Equity markets higher on reopening plans

Blog
Friday 8th May 2020

Equity markets higher on reopening plans

Blog
Friday 8th May 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets rose this week, with investors buoyed by hopes of economies reopening.
  • Global oil major Royal Dutch Shell cut its dividend for the first time in 80 years.
  • Tesla’s share price fell after CEO Elon Musk said in a tweet that the company’s share price was too high. That tweet came after last week’s tweet where he said he was selling all his possessions in response to the lockdown.
  • In local stock news, Afterpay shares rose after Chinese tech giant Tencent Holdings announced they had accrued a 5% stake in the company since late March.
  • IAG stated that payment of its next dividend is looking unlikely at this stage, whilst Qantas announced they had secured another $550 million in debt funding against 3 of its planes. Qantas also extended the suspension of most of its domestic flights to end of June.
  • Medibank shares rose during the week after the company announced that 1% of its customers had suspended their policies. NIB reported a 22% drop in sales of health insurance in April. 
  • Mixed results in retail with JB Hi-Fi announcing sales were up in the March quarter as customers rushed to buy appliances and technology given work from home arrangements, whilst shopping centre owner Vicinity Centres announced sales were down 16.5% in the March quarter compared to the same time last year.
  • The Aussie dollar rose this week, breaking through 65c against the US dollar, helped by expectations of reopening plans plus a bigger than expected trade surplus.
  • The oil price rose strongly this week on expectations that demand increases might occur quicker than previously expected in light of some US states and European countries reopening parts of their economies.

Economics:

  • Australian data shows that employment in accommodation & food services and arts & recreation services fell by 25.6% and 18.7% respectively in the 3 weeks to April 4.
  • New research from Roy Morgan shows that as much as 15% of the Australian workforce was unemployed in April, with a further 9.4% underemployed (ie. working less hours than they would like), both of which are significantly higher than official estimates. The research also showed that 3.8 million had their hours reduced, 2.7 million had been stood down for a period of time, and 1.4 million had their pay reduced for the same number of hours worked.
  • ANZ figures show that job ads plunged more than 53% in April, five times the previous record monthly fall in January 2009.
  • Australia’s trade surplus surpassed most expectations with the surplus more than doubling in March as iron exports rose whilst imports fell. Exports rose by 15% whilst imports fell by 3.6%.
  • Australian residential building approvals fell 4% in March, following a near 20% gain in February. Economists had expected a larger than 15% fall following the strong February. Building is good for jobs, but the oversupply less so for residential prices.
  • US economic growth fell 4.8% in the 1st quarter due to the effects of nationwide lockdowns and stay at home orders.
  • US manufacturing activity fell to an 11 year low in April according to a key index.
  • European economic activity contracted at a record rate in the 1st quarter and inflation slowed sharply due to the virus-induced lockdowns. Worse numbers are expected for the 2nd quarter.
  • The European central bank reaffirmed stimulus policies already in place but steered clear of adding to these policies, preferring to keep some policy powder dry. Some were disappointed.
  • European retail sales saw their biggest ever drop in March, whilst Germany saw their sharpest monthly drop in factory orders in 30 years.

Politics:

  • PM Scott Morrison has unveiled a 3-stage plan to reopening the country, indicating that he expects all three stages to be complete by the end of July, but that decisions will be made on a weekly basis given information at hand. Given much of the reopening is at the discretion of the states, compliance with the plan will be interesting.
  • US President Trump has revived a threat of new tariffs against China in response to the Covid-19 pandemic. Apparently, his administration is drafting retaliatory measures against China as punishment for the virus outbreak, sparking fears of tariff wars yet again.
  • Lockdowns in Europe eased further as the death toll from the virus fell to its lowest in 2 months. Italy has reopened its parks and restaurants and lifted a ban on personal visits, Spain also eased lockdowns, whilst German churches reopened on the weekend with the government also announcing plans to reopen playgrounds and other outdoor spaces. Russia is the outlier, with the number of new infections rising sharply.

Germany’s top court ruled that its central bank must stop buying bonds under the European central bank’s stimulus scheme if the European central bank cannot justify the purchase, sending reverberations throughout Europe. 


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


Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972

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