Morning Market Update - 22 May 2020


Pre-Open Data

International Markets vs Australian Market

Key Data for the Week

Key economic data released this week:

  • Thursday – EUR – Markit Manufacturing PMI rose to 39.5 for May, well below a reading of 50 and in contraction territory.
  • Thursday – US – Markit Manufacturing PMI rose to 39.8 for May, however, remains at very depressed levels.
  • Friday – UK – Retail Sales

    S&P ASX 200 Last 12 Months

Australian Market

The Australian sharemarket fell 0.4% yesterday, to snap a four-day winning streak. In a mixed session of trade, the Utilities and Financials were the weakest performers, while the Energy and Information Technology sectors saw the largest gains.

Energy stocks were lifted following a rise in the price of oil on Wednesday; Santos rallied 3.3%, Woodside Petroleum rose 0.7% and Oil Search added 0.6%.

Travel operators Flight Centre and Webjet rose 3.7% and 2.8% respectively, amid growing calls to restart interstate travel.

The Financials sector weakened as the big four banks all closed lower; Commonwealth Bank was the weakest performer, down 1.7%, Westpac lost 1.0%, ANZ fell 0.8% and NAB slipped 0.5%.

Aristocrat Leisure fell 5.0% after the company posted a 14.2% decline in half year earnings due to the closure of casinos, clubs and pubs. Mining heavyweights were also weaker; BHP and Rio Tinto lost 0.6% and 1.0% respectively, while Fortescue Metals slipped 2.2%.

The Australian futures market points to a 0.13% fall today, driven by weaker overseas markets.

Overseas Markets

European sharemarkets fell on Thursday, with concerns over the pace of the economic recovery after Markit's business survey still showed a deep contraction. Financials were amongst the weakest performers, with Lloyds Banking Group and Barclays down 4.9% and 2.6% respectively. Airline stocks found relief; easyJet rose 4.4% after saying it would restart a small number of flights in June and Lufthansa rose 2.7% amid talks with the German Government over a rescue deal worth up to €9 billion, including the nation taking a 20% stake.

US sharemarkets also closed lower overnight, with the Energy and Financials sectors the weakest performers. US-China tensions elevated as Trump seemed to lash out at Chinese President Xi Jinping, as a White House report criticised China's trade and military policies and human rights violations. E-commerce giants Alibaba and Amazon fell 2.1% and 2.0% respectively, while technology company Microsoft lost 1.2% and Apple lowered 0.8%.

By the close of trade, the Dow Jones fell 0.4%, the S&P 500 lost 0.8% and the NASDAQ slipped 1.0%.

CNIS Perspective

After decades of increasing globalisation, the COVID-19 crisis has shone a very bright light on global supply chains, trading partnerships and just who is dependent on who. A prominent UK think tank has released a report looking at the trade dependence on China for the Five Eyes intelligence group of Australia, United States, United Kingdom, Canada and New Zealand.

The report uses data compiled by the United Nations to analyse subsets of goods to gauge strategic dependency. Strategic dependency being when; 1) more than 50% of imports of a particular good to a country are from China, 2) the country is a net importer of such goods and 3) China controls more than 30% of the global market. The report found that Australia has the highest level of dependency on China across 595 categories of goods, 167 of which have critical applications in our economy in Health, Transport, Water, Energy and Communications. This compares with NZ 513, US 414, Canada 367 and UK at 229 categories.  

The report prompted Andrew Hastie, Chair of Parliament’s Intelligence Committee, to publicly note that this strategic dependency makes Australia “vulnerable to not only economic coercion but also supply chain warfare”. In a situation where trade tensions are flaring post Chinese imposition of select beef import bans and tariffs on our barley exports, this will likely further fan the flames.

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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