Weekly Market Update 6th July 2020

Investors buoyed by better economic data

Markets

Local and global equity markets moved higher this week on stronger than expected economic data globally, with US jobs numbers and European and Chinese manufacturing data all coming in above economist expectations.
In local stock news, Fisher & Paykel Healthcare shares rose strongly this week after the NZ health equipment provider announced a 37% rise in full year profit, assisted by demand for its respiratory products.

Economic

Australian building approvals fell by more than 16% in May and were down over 11% over the past year. Apartments were hardest hit, down almost 35% for the month, whilst the value of non-residential approvals fell by 7%.
Credit rating agency Moody’s reaffirmed their AAA credit rating on Australia, maintaining a stable outlook for our economy. They are forecasting our economy will shrink by 5% this year but said that the government and central bank’s stimulus measures would mitigate a more severe contraction.
Australian manufacturing data showed activity returns to growth in June, strongly supported by the food and beverage sector, following two months of severe contraction in April and May.
Australian dwelling prices fell by 0.8% across the eight capital cities in June. Melbourne posted a 1.1% fall whilst Sydney prices were down 0.8%. Perth was also down 1.1%, whilst falls in other states were more modest.
Australia’s trade balance posted a solid $8 billion surplus in May with exports falling by 4.3% whilst imports were down by 6.1%. Rural exports were down sharply. Imports of consumption goods were sharply down, driven by a large fall in the value of car imports and fuel imports. Service imports were down 1.1% whilst exports were up 1.6%.
The US economy added 4.8 million jobs in June which was 1.8 million more than analysts expected, setting a second consecutive record. Huge amounts of rehiring sent the unemployment rate down 11.1%.
The US goods and services deficit widened to US$54.6 billion in May from US$49.8 billion. Exports fell their lowest level since November 2009. The US deficit with China also widened to US$27.9 billion, driven by a sharp increase in import activity.
The US central bank announced the results of its annual stress test on US banks, reiterating that while banks were well capitalised to absorb heightened losses, it wanted to ensure they stayed that way. As such, it has ordered banks not to buy-back stock in the 3rd quarter and has capped the dividends they can pay out.
US companies are filing for Chapter 11 bankruptcy at the fastest pace since 2013, with 3,427 filings so far this year. Some of the biggest names to file this year include Hertz, JC Penney, J Crew, Chesapeake Energy, and Cirque du Soleil.
Americans signing contracts to buy homes rose a record 44% in May from a month earlier, and far more than the 17% rise economists were expecting.
Manufacturing data for the Eurozone was revised up for June, with UK manufacturing moving into expansionary territory. In other news, German unemployment slowed sharply in June whilst French auto registrations rose on the same time last year.
Chinese economic data showed further proof of a recovery with manufacturing data rising to expansionary levels whilst non-manufacturing services data also rose.

Politics

The Chinese utilised a not often used and little-known provision to push through their law changes on Hong Kong which seek to curb social unrest and give police more power. In response, US lawmakers have moved to push through sanctions on people and companies they consider to be China’s accomplices in curbing the city’s autonomy. Will be interesting to see what pressure the US uses to encourage allies to take the same line. Chinese compliance with phase 1 trade deal might be at risk.
New Covid-19 cases continue to rise both locally and globally with the largest spikes being seen in the USA, Brazil, and India. That hasn’t yet translated into a spike in deaths. A rise in cases was to be expected given removal of some restrictions and increased testing. Question now is whether hospitals can manage and whether governments blink and start to tighten restrictions yet again.

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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