Morning Market Update - 19 May 2020


Pre-Open Data

1

Key Data for the Week

Key economic data released this week:

  • Monday – US – NAHB Housing Market Index came in at 37, against consensus expectations for 35.
  • Tuesday – AUS – RBA Meeting Minutes
  • Tuesday – UK – Unemployment Rate
  • Tuesday – US – Housing Starts

    2

Australian Market

The Australian sharemarket rose for a second straight session yesterday, closing up 1.0%. Gains were led by Materials stocks, which were boosted by a further rise in the price of iron ore on concerns of supply shortage in Brazil due to the COVID-19 pandemic. BHP strengthened 4.5%, Fortescue Metals climbed 5.8% and Rio Tinto lifted 5.9% in response. Goldminers also rose as the precious metal hit a near seven and a half year high, with Newcrest Mining closing up 6.7%.

Energy stocks were boosted by a rise in oil prices, buoyed by increased optimism the easing of lockdown restrictions could increase demand for the commodity. Woodside Petroleum (2.0%), Oil Search (5.7%) and Santos (5.9%) all lifted in reply.

The Financials sector limited further market gains, with the big four banks all ending the session between 1.2% and 2.3% lower, while Macquarie Bank fell 2.8%, after trading ex-dividend.

Village Roadshow gained 20.8%, after the operator of Gold Coast theme parks including Movie World, Sea World and Wet’n’Wild, received a $468 million takeover offer from BGH Capital.

The Australian futures market points to a 1.95% rise today, being driven by broadly stronger overseas markets.

Overseas Markets

European sharemarkets posted strong gains on Monday, with investors buoyed by an easing of lockdown restrictions. Sentiment was also improved by an announced proposal by France and Germany for a European Recovery Fund worth €500 billion to help the region exit the COVID-19 crisis. Oil companies rose in response to higher oil prices; BP lifted 8.2% and Royal Dutch Shell climbed 8.1%, while infrastructure companies CRH (7.8%), Vinci (8.9%) and Eiffage (9.0%) all strengthened. The broad based STOXX Europe 600 gained 4.1%, the UK FTSE 100 advanced 4.3% and the German DAX added 5.7%.

US sharemarkets also surged on Monday. Moderna soared 20.0% after the pharmaceutical company reported "positive" phase one results for a potential COVID-19 vaccine. Airlines rose; Delta Air Lines gained 13.9% after the company announced it would resume flights in June, while United Airlines climbed 21.1% and Boeing increased 12.9%. By the close of trade, the Dow Jones index rose 3.9%, the S&P 500 lifted 3.2% and the NASDAQ gained 2.4%.

CNIS Perspective

The World Health Organisation declared COVID-19 a global pandemic just over two months ago on 11 March.

Now, as movement restrictions aimed at slowing the spread of COVID-19 are gradually relaxed, attention is becoming more focussed on the economic ramifications, with most economists agreeing the unfolding recession is of a scale not seen since the Great Depression. The enormous drop in economic activity needs to be viewed in the context of unprecedented stimulus, and a type of external shock not experienced in our lifetimes.

Last week, the April edition of the Australian labour force survey was released. The data showed labour market conditions deteriorated sharply, with the unemployment rate increasing 1%, to 6.2%. These are startling numbers, but this result proved less severe than in some other countries. For example, in the US, non-farm payrolls fell by 20.5 million in April and the unemployment rate spiked to 14.7%.

The reason for the comparatively muted response in the unemployment rate was two-fold; a drop in the participation rate and the Federal Government’s JobKeeper wage subsidy, which incentivises employers to keep staff on, even if they weren’t working any hours, supporting millions of workers.

It usually takes years for employment levels to return to normal after a large negative shock. A key question in terms of the recovery is whether those on JobKeeper will be able to seamlessly return to work as restrictions are eased.

If businesses can’t justify employing the same level of staff by September (when the subsidy is due to expire), there is a risk of a ‘second wave’ shock to the labour market.

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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