The ASX200 is on track for its largest weekly gain in two years, up by 4.7% at the time of writing, with energy stocks enjoying a strong run as crude oil prices edged higher.
The energy sector was the top performer, with a weekly rise of 10.35%, followed by information technology (6.82%), materials (5.65%), utilities (6%) and financials (5.18%).
However, consumer staples is lower by -0.14%, reversing some of the gains over the prior week.
OPEC+ oil output cut
Brent Crude Oil prices have surged more than 10% over the past week from US$85 to more than US$94 per barrel after OPEC+ agreed to cut daily oil production by 2 million barrels per day on Wednesday.
The heightened volatility in oil markets has been one of the key reasons for OPEC+ to announce the biggest oil production cut since the start of the Covid pandemic.
The oil producer group has been accused by many of behaving like a cartel, unnecessarily restricting supply in order to maintain high revenues from oil exports.
The White House has angrily pushed back at OPEC+, lashing out at what President Joe Biden’s administration described as a “shortsighted” decision.
Is the RBA moving in the right direction?
Not surprisingly, the RBA raised interest rates again this week but they only increased by 25 basis points or a quarter of a per cent.
Wealth Within chief analyst Dale Gillham noted that this move by the RBA signalled to the market that things may not be as bad as we have been led to believe, as the All Ordinaries Index has risen over 5 per cent since Tuesday’s announcement.
He said that markets and economies ebb and flow, so the surprise rate rise may be a sign from the RBA that the future is not looking too bad and we should be looking at the stock market in a more positive light.
Gillham added: “Currently inflation is a little over 6 per cent and the RBA expects this to rise to around 7.75 percent this year although their goal is to reduce it to between 2 and 3 per cent.
“Their expectation is that in 2023 it will drop to just above 4 per cent and in 2024 reach their target of 3 per cent.
“Governor Philip Lowe also stated that the employment rate was sitting at 3.5 per cent, which is the lowest it has been in almost 50 years, while job vacancies are very high.
“As the economy slows over the next 12 months, unemployment may rise but in reading between the lines it seems with the incremental rate rise this month, the RBA believes they have everything under control and moving in the right direction.”
Risk of rising mortgage arrears next year
The Reserve Bank of Australia’s semi-annual Financial Stability Review released on Friday warned of rising financial stability risk as higher rates hurt household budgets
The report noted that higher interest rates will increase borrowers’ debt payments.
Despite a strong labour market, income growth has not kept up with inflation in Australia, leaving households with less capacity to service their debts.
Many households will be able to manage this by reducing their spending and/or their rate of saving.
However, a small share of borrowers with lower savings and high debt are vulnerable to payment difficulties.
As a result, housing loan arrears rates are likely to increase in the period ahead from currently very low levels.
Debt-servicing challenges will become more widespread if economic conditions, particularly the level of unemployment, turn out to be worse than expected and housing prices fall sharply.
Small caps wins for the week
Emperor Energy shares surge
Emperor Energy Ltd (ASX:EMP) shares surged 25% after signing an MoU with Cooper Energy Ltd (ASX:COE) to progress discussions regarding potential cooperation for gas production in the Gippsland Basin in Victoria.
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Alchemy Resources rises more than 30%
Alchemy Resources Ltd (ASX:ALY) shares surged more than 30% after being drawn first in a ballot for exploration licence E28/3207, which will now form part of the 100%-owned Karonie Lithium and Gold Project in the Eastern Goldfields of Western Australia, a region that is shaping up to be highly prospective for lithium as well as gold.
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Creso Pharma jumps more than 25%
Creso Pharma Ltd (ASX:CPH, OTCQB:COPHF) jumped more than 25% on making further progress in the potential treatment of Post Traumatic Stress Disorder (PTSD), after wholly-owned, Canadian-based psychedelics company, Halucenex Life Sciences Inc. recruited 20 patients for its phase II clinical trial, which will test the efficacy of psilocybin on treatment-resistant PTSD.
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Core Lithium gains
Core Lithium Ltd (ASX:CXO) shares gained more than 10% this week as the company completed the first sale of spodumene direct shipping ore (DSO) from its Finniss Project near Darwin in the Northern Territory of Australia.
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