Markets fall on 2nd wave concerns

Blog
Friday 12th June 2020

Markets fall on 2nd wave concerns

Blog
Friday 12th June 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets fell this week following downbeat comments and forecasts from the US central bank and rising concerns regarding a virus second wave as reopening continues.
  • In local stock news, property owner and operator GPT Group has seen their shopping centre asset values fall almost 9% from the end of December. The group said that 90% of the stores in their shopping centres have reopened whilst foot traffic has returned to 85% of the same time last year.
  • Wesfarmers shares rose during the week after the company reporting booming sales at Bunnings and Officeworks in the 2nd half of the financial year.
  • Both Harvey Norman and JB Hi-Fi reported strong increases in sales with JB Hi-Fi bumping up its full year profit guidance because of forced work from home requirements for their customers. 
  • The Aussie dollar rose early in the week, breaking through 70c against the US dollar, before falling sharply later in the week on rising economic risks.

Economics:

  • Australian consumer sentiment lifted for the 2nd month in a row in June, with sentiment rising for both current conditions and expectations of future conditions. The reading is now close to where it was pre-virus, noting that sentiment was already weak. Job security fears eased whilst consumers have become risk averse with an increase in people saying deposits are the wisest place for new savings.
  • Roy Morgan figures put Australian unemployment in May at 14.8%, over 2 million Australians, and more than double the government’s official estimate of 6.2% in April. Roy Morgan also had a further 9.7% of the workforce as underemployed, working less hours than they would like or need. The data has improved in the last month given some restrictions have been eased, but at that rate we won’t reach pre-virus employment levels until 2024. Re-opening needs to be faster.
  • Australian job ads steadied in May after their largest ever fall in April. Job ads were up 0.5% in May, after collapsing by more than 53% in April. Ads are still down almost 60% on the same month last year.
  • Almost 1.5 million Australian households are currently experiencing mortgage stress, an increase on pre-virus numbers. Though, mortgage stress was pretty high pre-virus anyway. If the government’s stimulus packages, including mortgage payment deferrals, aren’t extended beyond September then expect that number to rise significantly from here given the current slow pace of re-opening.
  • The US central bank left policy settings unchanged but provided a more downbeat assessment of the economic landscape ahead than the market had been expecting. Their message wasn’t too different from their last meeting. They expect unemployment to remain above pre-virus levels out to 2022 and expect to keep rates at 0-0.25% until at least the end of 2022, likely well beyond that.
  • The number of Americans filing for unemployment benefits dipped below 2 million for the first time since mid-March, whilst there was a 2.5 million monthly increase in payrolls (biggest on record) as the unemployment rate fell to 13.3% given the easing of some restrictions. The data doesn’t seem right (expectations were for a rise to almost 20%!), so we’ll see what revisions in the data look like ahead.
  • The European central bank has increased the size of its support program by lifting the size of emergency bond buying by a wider than expected 600 billion euro to 1.35 trillion euro and extending the program until the end of June 2021 to support the Eurozone economy. The German government has also agreed to a 130 billion euro stimulus package for their economy.
  • German industrial production plunged by nearly 18% in April. The fall followed an almost 9% decline in March when lockdown begun. Factory orders fell more than 25% in April, following a 15% drop in March. Germany’s lockdown was less severe than that imposed by other European countries, which goes to show how trade sensitive the German economy is.

Politics:

  • The Chinese have ramped up their bully tactics on Australia accusing Australians of verbally and physically attacking Chinese people during the virus pandemic, hence advising their people against travelling to Australia. Haven’t seen any of that yet. Anyhow, the move has little effect right now given closed borders but will heavily impact tourism and education sectors once restrictions are lifted.
  • US President Trump has again threatened another US state, Seattle this time, telling their elected officials to get their act together or he’ll take control. Fair call considering parts of Seattle have been taken over by domestic terrorist organisations (in some cases armed) with no government or police force in sight.
  • A potential second wave of the virus is making it difficult for governments to push through further reopening. Most of the major governments globally have made it pretty clear they won’t be locking down again, but a strong enough 2nd wave may test their mettle. Re-lockdown would be disastrous for economies. Re-opening too slow is equally disastrous. This is where governments earn their keep.


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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