector growth in the US, with 250,000 new jobs added for December, well ahead of the 190,000 expected.
In the public sector, the nonfarm payrolls report showed only 148,000 jobs were added in December, short of the 190,000 anticipated.
All in all it was enough to show modest growth with the unemployment rate staying at 4.1%.
With Donald Trump’s tax plan being approved there has been a surge in both business and consumer confidence.
However anything could happen during the year ahead, as we live in a truly bizarre time. The Shiller P/E ratio is at its second highest value in history potentially signalling that despite all the confidence in the market, the fundamentals may be showing an overpriced market.
Also worth noting are countries that produce a quarter of global GDP now have negative interest rates, this may be unsustainable in the long-term and sharp rising interest rates could see the market reverse.
Commodities surge higher
Commodities are experiencing their longest winning streak in history with the Bloomberg Commodity Index rising for 15 consecutive days.
Across the board we are seeing everything from precious metals, base metals and oil rally.
Strong manufacturing numbers out of Europe and the United States are helping the cause, with China expected to increase output to meet perceived oversees demand.
However some analysts are not convinced with the recent rally and believe later this year the optimism will wear off and see demand for the commodity sector weaken.
Aussie cannabis stocks rise on export news
The Australian cannabis sector received a major boost this week as the Federal Government announced it will allow medical marijuana exports.
Great news for the rapidly growing industry still taking root.
In a statement from Health Minister Greg Hunt:
“This decision will help both the domestic supply and Australian producers by strengthening the opportunities for domestic manufacturers.”
The news was well received by the ASX listed cannabis companies and investors alike, sending share prices in those stocks higher.
Canadian pot stocks get hammered from US ruling
Meanwhile Canadian marijuana stocks took a hit following US attorney general Jeff Sessions announcing he’ll be rescinding policy that barred federal law enforcement officials from interfering with the sale of marijuana where legalised at a state level.
A handful of Canada’s pot stocks took a 25-30% drop on the news, however had previously risen sharply days prior from California’s recreational marijuana laws coming into effect.
Despite the decision by Sessions, the ‘war on drugs’ seems to be on its way out with regards to cannabis. With trillions of dollars having been spent for nothing to really show for it and the benefits of cannabis now becoming apparent to the masses.
Turm-oil drives crude higher
Oil prices reached two year highs this week on the back of political unrest in Iran, sparking fears that supply from OPEC’s third largest oil producer may be disrupted.
This is something we at Small Caps highlighted a few weeks ago, regarding tensions in the middle east, the push for war and a potential technical breakout in the oil price.
In November we saw OPEC and other allied nations, including Russia, agree to extend oil production cuts till the end of 2018.
This week also saw US crude inventories drop by 7.4 million barrels, 2.3 million more than expected.
On another note, China is set to launch the Petro-Yuan on 18 January, allowing Chinese buyers to lock in oil prices and pay in yuan, rather than the US dollar.
The Petro-Yuan will trade on the Shanghai International Energy Exchange and operate under the code ‘INE’.
This is yet another move away from the US dollar for pricing commodities and settling trade. A trend that is gathering momentum around the world and worth keeping note of, as history shows that when a global (widely accepted) currency is on its way out we see war break out.
The US dollar is backed by nothing more than its military power.
This also comes at a time when China passed the United States in 2017 as the world’s largest crude oil importer.
Ripple effect in cryptocurrency
Chris Larsen, the co-founder of Ripple Labs, which created the cryptocurrency Ripple, is now worth more than Facebook founder Mark Zuckerberg and Google founders Larry Page and Sergey Brin.
Larsen owns a 17% stake in the company he co-founded in 2012, which is now worth a massive US$225 billion, making it the 10th largest company in the world. Along with the 5.19 billion XRP coins (Ripple’s coin), Larsen’s net worth is estimated to be around US$59.9 billion.
Ripple’s XRP has risen more than 35,000% since the beginning of 2017, not bad for a cryptocurrency few have been talking about, especially when compared to the hype around Bitcoin.
While Bitcoin transactions can take an hour to clear, Ripple takes around 4 seconds to process, making it a more practical option for transacting, especially for overseas transactions where banks are seriously lagging behind the technology that is already available.
In terms of scalability, Bitcoin can process around 5-10 transactions per second, whilst Ripple is able to do 200 times that, and is aiming for 40,000+ transactions per second, which would put the technology on par with Visa and Mastercard.
Ripple prides itself on being a decentralised transaction network that contains a digital currency, rather than solely being a cryptocurrency.
For more information on cryptocurrencies and blockchain you can grab a free copy of my book: Cryptocurrency: The future of money and blockchain technology.
This is not investment advice. Cryptocurrencies are highly speculative. See a financial expert before making any investment decision.
Speaking of Facebook earlier, billionaire Peter Thiel who was a seed investor in the social media giant and a list of other notable companies including PayPal, Airbnb and SpaceX, invested US$20 million recently into Bitcoin through his Founders Fund, according to reports.
With big players getting involved it seems cryptocurrencies may be here to stay notwithstanding the inevitable ups and downs.
Small cap stocks this week
Despite being a quiet time of year for the markets, there was still plenty of action in the small cap space, with cannabis stocks beginning the year strong due to the Federal Government’s export announcement as previously noted.
MGC Pharmaceuticals (ASX: MXC)
Following successful clinical testing, MGC Pharma launched its cannabidiol-based Derma Plus herbal cream for psoriasis sufferers throughout Australasia, the European Union and United States.
A disease affecting 5% of the population, the global psoriasis market was estimated to be worth US$7.8 billion in 2015 and projected to be worth US$12.1 billion by 2024.
First Growth Funds (ASX: FGF)
First Growth has secured a cornerstone investor in Blockchain Global with plans to raise $3.45 million to fund investments in blockchain related technology, assets and businesses.
Blockchain Global owns a 40% interest in DigitalX (ASX: DCC), the world’s first listed blockchain company. Blockchain Global also operates Australia’s largest cryptocurrency exchange – ACX.io.
Jatenergy (ASX: JAT)
Following on from news that it would start delivering full cream milk powder into China through its wholly owned subsidiary Cobbitty Country, Jatenergy announced that it had secured a 51% stake in Australian-made infant formula and powdered milk producer Golden Koala.
Golden Koala sells its products into China, having sold 264,000 tins of infant milk into the country over the past three years, generating over $6 million in revenue.
Lodestar Minerals (ASX: LSR)
Following analysis of recent drilling at its wholly owned Neds Creek and 80%-owned Yowereena projects, Lodestar Minerals announced the discovery of a major gold system.
Lodestar plans to follow-up with more RC drilling as soon as possible to define the extent of the mineralization.
Department 13 International (ASX: D13)
Counter drone developer Department 13 has signed a distribution agreement with Nippon Kaiyo that will see the company’s MESMER product become available in key Japanese markets.
The latest addition sees Department 13 have distribution agreements set up in a wide range of markets including: Latin America, the United States, Australia, South East Asia and Europe.
The week ahead
Apart from most people returning to work on Monday, Tuesday we have building approval numbers out for November, with a 1.8% drop forecast.
Retail sales numbers for November are out on Thursday, it will be interesting to see if the retail sector can bounce back in 2018 after a fairly disappointing year in 2017.