What can we learn from the rise in the Australian dollar to bounce around the US80c mark in the past week?
Well, surprisingly, quite a lot including the fact that the Australian job market is incredibly strong, the US dollar is taking a breather, commodity prices continue to firm and the threat of stimulus being withdrawn more quickly than anticipated still has the power to move markets.
Oh, and as an aside, the firm dollar is also a pointer that the Chinese economy is still growing strongly, despite the many naysayers who have consistently claimed China is about to blow up in an explosion of debt.
After all, without a growing China, commodity prices would be heading south rather than north, taking the Australian dollar down with them.
Jobs market shows most sustained improvement of all time
First to the Aussie job market which continues to power on and keep a growing number of Australians in work – even if those in work may not be enjoying as much wage growth as they would like.
With around 400,000 jobs created in the past year and an incredible 15 month consecutive stretch of jobs growth – the longest on record – you could forgive Prime Minister Malcolm Turnbull for the occasional gloat.
Pay rises hard to come by
Still, not everyone is happy with wage growth remaining fairly stagnant and the unemployment rate actually creeping higher, which along with a rise in the participation rate is a sign that the strong growth in jobs is encouraging many of the unemployed and underemployed to dust off the resume and try for more work and also causing more job mobility.
It is not just the potential political benefits that would be cheering Malcolm Turnbull but the fact that every extra worker is another taxpayer who may be reducing welfare payments, which also explains why the nation’s finances are being repaired a little faster than expected.
Strong jobs growth helps to push the Aussie dollar higher – along with firming mineral prices – but a weaker US dollar has also played a part.
Euro, Yen – on the comeback trail
On one hand, US dollar weakness seems counter-intuitive given that most pundits expect at least three and possibly four official interest rate rises there this year.
While those rises could yet cause a reversal in the US dollar, the fact that the Euro and Yen were so beaten up has triggered sales of the safe haven US bonds and a move back into the Euro and Yen and European and Japanese assets.
In fact, with global economic growth rising, the search for yield is quickening and the question becomes which region is unwinding the stimulus of the GFC-era fastest.
So while the US might be raising interest rates and selling off bonds, Europe and Japan are seen to be moving faster – with evidence to be unveiled this coming week as the Bank of Japan (BoJ) and European Central Bank (ECB) both hold monetary policy meetings.
Congo cobalt tax moving markets
Moving to some stock specific changes, the increasingly likely imposition of higher taxes on cobalt and tantalum supplies from the Democratic Republic of Congo (DRC) has caused some anxiety among the many companies hoping to profit from the move towards electric cars.
With the DRC supplying two thirds of the world’s annual supplies of cobalt, which is seen as an essential ingredient in lithium-ion batteries, the rising taxes and less predictable supplies are worrying for the many companies involved in the electric car.
However, the news could be a handy stimulus to those companies which are searching and developing alternative supplies, which we analysed in depth here.
Lithium stocks also take a hit as price cools
Lithium stocks took a small hit as the price of the important rechargeable battery ingredient came off record highs set earlier in January and as leading Chilean producer SQM announced it was planning to increase production to help fill rising demand.
SQM announced it was planning to increase its production of lithium carbonate from 48,000 tonnes a year to 63,000 tonnes and predicted overall demand would rise by 14 per cent in 2018.
SQM and US firms Albemarle and FMC together control much of the lithium supply so when one of them decides to increase production, it naturally is felt by the host of smaller companies trying to make inroads into the market.
Cryptocurrencies feel the crunch
It was also a tough week for those speculating in cryptocurrencies such as Bitcoin, which overall fell around 30 per cent before recovering a little.
While for some the rapid rise in the price of Bitcoin and the many other smaller cryptocurrencies is seen as a massive bubble based on nothing much of value, still others point out that these currencies have survived significant volatility in the past and continued to rise in price so this latest crunch may be nothing more than some continuing volatility.
One thing that has become clear is that predicting movements in cryptocurrencies is even more of a lottery than any other predictions so this is one market tailor made for speculators rather than investors.
Small cap stocks this week
A busy week in the small cap and micro cap space as always, let’s have a look at some worthy mentions.
Animoca Brands (ASX: AB1)
Mobile games and e-book developer Animoca Brands saw its share price rise over 200% on Thursday on news that its Crazy Defense Heroes mobile game had made more than A$200,000 in its first week.
The game has been rolled out throughout Asia and is free to download from the Apple app store, which has seen over 260,000 downloads of the game already.
Android users will be able to join in on the fun later this year when Crazy Defense Heroes is also expected to be rolled out across North America and Europe.
LiveTiles (ASX: LVT)
Global software and artificial intelligence developer LiveTiles reported record sales growth for 2017, with annualised subscription revenue up 245%.
By the end of last year, LiveTiles’ annualised subscription revenue had topped A$6.9 million, with the company forecasting continued growth in 2018.
The positive sales figures follows recent news that the company unveiled its retail artificial intelligence solution (RAISE) in partnership with none other than Microsoft.
Connected IO (ASX: CIO)
Connected IO advised its annual revenue for 2017 rose 364% from last year.
The company is anticipating further growth in 2018, based on purchase orders currently received and a pipeline of anticipated contracts.
During 2017, Connect IO rolled out its hardware throughout 3,000 of US-based AT&T resellers, multiple virtual network operators distributing hardware globally, and a digital signage company, which used Connected IO’s modem as a bundled airtime package solution.
Battery Minerals (ASX: BAT)
Battery Minerals has signed its third binding offtake agreement in a month for its advanced Montepuez graphite project in Mozambique.
The latest agreement from China-based Qingdao Black Dragon Graphite, sees 60% of the anticipated stage one production from Montepuez now contracted.
Also this week, equity analyst Morgans put out a report on Battery Minerals with a buy price of 26c, with the stock closing the week’s trade at 7c.
Please note this is not investment advice, see a financial expert before making any investment decision.
Bod Australia (ASX: BDA)
We’ve seen EVE Investments (ASX: EVE) achieve recent success with its hemp honey, well now Bod Australia wants in on the action.
Bod this week announcing its plan to develop a hemp-based, high methylglyoxal manuka honey with the help of New Zealand-based Manuka Pharma.
First sales are being targeted for the end of June.
Po Valley Energy (ASX: PVE)
Emerging oil and gas developer Po Valley Energy saw its shares go for a wild ride on Friday following news it had intersected two gas reservoirs that returned strong gas flows during drilling at its 63%-owned Selva gas field in Northern Italy.
Po Valley saw its share price open the day at 4.9c, rally to a high of 11c, then close out the day at 6.3c.
Argosy Minerals (ASX: AGY)
Taking a step closer to its first lithium carbonate concentrate, Argosy Minerals reported its stage two lithium brine evaporation ponds, at the Rincon lithium project in Argentina, are now fully operational.
More than 10 hectares of ponds have been filled with lithium brine in readiness for solar evaporation during the region’s summer season.
Argosy anticipates it will announce a resource estimate by the end of the quarter.
The week ahead
It promises to be a quieter than usual week on the Australian market thanks to the Australia Day holiday which at this stage will still result in the closure of the ASX on Friday but it is worth keeping an eye out for any news from those Japanese and European central bank decisions.
Any signs that stimulus could be wound in faster than anticipated could result in a hit to the Australian dollar, while the opposite is also possible.