Written by Sergeo Domtchenko
After experiencing two auspicious days of straight losses, the ASX 200 managed to claw back some ground to finish the week on a positive note. The ASX 200 rose by 0.5% to be currently sitting on 5391.1 points (a 2.8% weekly gain). Marking the sixth time in seven weeks that the Aussie markets have seen overall weekly gains.
This week’s substantial gain has left many investors wondering whether we’ve seen the worst from the COVID-19 pandemic?
Does this mark the start of a bull recovery?
Before we race to any conclusions, our readers must understand this week’s Market Sensitive Events (MSEs). MSEs provide investors with explanations on why the market moved either up or down for the week.
Market Sensitive Events over the Past Week
Positives
- The Federal Government announced its intentions of opening back up the Australian economy by the end of July.
- The Federal Government’s ‘Three Step Action Plan’ was given the green light by parliament.
- Newly released data continues to support a slowing in the overall infection rate of Coronavirus cases in Australia.
- Global oil prices continued their recovery this week, with WTI futures rising by 8.7% to be trading at U.S. $24.74 (at the time of writing).
- Macquarie Group shares surged on the back of releasing its full-year earnings for 2020.
- Afterpay shares continued their incredible bullish run, rising by over 37% for the week.
- The RBA left the official cash rate on hold at its historic low of 0.25%.
- The NASDAQ erased all losses from the fallout of the COVID-19 pandemic over the past few months.
- The $AUD firmly traded in the green, currently trading at 65 U.S. Cents.
Negatives
- Victoria saw 17 new cases of COVID-19 on Monday; 14 of which were linked to one abattoir.
- Westpac announced a 62% fall in profitability year-on-year. This was accompanied by suspension in interim dividends.
- Over 20 million people lost their jobs in the U.S. for April.
- The total unemployment rate in the U.S. and the U.K. sits at 14.7% and 9% respectively.
- The RBA announced that it expects Australia’s unemployment rate to hit 10% by the end of July.
- The RBA forecasts that Australia’s terms of trade will deteriorate by 5% in 2020 as the demand for Australia’s exports idles.
- The WHO announced that it is U.S. $1.7 billion short in the number of funds it needs to continue its COVID-19 response for the remainder of the year.
- The death toll in Italy from Coronavirus surpassed 30,000.
Will the bulls continue to hang around for the week?
Short answer: Yes, I expect markets to continue trading in the green this week (opinion not advice).
Over the past few weeks, we have seen how adverse market events have had minimal effect on investor sentiment. After a poor U.S. Earnings Session that highlighted the economic fallout of the COVID-19 pandemic, the Dow Jones continues to trade only 17.6% short of the record highs that were recorded in February. Moreover, as more countries continue to ease restrictions, it’s highly unlikely that the markets will begin to slow any time soon (opinion not advice).
However, while I do expect the markets to continue trading higher this week, I do believe that this a false bull run. With the IMF announcing that the Coronavirus pandemic has cost the global economy more than U.S. $100 trillion, some stocks are unjustifiably overvalued (opinion not advice). Furthermore, the RBA forecasts that Australia’s GDP will contract by over 8% come June.
Nonetheless, it is still vital you are across the significant COVID-19 developments—Lets breakdown what we know.
1. Coronavirus
Newly released data continues to show a slowing in the number of new COVID-19 cases. This has been reflected in the rise across global equity markets for the past few weeks. Markets will continue focusing their attention on possible treatments/trial results and any developments in the reopening of countries. However, overly loosened restrictions have seen over 20,000 new cases of COVID-19 recorded in Georgia, USA. The prospect of a potential 2nd wave of cases will be playing on the minds of many investors this week.
2. ASX Company Updates & Earnings
The likes of companies such as Xero, CSR, Graincorp and Commonwealth Bank of Australia (CBA) will be releasing half-year and full-year earnings. Investors will be keeping a close eye on CBA’s dividend policy and impairment charges. It will be interesting to see whether local earnings results will have any influence over the markets this week.
3. Domestic Wages & Employment Data
Australian wages data will be released on Wednesday. Many analysts are expecting wages growth to slow to around 2.1%. Also, job losses for April are forecast to be approximately 550,000. Furthermore, the unemployment rate is forecast to jump to about 8%. However, both the RBA and the Federal Reserve are forecasting unemployment to peak at 10% in June. Will worst than expected results put the brakes on Australian indices?
4. U.S. & China Trade Talks
Further discussions since the Phase One deal was signed in January could start as early as this week over the phone. Before the outbreak of the COVID-19 pandemic, the U.S. – China Trade War dictated global market movements. If any positive developments come out of this week’s talks, they will most likely be well received by global markets.
5. U.S. & China Economic Data
Both the U.S. and Chinese Federal Reserves will be releasing economic data. Economists and investors will be fixated on inflation, retail sales, investment and manufacturing data. Many analysts are forecasting a 10% decrease in U.S. retail spending. If worse than expected results are released by the two largest economies, can we expect a steep market correction later this week?
Movers & Shakers for the Past Week
| Stock | Trading Price | Weekly Gain |
| Afterpay Ltd (ASX: APT) | $39.88 | 36.76% |
| EML Payments Ltd (ASX: EML) | $3.41 | 28.68% |
| Polynovo Ltd (ASX: PNV) | $2.55 | 28.14% |
| Appen Ltd (ASX: APX) | $30.00 | 18.34% |
| Qube Holdings Ltd (ASX: QUB) | $2.52 | 15.88% |
| National Storage REIT (ASX: NSR) | $1.59 | -5.92% |
| Qantas Airways Limited (ASX: QAN) | $3.40 | -6.08% |
| Alumina Limited (ASX: AWC) | $1.52 | -6.15% |
| Inghams Group Ltd (ASX: ING) | $3.19 | -6.45% |
| Orocobre Limited (ASX: ORE) | $2.03 | -6.45% |
ASX Announcements to Watch This Week
- Tuesday: CSR will be releasing full-year earnings results.
- Tuesday: Amcor will release quarterly figures.
- Wednesday: The CBA will be releasing its quarterly earnings.
- Wednesday: Australian wages data will be released.
- Thursday: Xero will be releasing its full-year earnings results.
- Friday: Economic data will be released by the U.S. and Chinese Federal Reserves.
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Sergeo Domtchenko, Associate of YIG.