Morning Market Update - 12 May 2020


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Monday – CHINA – New Loans rose 1.7 trillion yuan in April, down from 2.85 trillion in March. The People’s Bank of China (PBoC) indicated in its monetary policy report that it is preparing to ramp up support ahead of an expected global recession.
  • Tuesday – AUS – NAB Business Confidence & Conditions
  • Tuesday – US – Consumer Price Index

    S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket posted a solid 1.3% gain yesterday, to close at its highest level this month. Gains were broad based, with all sectors ending the session higher. Energy was the best performing sector, as the price of Brent crude rose above US$30 a barrel, with Beach Energy, Oil Search, Santos and Woodside Petroleum all closing up between 1.7% and 2.3%.

Consumer Discretionary stocks Myer (8.6%), Kathmandu (15.4%) and Mosaic Brands (31.9%) all posted large gains as stores began to reopen across the country, while online travel agent Webjet lifted 19.5%. Payment providers also posted strong gains; Flexigroup lifted 5.6%, Afterpay rose 5.7%, Zip gained 6.4% and Openpay surged 10.5%.

Cochlear (COH) rose 5.1%, after the company announced hearing implant surgeries were restarting in some major developed markets including Australia, Germany and the US. COH also reported revenue fell ~60% in April when elective surgeries were suspended.

Macquarie strengthened 6.0% after announcing it would attempt to raise $400m through capital notes.

The Australian futures market points to 0.35% fall today.

Overseas Markets

European sharemarkets closed predominately lower on Monday, dragged down by banking, mining and travel stocks, with investors concerned about a possible second wave of COVID-19 as countries begin to gradually ease lockdown restrictions. China, Germany and South Korea were among the countries that reported an acceleration in new coronavirus infections. The broad based STOXX Europe 600 fell 0.4% and the German DAX gave up 0.7%, however, the UK FTSE 100 eked out a 0.1% gain.

US sharemarkets were mixed overnight, investors balanced caution over new spikes in coronavirus infections against economic reopening efforts. Technology heavyweights Alphabet, Amazon, Apple, Microsoft and Netflix all lifted between 1.1% - 1.4%. General Mills added 1.8%, after the company raised guidance for fiscal Q4 and FY20, following stronger than expected stay at home food demand in March and April. However, Under Armour lost 9.7% after the company forecast a 50% - 60% drop in second quarter revenue. By the close of trade, the Dow Jones slid 0.5%, while the NASDAQ gained 0.8% and the S&P 500 was flat.

CNIS Perspective

For the first time ever, the futures market is pricing in the possibility of the US joining Europe and Japan with negative interest rates.

Expectations for the timing of below zero rates, as shown by the futures contracts on the Fed Funds rate, indicates this possible scenario by mid-2021, and comes amid jobs data that showed the worst employment downturn in US history.

Setting interest rates below zero would punish banks for leaving excess cash with the central bank. The hope is to encourage lending, in turn boosting business investment and consumer spending.

However, investors are still trying to figure out why markets are pricing in such a phenomenon, given the Federal Reserve have said it wants to avoid such a scenario.

Other factors, such as stop-outs of short positions, to bank hedging, or as investors reposition for the increasing issuance of short-dated bonds to fund government spending, could be possible reasons behind the market’s thinking.

However, just because negative rates are being implied in the futures market, does not guarantee it will happen.

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


Disclaimer

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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