Morning Market Update - 20 May 2020


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Tuesday – AUS – RBA Meeting Minutes noted stimulus is “working broadly as expected”. The RBA maintained current policy is the best course of action and continues to expect Australia’s GDP to contract by around 10% over the first half of 2020.
  • Tuesday – UK – Unemployment Rate was 3.9% for the first three months to March, however, jobless claims increased 856,500 throughout April, the biggest monthly rise on record.
  • Tuesday – US – Housing Starts slumped 30.2% in April, to an annual rate of 891,000.
  • Wednesday – EUR – Consumer Price Index
  • Wednesday – UK – Consumer Price Index

    S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket rose 1.8% yesterday, for the third straight day of gains, with the Energy sector the strongest performer. Woodside Petroleum, Santos and Oil Search all rose between 4.2% and 7.3%.

The Materials sector also saw strong gains, as the price of iron ore futures spiked to a five-month high of US$94/tonne. BHP, Rio Tinto and Fortescue Metals all rallied between 4.4% and 5.9%.

The Financials sector rose along with the big four banks; Westpac led the gains, up 2.2% and Commonwealth Bank added 1.3%, while NAB and ANZ both gained 2.1%. Macquarie Group outperformed, up 3.6% and investment manager Challenger Limited rose 1.6%.

James Hardie lifted 11.2%, to $23.82, after the building products manufacturer reported a 6% increase in full-year profit.

Baby Bunting climbed 15.4%, to $3.08, after Australia’s largest nursery retailer announced second half sales growth of 13% despite the lockdowns due to COVID-19.

The Australian futures market points to a 1.51% fall today, driven by weaker overseas markets.

Overseas Markets

European sharemarkets fell on Tuesday, with the broad based STOXX Europe 600 down 0.6%. French construction companies Eiffage and Vinci fell 4.6% and 1.8% respectively.

US sharemarkets also closed lower overnight, with the Energy and Financials sectors the weakest performers. Information Technology stocks outperformed; Facebook lifted 1.7% and Amazon rose 1.0%, while Apple fell 0.6%, Microsoft lost 0.7% and Alphabet was down 0.8%.

CNIS Perspective

A series of mammoth bond issues by the Australian Office of Financial Management (AOFM) in April and May, forming part of the program for funding the current Federal Government’s COVID-19 relief packages, has alleviated any concerns the Australian government would struggle to source buyers of an estimated $300 billion bonds required to finance the Morrison government's economic support package.

Last week, a monster $19 billion bond issue closed for tender, with a 10-year maturity priced at 1% yield! The issue was an Australian record, surpassing the previous record set in April, when the AOFM printed $13 billion of bonds maturing in 2024.

It may come as a surprise, but a yield of 1% is considered quite high, when in comparison to other AAA rated countries, with Australia currently the highest yielding AAA-rated sovereign bond issuer and is also attractive when compared to lower rated countries including the US, UK and NZ (all rated AA).

International investors flocked to the raising, with strong interest from Europe, Asia, North America and the United Kingdom. In total, investors from 19 countries participated in the deal, accounting for 46% of the $19 billion issue, which saw total bids exceed $53 billion.

This hunger for yield globally, and security of a AAA rated country like Australia, puts us in an enviable position when issuing debt, and is also partially responsible for the strengthening Australian Dollar over the past two months.

Aus. highest yeilding bonds in the AAA complex

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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