Market rise stalled by rising virus cases

Blog
Friday 19th June 2020

Market rise stalled by rising virus cases

Blog
Friday 19th June 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets rose strongly early in the week before trending sideways on rising virus numbers in the US and China.
  • In local stock news, TPG sought to push through its merger with Vodafone Australia saying it would pay a special dividend of 49 to 52 cents per share if shareholders approve the merger that has been cleared by the takeovers panel.
  • Healius, the previously named Healthscope, shares rose after the company agreed to sell off its chain of medical centres and dental clinics to Melbourne based private equity group BGH Capital for $500 million. Sale price looks solid.
  • The retail sector saw increased news flow with City Chic Collective finalising negotiations with landlords on rent reductions. They decided to close 14 stores where they couldn’t come to terms with landlords. Super Retail Group (Supercheap, Rebel, BCF) announced a $203 million equity raising whilst Ardent Leisure agreed to sell a near quarter stake in its US based chain of bowling and family entertainment arcades.
  • Carsales.com share price rose strongly this week after announcing that its sales had been recovering in recent weeks. The company expects revenue to fall 5-6% from a year ago with profit also likely to fall 6-9%. Total inventory has decreased recently possibly due to increased demand from car buyers looking to avoid public transport.
  • The Australian dollar finished flat against the US dollar for the week whilst the oil price rose strongly after OPEC producers and allies promised to meet their supply cut commitments with news that oil demand was recovering.

Economics:

  • Another 228,000 Australian jobs were lost in May following an upwardly revised 607,000 job losses in April. The participation dropped again, which meant that the unemployment rate only rose to 7.1%. Hours worked were also less, whilst 3 million remained on JobKeeper, making a mockery of the 7.1% figure. Hardest hit has been youth and female employment.
  • The Reserve Bank of Australia has said it will maintain its support measures for as long as required in order to aid the economic recovery but indicated that it was seeing signs that the downturn might be shallower than previously expected despite the massive hits to employment and consumption. 
  • US retail sales jumped by a record 17.7% in May, easily beating the 8% increase expected by analysts. The rise was off a low base in the previous month, but did provide some optimism regarding consumer confidence.
  • The US central bank said it would begin buying individual corporate bonds in the secondary market in order to further support the bond market and corporate America in bringing down debt costs so that businesses can issue new debt more cheaply.
  • The US central bank signalled its plans for years of extraordinary support for the economy with the bank projecting the economy to shrink by 6.5% in 2020 and the unemployment rate to be 9.3% at year’s end. The bank didn’t make clear it would be targeting any particular part of the yield curve but said it would keep the size of its bond buying program unchanged, whilst warning the government about ending their stimulus measures too early.
  • New US jobless claims declined slightly to 1.51 million, with the number worse than consensus, whilst overall claims remain stubbornly high at 20.54 million.
  • Data showed that Eurozone industrial output fell the most on record in April as lockdowns halted activity across the region.
  • The Bank of Japan increased the size of its direct lending program for corporates to $1.46 trillion.
  • Chinese industrial production rose by 4.4% whilst retail sales fell by 2.8%, with both data points showing the economy is recovering but will need more government and central bank stimulus to get them through.

Politics:

  • Covid-19 cases and hospitalisations continue to rise in various US states. Hardly surprising when you ignore social (physical) distancing requirements and protest. China also reported a rise in cases in Beijing. The response was to shut Beijing schools, universities, entertainment venues and cancel over 1,000 flights, which seems excessive relative to the reported 80 cases from the one food market.
  • UK and European officials discussed the UK transition period out of the EU which expires at the end of the year. PM Johnson maintaining that he will not ask for an extension whilst UK lawmakers are urging the government to reconsider. They will need to extend it.
  • A report said that the Trump administration was preparing a near $1.47 trillion infrastructure proposal, while there was talk that US firms may be allowed to work with China’s Huawei on new 5G standards which eased trade concerns.
  • Chinese and Indian border tensions continue to rise with at least 20 soldiers dying in a clash in the disputed region of the Himalayas mountain range. The clash came as Indian forces tried to verify that China had honoured a pledge to vacate certain disputed parts of their joint border.

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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