Weekly Market Update - 3rd February 2020
Updated: Feb 14
Coronavirus outbreak raises global economic concerns
Local and global stock markets trended lower this week on concerns regarding the economic impact of the Coronavirus, whilst US stocks tried to break the mould with better than expected results from companies during 4th quarter reporting season.
Stocks linked to travel, tourism, and Chinese luxury goods continue to come under selling pressure as news develops on the Coronavirus outbreak. In contrast, very small and speculative biotech stocks continue to rise on optimism they might be first to an anti-virus.
US 4th quarter reporting season is coming along with better results than expected, with forecasts now flipped from a slight negative result to a slight positive result. Still plenty of results to come.
In local stock news, Treasury Wine Estates share price fell sharply after the company issued significantly lower earnings guidance for this year and next, on a weak result from its US business. The CEO blamed the downgrade on changes in its US executive team, the rise in popularity of private labels in the US, and a glut of cheap wine.
CSL shares continued to rise on little to no news, with the shares up an astonishing 14% so far in 2020. There are some rumours circulating that they’re front runners to make an acquisition of a company they’ve collaborated with previously.
Ooh Media shares fell after CEO Brandon Cook announced he would step down from the outdoor advertising company he founded 30 years ago. A change may be a good thing for the company.
ResMed has produced another bumper quarterly result with net profit after tax up 22% on the same period last year. Revenues and sales were strongly higher, whilst high already margins were maintained.
The oil price continued to fall this week with the price of Brent crude dropping under U$60 a barrel for the first time since October last year. OPEC might need to consider deeper cuts to oil output if oil producers want higher oil prices from here.
Australian inflation for the December quarter has moved higher pushing annual inflation to 1.8%, but still remains below the RBA’s preferred 2-3% range.
The higher inflation figure might mean the RBA chooses to not cut rates at their February meeting. However, the details in the inflation data show the greatest price increases came from tobacco, domestic holidays (travel and accommodation), and fruit, which may mean the RBA looks through the increase or delays a potential cut by a few months.
Data showed that US consumer confidence surged to a 5-month high in January, making it the strongest reading since August last year.
The US central bank held rates steady at 1.50-1.75% with no new guidance on its balance sheet plans. The chairman did note that uncertainties on the outlook remained and made note of the Coronavirus outbreak in China.
The US congressional budget office forecast that the US economy will grow at 2.2% this year, which is a reasonably solid rate, but that the federal budget deficit would hit US$1.015 trillion.
The World Health Organisation has declared the China Coronavirus a global emergency whilst China has locked down several cities and curbed travel as they attempt to control the spread of the virus. There are now almost 10,000 cases with over 200 reported deaths. More than 15 Chinese cities (almost 61 million people) are in lockdown. It appears the Chinese have done a much better job in containing, documenting, and requesting assistance than they did during the SARS outbreak.
UK Prime Minister Boris Johnson signed the Brexit Withdrawal Agreement which was also signed by the European Commission. The legislation has passed all British hurdles and now needs the European parliament to approve the agreement this week. The agreement commences an 11-month transition period, which will need to be extended given the quantum of work to be done. The EU chief negotiator has thrown fuel on the fire warning that they will never compromise the single market, which will mean significant costs for the UK, well north of their current estimates.
The UK government granted Chinese telecom giant Huawei limited access to its 5G network, defying pressure from the US. The UK chose cost and technological advancement over potential security concerns.
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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