Morning Market Update - 15 May 2020


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Thursday – AUS – Unemployment Rate rose 1% in April to 6.2%, however below estimates of 8.3%.
  • Thursday – US – Initial Jobless Claims showed a further 3 million Americans filed for unemployment benefits for the week ending 9 May. The total number of unemployment benefit applications since COVID-19 hit the US economy is now 36.6 million.
  • Friday – EUR – Gross Domestic Product
  • Friday – US – Retail Sales

    S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket fell 1.7% yesterday, with all sectors closing lower. The Financials sector weighed on the market, with the big four banks all down over 2%; Commonwealth Bank was the weakest performer down 3.2%, while the other big banks fell between 2.4% and 2.6%.

The Energy sector saw the biggest losses; Santos, Woodside Petroleum and Oil Search all fell between 2.8% and 3.4%.

Information Technology stocks were also weaker. Xero fell 4.8% despite the company reporting a 26% lift in FY subscriber growth, however, warned COVID-19 was impacting its small business customers.

GrainCorp lifted 11.6% after it announced it was planning for higher grain exports in 2H20, noting market conditions have improved considerably. Caltex slipped 2.5% after shareholders approved the rebranding to Ampol, with petrol stations to start trading under the new name at the backend of 2020.

Health Care stocks CSL and Cochlear fell 2.7% and 2.2% respectively, while Sonic Healthcare lost 0.3%.

The Australian futures market points to a 0.84% rise today, driven by stronger US markets.

Overseas Markets

European sharemarkets fell on Thursday, with investor sentiment lower as fears rose there will be a prolonged economic downturn and a second wave of coronavirus infections when lockdown restrictions are eased. Oil company Royal Dutch Shell fell 5.3%, while consumer companies, Tesco and Nestlé, lost 3.8% and 2.1% respectively. By the close of trade, the broad based STOXX Europe 600 was down 2.2%.

US sharemarkets closed higher overnight, with all sectors except Consumer Staples closing up. The Financials sector was the strongest performer, with MasterCard and Visa up 3.0% and 2.2% respectively.

CNIS Perspective

The Australian unemployment rate continues be one of our more contentious economic indicators, with yesterday’s announcement highlighting some of the failings in its construction. Unemployment increased by 105,000 people to 825,000, and the unemployment rate increased by 1% from 5.2% to 6.2%, a huge leap but much lower than the 8.3% many were expecting. However, the actual people employed fell by 595,000, which if applied to the pre-COVID labour force, would further increase the unemployment rate to circa 9.5% against the 6.2% announced. So, why the difference?

What often masks the true reality of Australian unemployment is movements in participation rates, the percentage of people considered to be in the workforce. In April, participation rates plummeted by an unprecedented 2.4%. Many Australians without a job didn’t, or couldn’t, look for work or weren’t available for work in this period, thereby removing them from the unemployment calculation. Additionally, the unemployment rate doesn’t measure the extent to which people are underemployed i.e. those that want more hours and need more to sustain an income. One hour of work a week is enough to consider a person as ‘employed’ for the calculation.

What can be more telling is the total hours worked in the Australian labour force, which fell 9.2% from March to April, or the underutilisation rate (unemployed + underemployed), which rose to a record high of 19.9%. Of course, there is also the issue of JobKeeper, which could be artificially keeping people employed in ‘zombie’ companies that may not exist as we emerge from lockdown.

Change in Labour Force

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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