The ASX experienced a choppy week of trade, with concerns in regards to a prolonged COVID-lockdown in Sydney weighing on markets, along with fears that China would implement new regulations on commodities, especially Australian iron ore, in an attempt to reduce costs for its steel mills.
Although the US economy had so far been resistant to the market impacts of the Delta variant, the continuation of the spread caused concerns that the US could see a slow down in its economic recovery. That this comes at a time when the FOMC is flagging ongoing discussions around the withdrawal of monetary support serves as a concern, as does the China’s crackdown on large domestic technology companies, which could flow through to American companies.
The Euro Stoxx 600 once again reached all time weekly closing highs, even in a week where market reacted negatively to China’s crackdown and spread of the Delta variant, which hampered European tourism companies. Economic data revealed that Germany’s inflation rate in July jumped to its highest level in 18 years, adding to inflation pressures.
Asian equity markets were dominated by news that the Chinese government is seeking to tighten regulations on its companies, especially in the tech sector. This saw the CSI 300 fall 5.5% and the Hang Seng fall 5.0%. The KOSPI also reacted negatively, falling 1.6%, while the Nikkei 225 fell 1.0% as COVID continued to spread around Japan.
The US Federal Reserve’s dovish tone during their July meeting supported precious metals last week, with concerns surrounding the spread of the Delta variant adding further appeal to precious metals. Still, gold dropped away from weekly highs of $1,832/oz late in the week, as the US dollar appreciated, which relatively diminished appeal of gold.
Despite a rise in COVID cases in major economies, which has long served to depress oil prices, both Brent Crude and WTI Crude finished the week more than 2% up, as US oil inventories reached their lowest point since January 2020, while there are also indications that Brent Crude supplies will remain tight in upcoming months.
Iron ore prices fell drastically last week to their lowest since late May, as iron supply into China rose again, causing inventories to build for their third consecutive week – while some Chinese steel producers were also told to cut steel production to 2020 volumes in an attempt to control pollution. China is also considering a export tariff on steel products, rumoured to be between 10 and 25%.
Copper reached its highest point in almost 2 months, after torrential rain in the Chinese city of Zhengzhou caused damage to infrastructure, which means that copper is needed for the rebuild. As it is, copper levels in Chinese warehouses are at their lowest since February, while copper prices were also boosted as Chinese reserve administration sold less of its reserves than had been expected.