The ASX200 fell 1.45% this week despite a brief rally yesterday.
Despite the dip, the Australian market has fared better than the rest, which all fell over the last week. The S&P500 fell 3.13%, the NASDAQ 2.98%, and the FTSE100 3.88%
The pain was even greater in the Japanese and Chinese markets, with the Nikkei 225 shedding 4.88% and the Hang Seng dropping 4.34%.
Sectors were mostly down, with only Healthcare (+1.66%) and Communications Services (+1.04%) gaining significantly, trailed by Consumer Staples with a 0.35% increase.
Commodities flipped the script, with only platinum (-4.17%), nickel (-2.34%) and zinc (-2.61%) falling as aluminium (+4.94%) and lead (+3.99%) enjoyed the largest gains.
BoE intervenes as UK bonds crash following new budget
The Bank of England (BoE) launched swiftly into action on Wednesday, moving to halt a slide in British government bonds that would have devastating consequences for the country’s pension system.
The decline was sparked by a new mini budget from the UK government which proposed aggressive tax cuts and increased borrowing, spooking investors into offloading their pounds and sending sterling tumbling down to record lows.
The BoE’s emergency intervention involves buying up £65 billion (A$109 billion) in bonds over 13 days, propping up a pension system directly tied to the value of a type of bond called ‘gilts’ – a British pound-denominated government debt issued by the British treasury.
The bond market recovered quickly after the announcement, but the pound nonetheless experienced a sharp contraction, falling to a record-setting low of 1.054 US dollars before recovering to US$1.110 today.
In an interesting turn of events, the Euro is also almost on par with the US dollar at the moment, trading at US$0.98 per euro, a boon for export/import accountants if no one else.
While the Truss government is sticking to its guns on budget policy, the Bank of England stated it will carry out temporary purchases of long-dated UK government bonds immediately.
“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability,” the BoE said.
“The purchases will be carried out on whatever scale is necessary to effect this outcome,” it added, saying the Treasury would underwrite any losses.
The UK Treasury blamed “significant volatility” in international markets rather than the government’s budget for the financial instability, stating:
“The chancellor is committed to the Bank of England’s independence. The government will continue to work closely with the bank in support of its financial stability and inflation objectives.”
RBA releases white paper for pilot program exploring digital currency
The Reserve Bank of Australia (RBA) has partnered with the Digital Finance Cooperative Research Centre (DFCRC) to investigate the potential models, benefits and regulatory context of creating a central bank digital currency (CBDC).
CBDCs are central bank-controlled digital currencies that use blockchain technology but are not a cryptocurrency, being a centralised digital coin subject to the RBA’s regulation.
The DFCRC is a research group made up of stakeholders in fintech, industry, research and regulation with a mission to pioneer research and commercialisation for the digital finance sector and digital currencies.
The key objectives of the project are to identify and understand innovative business models, use cases, benefits, risks and operational models for a CBDC in Australia.
The white paper set out three initial research questions to be addressed by its CBDC pilot program:
- What, if any, are the emerging business models and use cases that a CBDC would support, that are not effectively supported by existing payments and settlement infrastructures in Australia?
- What might be the potential economic benefits of issuing a CBDC in Australia?
- What operational, technology, policy and regulatory issues might need to be addressed in the operation of a CBDC in Australia?
While only a subset of these use cases will be piloted, the program hopes to analyse a much larger and broader variety of use cases for their capacity to deliver public benefits.
The project is expected to be completed by April 2023, with the findings report to be published by mid-2023.
Small cap wins for the week
Alchemy Resources surges 30%
Alchemy Resources Ltd (ASX:ALY) climbed after winning a ballot for an lithium-prospective exploration licence at the Karonie Lithium and Gold Project.
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Stellar Resources jumps 25%
Stellar Resources Ltd (ASX:SRZ) shares jumped after closing an oversubscribed SPP for a total capital raising proceeds of almost $2.48 million.
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Recce Pharmaceuticals climbs 14.6%
Recce Pharmaceuticals Ltd (ASX:RCE, OTC:RECEF) climbed after announcing its plans accelerate and expand clinical programs across the company’s portfolio.
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Orthocell up 10.5%
Orthocell Ltd (ASX:OCC)’s shares were up after the company secured first purchase orders for Striate+ and Remplir under new distribution deals and fielded data demonstrating the OrthoATI rotator cuff treatment is more effective than steroid injections.
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