Markets buoyed by re-opening plans

Blog
Friday 17th April 2020

Markets buoyed by re-opening plans

Blog
Friday 17th April 2020
Written by Chris Lioutas

Markets:

  • Local and global equity markets moved higher this week, buoyed by comments from leaders around the world regarding gradual re-opening plans and dates.
  • In local stock news, CSL reaffirmed its full-year guidance of $3.4 billion to $3.48 billion. The company did flag challenges on collecting plasma from its centres because of the virus related restrictions on movement.
  • QBE has announced their intention to raise $1.3 billion in new equity on the expectation that several countries will experience severe economic recessions. Looks to be an opportunistic raising given the fairly slim discount.
  • Westpac expects 1st half write-downs and provisions of $1.43 billion with approximately $900 million being put aside to cover an AUSTRAC fine.
  • Qantas and Virgin will get federal government backing to operate key domestic routes between major cities and regional centres. The government will underwrite a range of flights, spending $165 million to help the airlines stay in the air domestically.
  • The oil price continued to fall sharply even after OPEC and Russia agreed to slash oil production by almost 10 million barrels a day starting 1 May. The problem is the damage is already done with the significant increase in supply, following the Saudi / Russian spat, and significant decrease in demand may take years for the oversupply to work its way through the system. Reports also showed that oil storage terminals are almost at capacity.

Economics:

  • Estimates put the economic cost of Australia’s virus containment policies at 2% per month of economic growth. Startling considering our economic growth rate pre-virus was 2.2% per annum. Further, Treasury has estimated that 1.4 million Australians will be unemployed by June, equivalent to a 10% unemployment rate, which could’ve been much worse absent the job-keeper program.
  • The RBA mentioned in their notes that surveys seem to be indicating that about 1 in 5 households only have enough liquid assets to get from one pay period to the next. They also noted that many of these households are likely to be renters, which poses less direct risks to the banking sector, but poses plenty of direct risks to landlords.
  • The RBA also noted that about 1 in 4 businesses typically don’t have enough liquid assets to cover 1 month of expenses (including wages) and closer to half could not pay for 3 months of expenses.
  • US consumer sentiment has fallen almost 30% since the beginning of the year, according to a key data point.
  • US retail sales have plunged 8.7% in March, manufacturing output dropped by the most in over 74 years, and manufacturing activity in New York State plunged in April to its lowest levels ever recorded.
  • The US jobs market continues to worsen with roughly 1 in 7 workers losing their job in the last 4 weeks, constituting the largest and fastest string of job losses in records dating back to 1948. More than 20 million Americans have already lost their job.
  • US consumer prices fell by the most in more than 5 years in March with the fall in demand now well and truly outstripping the fall in supply from supply chain disruptions. Goods and services will continue to get cheaper the longer virus containment measures persist.
  • China’s exports fell 6.6% in March from a year earlier, while imports shrank 0.9%, a better than expected outcome as factories restarted production.

Politics:

  • Prime Minister Scott Morrison is looking to unveil plans regarding a gradual relaxing of lockdown measures, with getting schools re-opened again high on his priority list. He’s indicated they won’t make any announcements until they’re comfortable that testing can be ramped up, that some form of contact tracing can be implemented, and that hospitals remain ready to take in patients.
  • The US’s US$2.5 trillion stimulus package, which took longer than expected to get written up and then approved by Congress, has only just been made available to US businesses and households this week. Many have cited issues with receiving the payments and accessing the benefits.
  • New York governor Andrew Cuomo eased some concerns by saying he believed the worst is over as hospitals in New York began seeing less patients for this first time. He also added that he would announce a coordinated plan on reopening business but pledged plenty of caution.
  • US President Trump unveiled his administration’s plans to ease social distancing requirements on a call with the nation’s governors. The new guidelines are aimed at clearing the way for an easing of restrictions in areas with low transmission of the virus, whilst keeping them in place in harder hit locations. Places with declining infections and strong testing would begin a three phased gradual reopening of businesses and schools, with each phase lasting at least 14 days.
  • Italy and Spain have started to lift their restrictions on non-essential business given the virus looks to have peaked in both countries. France has extended quarantine through to 11 May, with the Germans and the British likely to follow suit. India has extended lockdown until 3 May. 


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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