Weekly Market Update - 14th April 2020
Equity markets buoyed by better virus data
Local and global equity markets finished higher for the week on optimism that some countries were past their peak virus cases and that we may be closer to a treatment for the virus, which may result in a relaxing of containment policies, earlier than previously expected.
In local stock news, plenty more companies raised capital this week, with Flight Centre, Reece, Auckland Airport, and Oil Search all pulling the trigger. The number of raisings has been surprisingly low to date, but also understandable, given that it’s difficult for companies to get a good feel for how much they need to raise.
Some companies carrying low levels of debt announced they would be maintaining their financial year 2020 earnings guidance. This included CSL and Origin Energy. However, many other companies have announced cuts, removals, and in some instances, deferrals of their dividends until later in the year as a way to conserve cash on their balance sheet.
Bank stocks were hard hit following APRA’s rather bi-polar change in rhetoric just two days apart. The banking regulator went from banks being in a strong capital position and having full confidence in bank boards to make an appropriate decision on capital management, (i.e. dividends) to recommending that banks cut their dividends and reminding banks of their social responsibilities in this time of need.
The CBA reported that small and medium businesses have borrowed more than $150m from the bank as part of the support measures introduced. The RBA provides the funding whilst the federal government guarantees 50% of the loan amount.
Treasury Wine Estates shares rose after the company announced plans to demerge and spin-off its Penfolds brand.
The Aussie dollar rose this week as virus concerns in the US saw downward pressure on the USD.
The oil price fell on concerns that an agreement won’t be reached between the Saudis and the Russians.
The RBA reaffirmed the cash rate setting of 0.25% and the yield on the 3-year Australian government bonds of 0.25%, as well as the other elements of its recent package. Since the target 3-year bond yield was introduced, the RBA has bought $36bn of government bonds in the secondary market.
Australian retail spending surged more sharply than expected in February as shoppers stocked up (hoarded) on basic necessities in supermarkets and departments stores in anticipation of lockdowns.
Australia’s trade surplus dropped almost 9% in February, with both imports and exports falling.
Credit rating agency Fitch has downgraded the long-term rating of the Australian major banks and their NZ subsidiaries from AA- to A+, and kept all four on negative outlook.
The value of new home loans fell by a worse than expected 1.7% in February even before the most serious virus lockdown measures were in place.
Clearance rates at Australian auctions have dived given social constraints and uncertainty caused by the virus. The combination of lower clearance rates and potential spike in unemployment means tough times ahead for property values.
US President Trump has ramped up the tariff rhetoric yet again, this time in relation to oil, saying that he will consider imposing tariffs on oil imports rather than joining OPEC and Russia in potentially cutting oil production by an unprecedented 10% of worldwide supply. The Saudis and the US need a deal, the Russians less so.
US Democrat Presidential hopeful Bernie Sanders announced the suspension of his campaignconceding defeat to Joe Biden, who will lead the Democrats against President Trump.
Weekly market updates are written by Chris Lioutas. Chris is on the board of Peer Wealth X Futuro Investment Committee. View LinkedIn
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