Despite the false bull market the Australian markets failed to maintain their positive momentum throughout the week. The ASX 200 slipped on Friday to close out the week 0.96% lower at 5497 points. However, this was not enough to erase the gains that were made by Moderna’s positive vaccine results
Does this mark the end of the false 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
- Restaurants were allowed to reopen this week, with a maximum of 10 people allowed to be seated at any one time.
- The NSW Government announced that from July 1, social gatherings will allow for 50 people to meet up at any one time.
- Newly released data continues to support a slowing in the overall infection rate of Coronavirus cases in Australia.
- Global oil prices continued to recover this week, with WTI futures rising by 12.3% to be trading at U.S. $33.56 (at the time of writing).
- Deloitte provided an update on the administration process for Virgin Australia; saying it has narrowed down the potential buyer list to 4 candidates.
- Nano Dimension surged by over 400% on Wednesday on the back of a breakthrough in the 3D printing industry.
- IBM shares slid by 1.5% on Thursday after the company saw a 3.4% decline in quarterly revenue.
- Wesfarmers announced that they would be restructuring. This includes the closure of 75 Target retailer stores and the conversion of more retailers to Kmart stores.
- The number of people that have filed for unemployment in the U.S. for the past 9 weeks exceeded 39 million.
- Rolls Royce announced that it would be laying off 9000 workers after a “worse than expected” decline in demand for its luxury cars and aircraft engines.
- China imposed tariffs on 80% of Australian wheat & barley exports.
- Fears have been raised that we may see a decline in iron ore prices as China increases its scrutiny on Australian commodity exporters.
- Tensions between the U.S. & China were reignited surrounding the Trade War & China’s geopolitical sovereignty over Hong Kong & Taiwan.
- The global death toll from Coronavirus has exceeded 340,000.
- The $AUD failed to maintain the rally it saw at the beginning of the week; currently trading at 65 U.S. Cents.
Is this the end of the false bull run?
Short answer: Yes, I expect markets to trade in the red this week (opinion, not advice).
This week saw renewed tensions between the two economic powerhouses. This was mainly fixated around the Trade War & China’s geopolitical sovereignty over Hong Kong & Taiwan. In addition, questions have been raised about China’s willingness to cooperate in a global enquiry focused on the origins & data transfer about the Coronavirus.
Also, a few weeks ago, the IMF announced that the Coronavirus pandemic had cost the global economy more than U.S. $100 trillion. Moreover, the RBA is forecasting that Australia’s GDP will contract by 8% this year. I would be amazed if we saw substantial gains this week (opinion, not advice).
Nonetheless, it is still vital you are across the significant COVID-19 developments — Lets breakdown what we know.
New data continues to support a reduction in the transmission of new COVID-19 cases. This has been reflected in the rise across global equity markets for the past four weeks. Markets will continue focusing their attention on any developments surrounding possible treatments/trial results. Cansino Biologics (XHKG: 6185) has shown promising early signs for a COVID-19 vaccine. However, a 2nd wave of COVID-19 cases is sweeping across reopening countries such as the U.S., China and Italy. How will these developments play on the minds of investors?
2. U.S. – China Trade Talks
Before the outbreak of COVID-19, the U.S. – China Trade War was a significant constraint on global markets. It seems that further discussions of a Phase 2 trade deal have dissolved. To add insult to injury, economic tensions were reignited surrounding China’s trade & geopolitical policies. Will this be the catalyst that sends global markets into another bearish trend?
Source: Twitter – @realDonaldTrump.
3. Local Company Updates
Domestic companies such as Coca-Cola Amatil (ASX: CCL), Spark Infrastructure Group (ASX: SKI) and Costa Group (ASX: CGC) will be holding their AGMs this week. Also, Elders Ltd (ASX: ELD) & Orica Ltd (ASX: ORI) will be handing out dividends to shareholders. It will be interesting to see if any developments from these events have any influence over how Australian markets trend this week.
4. Local & International Economic Data
Both the RBA and the Chinese Federal Reserve will be releasing snippets of economic data this week. On Thursday, domestic capital expenditure data will be released by the RBA, while on Friday, Chinese manufacturing profits will be published. Many market analysts are forecasting decreases in both due to disruptions caused by COVID-19. Will worse than expected data put an anchor on global indices?
Movers & Shakers for the Past Week
|Stock||Trading Price||Weekly Gain|
|NRW Holdings Limited (ASX: NWH)||$1.98||31.02%|
|Nearmap Ltd (ASX: NEA)||$1.94||22.08%|
|Lynas Corporation Ltd (ASX: LYC)||$2.12||21.84%|
|Orocobre Limited (ASX: ORE)||$2.30||21.69%|
|Super Retailer Group (ASX: SUL)||$7.85||16.64%|
|Avita Medical Ltd (ASX: AVH)||$0.44||-6.38%|
|NIB Holdings (ASX: NHF)||$4.43||-6.54%|
|Unibail-Rodamco-Westfield/CDI (ASX: URW)||$3.49||-7.92%|
|Austal Limited (ASX: ASB)||$2.78||-8.25%|
|Southern Cross Media Group Ltd (ASX: SXL)||$0.14||-9.38%|
ASX Announcements to Watch This Week
- Tuesday: Coca-Cola Amatil (ASX: CCL) will hold its AGM.
- Wednesday: Spark Infrastructure Group (ASX: SKI) will hold its AGM.
- Thursday: Costa Group (ASX: CGC) will hold its AGM, and domestic capital expenditure data will be released by the RBA today.
- Friday: Chinese manufacturing profits data will be published.
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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.
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Written by Sergeo Domtchenko, Associate of YIG.