Morning Market Update - 1 July 2020

Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Tuesday – EUR – Consumer Price Index – Headline CPI rose 0.3% in the year to June, while core CPI rose 0.8% over the same period.
  • Tuesday – UK – Gross Domestic Product – The UK second estimate for GDP revealed the economy showed a larger than expected contraction, falling 2.2% in the first quarter of 2020, against a 2.0% decline recorded in the first estimate.
  • Wednesday – AUS – Building Permits
  • Wednesday – US – ISM Manufacturing PMI
S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket ended the final trading session of the financial year with a 1.4% rally, following a strong lead from Wall Street. Gains were broad based, with Health Care the only sector to close lower. The local ASX 200 fell 10.9% for the financial year, despite closing up 2.5% for the month of June.

Energy was the best performing sector yesterday, boosted by strength from Woodside Petroleum (5.3%), Santos (5.0%) and Oil Search (5.0%).

Collins Foods gained 12.7%, after the company announced its underlying full-year profit had climbed 5.1%, driven by a strong performance in the nation’s KFC stores during the COVID-19 pandemic. Operator of Gloria Jeans and Donut King franchises, Retail Food Group, lifted 2.9%, after ASIC decided not to take any further enforcement action following its investigation into a possible breach of the Corporations Act.

The Australian futures market points to a 0.12% fall today.

Overseas Markets

European sharemarkets closed higher on Tuesday. Prosus strengthened 3.9%, after the technology investor reported a better than expected rise in full-year profit, while Royal Dutch Shell slid 3.1%, after the company announced it would write down the value of its assets by up to US$22 billion due to their long term outlook on oil and gas prices.

US sharemarkets also rose overnight, led by Energy stocks, as better than expected economic data offset coronavirus and China trade concerns. Technology heavyweights Apple (0.8%), Facebook (2.9%) and Microsoft (2.6%) all posted gains, while payment providers MasterCard (1.0%), PayPal (3.5%) and Visa (0.9%) also recorded improvements. Boeing fell 5.8% after Norwegian Air cancelled orders for 97 aircraft.

CNIS Perspective

As the 2020 financial year came to an end yesterday, it will likely form part of a history lesson in years to come. An incredibly volatile second half of the year, brought on by COVID-19, has seen the Australian market close down 721 points, or 10.9% for the financial year. The fall is the ASX indices’ first negative financial year since 2015-16 when it fell 5.1%.

The year began with the ASX index at 6,619, built steadily from July 1 to a peak at 7,197 in February, before a five-week pandemic panic sell-off sent markets to a seven-year low of 4,403 in late March.

A three-month recovery fuelled by government stimulus and aggressive monetary policy easing by the Reserve Bank of Australia helped the index claw back more than half of those losses, to close the year at 5,898.

Of the 10 ASX sectors, just three finished the year in positive territory, Health Care (24.5%) Information Technology (15.3%) and Consumer Staples (10.1%).

On the flip side, Energy fell 31.9%, as an oversupply of oil, topped with a cliff in demand, ensured the sector was the biggest underperformer. Real Estate Investment Trusts and Financials also had a year to forget, down 25.5% and 24.7% respectively.

As we enter July, we approach one of the most anticipated earnings seasons ever, where we will gain the full picture of how companies have performed over COVID-19, starting with the US earnings releases beginning mid-month, followed by our Australian market in August.

With the Australian and US sharemarkets currently trading on an elevated 12-month forward price earnings ratio of 19 and 21 times respectively (long term average ~15), we could be set for a volatile start to the 2021 financial year should earnings not stack up to expectations.

Should you wish to discuss this or any other investment related matter, please contact your Investment Services Team on (02) 4928 8500.


The material contained in this publication is the nature of the general comment only, and neither purports, nor is intended to be advice on any particular matter. Persons should not act nor rely upon any information contained in or implied by this publication without seeking appropriate professional advice which relates specifically to his/her particular circumstances. Cutcher & Neale Investment Services Pty Limited expressly disclaim all and any liability to any person, whether a client of Cutcher & Neale Investment Services Pty Limited or not, who acts or fails to act as a consequence of reliance upon the whole or any part of this publication.

Cutcher & Neale Investment Services Pty Limited ABN 38 107 536 783 is a Corporate Authorised Representative of Cutcher & Neale Financial Services Pty Ltd ABN 22 160 682 879 AFSL 433814.

Topics: CNIS, Australian Market, ASX, international markets

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