Better virus data supports equity markets

Blog
Friday 14th August 2020

Better virus data supports equity markets

Blog
Friday 14th August 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets rose this week. 
  • In local stock news, Qantas fell well short of its $500 million target retail equity raising with only 5% of eligible shareholders participating amounting to $72 million. Clearly the uncertainty regarding both domestic and international travel remains a concern for investors.
  • James Hardie shares rose after fibre cement sales in the US helped its 1st quarter results. 
  • Sydney Airport entered a trading halt after the company revealed plans for an equity raising and a hit to its 1st half result. The equity raising was being anticipated by the market given the company’s significant debt load and its decision earlier in the year to pay no dividends.
  • CBA reported a cash net profit after tax of $7.2 billion, down 11% for the same period last year. The bank raised its loan impairment expense to $2.52 billion. Guidance from the banking regulator also saw CBA slash their final dividend, bringing its full year dividend down 31% from financial year 2019.

Economics:

  • The Reserve Bank of Australia released their updated economic forecasts now expecting a 4% contraction this year and rising by 2% in 2021. They have the unemployment rate peaking at 10% at the end of this year and declining to 7% by the end of 2022, above the 5.2% rate pre-virus. They also have inflation remaining below their target well into 2022.
  • Australian business conditions via the NAB business survey saw a divergence between improving conditions but weaker confidence. The survey was taken before stage 4 lockdowns in Victoria. Business conditions lifted into positive territory whilst confidence fell into negative territory, with the largest falls in NSW and VIC.
  • Australian wage rates rose ever so slightly in the 2nd quarter but the annual rate slowed to 1.8%, the slowest rate in the 27 year series. Consumer sentiment fell by close to 10% in August as job security fears rose strongly. Surprisingly, sentiment fell by more than 15% in NSW versus a fall of 8.3% in Victoria. Maybe those Victorians know something we don’t…..
  • Australian household income has surged in recent weeks primarily due to government payments, which has coincided with an increase in the number of people receiving JobSeeker since early July across the country.
  • Australian employment rose by 115,000 in July but the unemployment rate still rose to 7.5% as the participation rate lifted. Underemployment, which includes those working less hours than they’d like, fell to 11.2% whilst hours worked rose by 1.3% in the month. There are now more than 1 million Australians out of work, available to work, and actively looking for work.
  • Data has showed that US jobs increased better than expected 1.76 million in July, although the pace of the recovery has slowed amid a rise in virus contraction rates. June saw 4.8 million jobs added.
  • The UK economy contracted by more than 20% in the 2nd quarter, the largest contraction reported by any major economy. 
  • China’s auto sales rose 16.4% in July, the 4th straight month of gains, as the world’s biggest vehicle market comes off lows hit during their lockdown earlier in the year.
  • A key German survey showed investor sentiment picked up more than expected in August, reflecting renewed hopes that the country is on the road to recovery. If China is recovering, so is Germany.

Politics:

  • US President Trump confirmed plans to ban US transactions with Chinese owned TikTok and WeChat, starting in 45 days. Trump administration officials have also urged the president to delist Chinese companies that trade on US stock exchanges that fail to meet US auditing requirements by January 2022. US and Chinese trade officials will be reviewing their phase 1 trade deal tomorrow via VC.
  • US Congress have yet to agree on a relief bill after weeks of wrangling. Differences remain wide from all reports. Congressional Democrats seemed to get a little confused when they offered to reduce their proposed package by US$1 trillion if the Republicans added US$1 trillion to their counter-offer……a trillion here and a trillion there. President Trump’s stimulus via executive orders will be in place next week absent an agreement by Congress. His stimulus includes unemployment payments, renter and homeowner assistance, payroll tax holiday, and extension of student loan relief for more than 30 million Americans.
  • Democrat presidential hopeful Joe Biden selected Senator Kamala Harris as his vice-presidential running mate. A preferred choice for those more centre of politics and for investment markets, but not progressive enough to satisfy those within the Democrat party and voters who are further left of centre. A smart and safe choice for Biden in terms of his election chances.
  • The Australian federal government is open to considering more stimulus and a further extension of JobKeeper and JobSeeker if required after PM Scott Morrison indicated that the economy won’t reopen by Christmas.
  • New virus infections in the US appear to be stabilising and even subsiding in some states as the number of hospitalisations are falling. Reports indicated that Russia had conditionally approved the first vaccine for the virus. NSW virus cases rose with two reported clusters, whilst new Victorian cases started to subside.

Author 

Chris Lioutas, Director, Insight Investment Consultants

Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee. 

With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972


Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a factual nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns.