What does stocks have to so with the implosion of cryptos’ stablecoin? What is the impact of interest rate movements on consumers? Our Australian Shares Fund senior analysts Alex Shevelev and Gaston Amoros dive right into some interesting topics.
Rising interest rates impact Australians through higher mortgage payments, but it also has implications for the cost of money – that’s very important when investing in stocks. This is playing out in the market right now. We have seen long duration stocks, like technology companies, being hit hard as interest rates rise. Rises will also squeeze consumer wallets and impact the consumer discretionary sector.
While we are not experts in the crypto space, it is something we keep an eye on as a measure of investor risk-taking appetite. And much like the more speculative parts of the equity markets, crypto has deflated since the end of last year. Earlier this month the implosion of a so-called “stable”-coin shook up the crypto market and cost speculators $41bn.
Hello everybody. And welcome to this week’s Forager video. My name is Alex Shevelev, senior analyst on the Australian Shares Fund. And today with me, I have Gaston Amoros also senior analysts on the Australian Shares Fund. Hi Gaston.
So today we’re going to be talking about some interesting questions that people have had a none that is more front of mind than interest rates at the moment. Gaston over to you.
Thanks Alex. That’s right, interest rates are very important and very topical and I think there are three highlights to mention.
One is as you know, rates are going up, we don’t know by how much as there are different predictions or implied prices out there from one half to two, which is where the economists are predicting, to around the three and a half of by June of 2022, which is what the features market is implying. Obviously, that has big implications in terms of the cost of mortgages, but also the cost of money. And that is very important to stocks.
The second highlight is we have seen long-duration stocks like tech and biotech, being hit hard in the face of bond yields moving up. That has happened during most of 2021 and aggressively in the early months of this year. I would personally argue that most of that adjustment has already run its course.
The third impact, which people are starting to talk about now, is the impact on the real economy and housing. As we mentioned before, whether the cash rate is one and a half or three and a half has a big impact on your mortgage. And therefore has a big impact on how much money consumers have to spend on discretionary items, be it furniture, cars, upgrading houses and so on. So obviously quite topical and we’re watching developments closely.
Perhaps Alex I’ll ask you a question about crypto and what’s going on there and why is it relevant for share markets.
So the crypto space is not one where particularly experts in, but we do keep an eye on it to gauge the level of animal spirits and to gauge the level of general risk-taking out there in the world.
And that level of risk taking and speculation has been high. The crypto space has been riding high alongside that. And we had seen, the likes of the Arc Innovation ETF fund, and a lot of other smaller technology companies during those moments of speculation being bid up to very high levels at the end of last year.
Now most recently, a lot of that has unwound and earlier this month, we actually saw one of the stable coins in this space, which people in that world assume is a peg to the US dollar. That is it trades in line with its value in US dollars. It had imploded at the beginning of this month, sending its associated coin value from $41 billion to zero.
It has been torturous for some, and it is really another sign that this very speculative environment that we had been in at the end of last year is starting to unwind. Now the crypto space itself still has lots of those speculative elements, so it’s another one to keep an eye on.
Excellent. So you’re saying it’s a sign of risk appetite in markets. Fair enough.
Thank you everybody for listening today and we’ll see you next time.