November Market Report

November Market Overview

Crude Oil
Crude oil prices have experienced a decline of 8.5%, largely driven by China’s economic slowdown, with a mixed outlook influenced by ongoing geopolitical tensions, particularly surrounding Iran. The current support level stands at $66 USD, with resistance observed at $78.50 USD.

Natural Gas
Natural gas is approaching its support level around $2 USD. Market predictions indicate a potential surge in prices as demand is expected to outpace supply. A combination of reduced drilling activity, lower overall production, and capital withdrawal from the market is expected to drive prices higher, with SKILLSOOP forecasting a significant increase.

Gold
Gold is anticipated to continue its upward trajectory due to heightened risks associated with US Treasuries. Specifically, the short-term default risk and long-term inflation risk contribute to gold’s price rally. While gold is currently rising alongside a strengthening USD, a weakening dollar in the future could accelerate its price surge.

Silver
The gold-to-silver ratio is currently around 80:1, significantly above the historical average of 60:1 in recent years, and the long-term average of 20:1. Given these dynamics, silver is expected to touch $45 USD in the near term, with potential to exceed $100 USD in the future.

Copper
Copper prices are finding support at $4.28 USD, with resistance forming at $4.66 USD. Slightly improved economic conditions in China have bolstered overall sentiment, providing some stability to copper prices.

Iron Ore
Iron ore prices have risen, driven by stimulus measures from China. Deutsche Bank forecasts that prices could reach $130 USD in 2025. However, SKILLSOOP remains cautious, anticipating that long-term prices will remain subdued due to Brazil’s increased production capacity, which will apply further pressure on prices.

Aluminium
Aluminium prices are on the rise, influenced by an imbalance between supply and demand in the alumina market. A key driver of this imbalance is the supply chain issues associated with bauxite, particularly with China’s growing reliance on imports from Guinea, which faces challenges related to weather and labor strikes. Australia benefits from this dynamic, contributing 23% of China’s imports, particularly in light of the Indonesian export ban and Guinea’s supply disruptions. However, the cost of alumina, which constitutes 40% of smelter input costs, remains a critical challenge for aluminium producers.

Agricultural Commodities

• Corn: Prices have weakened, primarily due to oversupply, with grain (wheat) and soybeans contributing to the market softness.
• Cocoa: While the stronger dollar has provided some price relief, supply issues persist, further exacerbating market pressures.

Economic Indicators

• Consumer Credit: Consumer credit continues to expand as households struggle to manage mortgage and rent payments, alongside discretionary spending. This is compounded by rising taxation and inflation, further depleting personal savings.
• Private Sector Employment: The private sector is experiencing a contraction, highlighting broader economic weakness.
• New Home Sales: Sales have decreased due to supply chain challenges, with Queensland particularly impacted. Mortgage stress is contributing to an increase in properties on the market.
• Vehicle Sales: Vehicle sales are down, reflecting increased bankruptcy rates within the private sector.
• Retail Sales: Retail sales have increased by 3.1% in August, reaching $36,376.4 million. However, this increase is likely driven by rising prices rather than higher consumption levels.
• Manufacturing PMI: The PMI continues to show signs of weakness in the private sector, indicating ongoing economic contraction.

Trade and Government Metrics

• Imports: Trade imports have declined, driven by contractions in consumer goods demand (down 4.2%) and vehicle parts (down 7.5%).
• Exports: Trade exports have contracted, with meat exports, grains, minerals, and metals showing negative growth.
• Government Debt: Australian government debt has increased in August 2024, with the current account balance falling by $4.4 billion to a deficit of $10.7 billion in Q2, primarily due to lower commodity prices and increased income flows to non-residents.

Bond and Interest Rate Markets

• 10-Year Bond: Capital is increasingly shifting from debt markets to haven assets such as silver and gold, as market sentiment remains cautious.
• Inflation Rate: The most recent inflation figures are not yet updated, but inflation remains understated relative to the actual economic conditions. The latest recorded inflation rates were as follows:
  • October: 4.37%
  • August: 3.8%
  • July: 3.35% (down 0.45%)

Banking and Government Policy

• Deposit Rates: Deposit rates have declined in tandem with the cash rate, which remains at 4.35%, increasing bank margins but disadvantaging savers.
• Government Spending: Government spending has risen in Q2, as have revenue levels in August, with increased debt accumulation seen across the public sector.