Morning Market Update - 29 October 2020

28 October 2020
3 minute read

Pre-Open Data

International markets versus Australian market

Key Data for the Week

Key economic data released this week:

  • Wednesday – AUS – Consumer Price Index rose 1.6% in the September quarter, after a historical decline of 1.9% in the June quarter.
  • Wednesday – US – Goods Trade Balance deficit narrowed to US$79.4 billion in September, from US$83.1 billion in August.
  • Thursday – EUR – ECB Interest Rate Decision
  • Thursday – US – Gross Domestic Product

S&P ASX200 Last 12 months

Australian Market

The Australian sharemarket closed up 0.1% yesterday, in a mixed session of trade. The Information Technology sector was the strongest performer, while the Energy sector was the weakest.

The Energy sector fell amid weaker oil prices; Oil Search and Santos lost 2.8% and 2.0% respectively, while Woodside Petroleum was down 1.6%.

The Financials sector weakened; ANZ was the weakest performer down 1.7%, Westpac and NAB lost 1.3% and 1.1% respectively, while Commonwealth Bank fell 0.4%. Macquarie Group also underperformed down 2.7%, while fund managers Magellan Financial Group and Australian Ethical Investment outperformed to rise 0.9% and 4.1% respectively.

Consumer stocks outperformed. Coles Group rose 2.7% after the company provided a 1QFY21 sales update that saw sales rise 10% to $9.6 billion. Woolworths rose 1.9% and is set to announce its quarterly sales next week. Super Retail Group gained 4.9% after it provided a trading update for the first 17 weeks of FY21. The company’s like for like sales grew 25% year on year. 

The Australian futures market points to a 1.73% fall today, driven by weaker overseas markets overnight.

Overseas Markets

European sharemarkets fell on Wednesday, with German shares suffering their weakest session since early June as the government agreed on an emergency lockdown to combat surging COVID-19 cases. By the close of trade, the broad based STOXX Europe 600 lost 3.0%. 

US sharemarkets also weakened overnight, as all sectors closed lower, with the Energy sector the weakest performer. Increasing coronavirus cases and uncertainty towards next week’s presidential election were the main concerns. Technology and communication stocks suffered large declines; Facebook, Alphabet and Microsoft all fell between 5.0% and 5.5%. Microsoft announced Q1 revenue and earnings above consensus with its cloud business (Azure) the main contributor. MasterCard slumped 8.1% after the company announced Q3 earnings missed expectations, Visa fell 4.8% after they announced earnings in line with consensus, while PayPal gave up 4.1%.

By the close of trade, the Dow Jones fell 3.4%, the S&P 500 lost 3.5% and the NASDAQ dropped 3.7%.

CNIS Perspective

We have seen some extraordinary events this year, but of all the events, the fact the oil price went negative US$37/barrel stands out as one of the most unusual.

Due to the pandemic, demand for the ‘black gold’ fell off a cliff in March, as people around the globe stopped traveling at the same time. This saw for the first-time, commodity traders willing to pay you to take the world’s ‘most important’ commodity.

Despite the US being the largest consumer of oil, it has seen the significance of the oil industry in financial markets diminish substantially in recent decades. The Energy sector made up nearly 30% of the US sharemarket in the early-1980s, reducing to 17% in 2008, and now makes up the smallest of all sectors, at less than 2%.

This isn’t just a US phenomenon, the total world’s Energy sector now makes up less than 3% of the global index, as renewables and oil alternatives begin their rise to dominance.

It would be fair to say, ‘black gold’ no longer deserves the same level of importance as it did in the past as a useful macroeconomic and market indicator.

WTI Crude Oil

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