The market has risen once again after rallying for three days this week but was unable to fully arrest the slide in the face of world-wide inflation and a raft of other local and geopolitical pressures.
The All Ordinaries waffled between a low of 7,326 points on Monday to a peak of 7,426 points on Wednesday, sliding to 7,303 yesterday before making modest gains back up to 7,380 points today.
The ASX300 – or Small Ordinaries – followed a similar trajectory, falling to 3,011 points yesterday before rallying to 3,047 today.
Rising prices and slowing economies have spread hesitancy to other markets as well, the FTSE 100 index dropping 1.8% on Thursday, while on Wednesday, US shares experienced the biggest one-day drop since the beginning of the pandemic in 2020.
Bear won't be hibernating
Steep inflation rises, dour outlooks on retail, and climbing interest rates have all contributed to the gloomy market outlook, leading many analysts to believe the bear will not be hibernating anytime soon.
"A red wall of worry has built up across financial markets with investors increasingly nervous that economies are set to career into recession," said Hargreaves Lansdown senior investment and markets analyst Susannah Streeter.
Bank of England and American farmers warn of looming food crisis
Governor of the Bank of England, Andrew Bailey, has added another sobering piece to the painful puzzle, warning he has “run out of horsemen” to counter runaway energy and food costs driven by geopolitical factors beyond his control.
The governor said that he had spoken to Ukraine's finance minister and added: “The [risk] I'm going to sound rather apocalyptic about I guess is food.
“Ukraine does have food in store but it can’t get it out at the moment. While [the finance minister] was optimistic about crop planting, he said at the moment we have no way of shipping it out as things stand, and it is getting worse.
“That is a major worry. It is not just a major worry for this country, it is a major worry for the developing world.
“I am by no stretch of the imagination a military strategist, but whatever can be done to help Ukraine get its food out would be a huge contribution.”
The Russian invasion of Ukraine has taken a toll on already precarious international food security, driving up the prices of cooking oil, fertiliser, cereals – with wheat taking a particularly hard hit – and fuel at a time when the 2022 Global Report on Food Crises describes global hunger levels as “alarmingly high”.
The report claims that 40 million more people across 53 countries and territories are acutely food insecure and require urgent assistance, a 26% increase from 2020 levels.
The crisis could begin to affect supermarket stock within months, according to United States farmer John Boyd Jr, the President of the National Black Farmers Association, who spoke to Leland Vittert on NewsNation’s “On Balance.”
Poor planting weather, higher prices for seed, fertiliser and fuel coupled with ongoing supply chain weaknesses are undermining farmers’ efforts to feed their countries.
“We’re gonna see a lot of empty shelves and a lot higher prices,” Boyd Jr. said.
Australia is by no means immune to these pressures, and in fact may be particularly vulnerable.
“We’ve been talking about these very scenarios for 50 years,” University of Canberra ecological public health expert Dr Ro McFarlane said.
“We’ve been speculating. We’ve been measuring. We’ve been applying our minds to making predictive models. But for various reasons, we’ve not been taken particularly seriously.”
The weaknesses of the Australian supply chain were brought into sharp relief these last few years, first by the COVID-19 pandemic, then by widespread and continued flooding in the eastern states, and now by a second global supply squeeze exacerbated by the Ukraine conflict.
“We’ve centralised and commodified and simplified all the foods we eat,” Dr McFarlane explained.
“That’s made it incredibly vulnerable to the extremes in weather that are happening at the moment in Canada, the US and Australia. The ability to absorb a conflict like that between Russia and Ukraine just isn’t there.”
Those of the cautious persuasion might consider stocking up on some essential items before potential shortages hit the shelves.
Finland and Sweden officially apply to join NATO
Much to the fury of Russia, its invasion of Ukraine has galvanised nearby countries, undermining security sentiment in the region and driving previously reluctant nations into the arms of the NATO alliance.
Both Sweden and Finland have now officially applied to join NATO.
Finland’s application is of particular note, as up until very recently Finland maintained staunch military neutrality, a consequence of the 1939 Winter War (and Continuation War) that saw more than two million Russian casualties and 9% of Finland’s territory ceded to Russia.
It also risks directly provoking Russia, as Finland shares a 1,335-kilometre border with the larger nation.
Russia’s aggression in Ukraine – which followed a swing in public sentiment against Russian relations – is telling, evidence the Eastern European power is uncomfortable with the spectre of NATO on its doorstep.
The Netherlands, one of the founding members of NATO, has offered Sweden and Finland military protection ahead of NATO’s decision, with defence minister Kajsa Ollongren commenting that "the European security guarantee applies anyway," and that The Netherlands can "definitely make a contribution" to the security of the Swedes and Finns while they await NATO’s verdict.
Stablecoins reveal their volatility as crypto market falls
Stablecoins are a type of crypto designed to be directly tied to another value, maintaining a stable valuation. The coin is pegged to another asset, often a fiat currency like US dollars, and should maintain that value despite the market.
Unfortunately, not all stablecoins are created equal, as the market discovered when TerraUSD crashed and burned, losing 99.9% of its value since May 6.
Marketed as a stablecoin, TerraUSD (or LUNA) was actually an “algorithmic stablecoin” based purely on computer code without any true collateral to back up the cryptocurrency.
“It was inevitable Terra crashed as the reliance on using other cryptocurrencies as collateral as well as the minting/burning mechanism of LUNA for Terra was not sufficient to survive any serious market volatility,” Crypto wallet company PinkPanda CEO Adam Carlton said.
Understandably, other stablecoins are now under the microscope, with Tether in particular being eyed askance. Sceptics argue the organisation does not hold the requisite $82 billion in backing, though stablecoins are ostensibly based on real collateral.
Despite all that, Tether’s coin (USDT) briefly dipped to US$0.97 before regaining its equivalent value to the US dollar.
While some stablecoins will certainly not survive this latest crypto market crash, some analysts believe they will only grow in value from here, becoming a staple of the crypto industry.
“The market is clearly showing us that collateralised stablecoins are the future,” Domain Money head of investment management Andrew Pesco said.
PinkPanda’s Adam Carlton echoed the sentiment, saying: “Despite all the harm done by the Terra foundation’s reckless approach to stablecoins, we will see the industry step up and create even more resilience in the markets.”
Small cap wins this week
The market has not been particularly kind this week, doling out gains here and there without recovering much lost ground.
Some small caps have shone through the gloom, their gains all the more impressive in a bearish market:
Havilah Resources Ltd (ASX:HAV) skyrocketed 84% on Tuesday, after initiating a proposed transaction with prominent copper producer OZ Minerals Limited. The transaction includes a strategic alliance and an option to purchase the Kalkaroo Copper-Gold Project, which holds 1.1 million tonnes of copper, 3.1 million ounces of gold and 23,200 tonnes of cobalt.
Discovery Alaska Ltd (ASX:DAF) also enjoyed a large share price bump, rising 61% over three days after identifying widespread lithium mineralisation through historical drill core data at the Chulitna Project's Coal Creek prospect.
The company is already working toward a maiden JORC resource for the project, believing the historic data will “rapidly expedite exploration works”.
Auric Mining Ltd (ASX:AWJ) received a slightly belated windfall today, climbing 23.68% after yesterday moving to acquire more prime country in the Widgiemooltha/Norseman area of WA, with the possibility of lithium and nickel on the tenure offering a “mouth-watering” opportunity.
The area is largely unexplored greenstones, but soil sampling has indicated the potential for nickel, with the added bonus of pegmatites that may be prospective for rare earths and lithium.