Written by Sergeo Domtchenko
Trying to make sense of all the movements this week has left many investors with a migraine. Bouncing around between significant gains & losses, the ASX 200 gathered momentum to finish the week 1.6% higher at 5942.6 points. This marks a 30.7% increase from the market lows that we experienced on March 23.
However, this week saw renewed Australia – China tensions, a spike in international infection rates, and the publications of lacklustre economic data. This has left many investors pondering whether global markets are bubbles that are on the verge of popping?
Are Global Markets Overly Inflated?
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
- The NSW Government announced the further relaxing of social restrictions, with 80 people now allowed to meet up for a social gathering from July 1.
- Newly released data continues to support a slowing in the overall infection rate of Coronavirus cases in Australia.
- The Federal Reserve & the RBA announced that they would be buying back more government bonds to reduce household borrowing costs.
- Donald Trump proposed an additional U.S $1 billion infrastructure stimulus package that will support the U.S. economy in its recovery.
- U.S. retail spending had its best month on record, rising by 17.7% in May.
- A clinical trial of 2000 people in the U.K. found that the drug ‘Dexamethasone’ reduced COVID-19 ventilator 28-day fatalities by 33%.
- Global oil prices continued their recovery this week, with WTI futures rising by 11% to be trading at U.S. $40.25 (at the time of writing).
- The $AUD was not immune to the volatility but did rise to be trading at 68.67 U.S. Cents (at the time of writing).
- Lebanon was the latest country ‘bailed out’ by the International Monetary Fund (IMF).
- According to Scott Morrison, “More than A$100 billion in economic activity has been lost since the outbreak of the Coronavirus in Australia.”
- Scott Morrison also suggested that it may take at least two years for the Australian economy to recover to pre-COVID levels.
- Newly released figures by the Organisation for Australian Economic Development (OAED) highlight that 2.5 years of employment growth was eradicated in April.
- Australia’s unemployment rate rose to 7.1% after 227,000 jobs were lost during May.
- The Department for Foreign Affairs (DFAT) confirmed that Australia would not be opening its international borders until 2021.
- Multiple Australian governmental & private sector organisations fell victim to a wide-scale international cybersecurity attack on Friday.
- Fears have been raised about the outbreak of a 2nd wave of Coronavirus cases; with India recording 10,000 new cases in one day.
- The global death toll from the Coronavirus surpassed 445,000 this week.
Are the Bulls Here to Stay?
Short answer: Yes, I expect markets to trade in the green this week (opinion not advice).
With the global economy starting to get back on its feet, I do believe that global markets will continue to surge over the coming week. However, I must make it clear that I think this week’s forecasted gains will be purely driven by FOMO and nothing else (opinion not advice).
Last week was the first time that fear started to seep into global indices. This was mainly fixated surrounding the possible outbreak of a 2nd wave of COVID-19 cases. India recorded more than 10,000 new cases in one day, while all schools in Beijing were closed in a bid to contain the spread.
Also, tensions between China & Australia ran high as Beijing warned its citizens of coming to study in Australia. This comes after the Australian government seeks to conduct a global enquiry into the origins of the Coronavirus pandemic. To add insult to injury, the latest economic data revealed that Australia’s unemployment rate jumped to 7.1%. According to Scott Morrison, “It will take at least two years for the Australian economy to recover to pre-COVID levels.”
CNBC’s Jim Cramer believes, “Many investors are ignoring the economic fundamentals and geopolitical risks. Markets are being driven up purely by the influx of 1st-time investors.” With so much going on, more then ever, investors must be across global developments – let’s break down what we know.
New data continues to support a reduction in the transmission of new COVID-19 cases in Australia. Markets will continue focusing their attention on any developments surrounding possible treatments/trial results. A clinical trial of 2000 people in the U.K. found that the drug ‘Dexamethasone’ reduced COVID-19 ventilator 28-day fatalities by 33%. However, a 2nd wave of COVID-19 cases is sweeping across reopening countries such as the U.S., China, and India. How will these developments play on the minds of investors?
2. Australia – China Tensions
It’s fair to say that Australia’s relationship with China has dissolved. It all started when Australia announced it would be pushing for a global enquiry into the origins of the pandemic. China retaliated by threatening to place import tariffs on 80% of Australia’s exports and advising citizens to avoid studying in Australia. To add insult to injury, many parliamentary officials believe that China was behind the latest cybersecurity attack that crippled many government agencies & private sector organisations. Will this be the catalyst that cripples Australian indices?
3. Local Economic Data
A whole host of economic data is set to be released this week. Preliminary trade, employment and wealth data is set to be published throughout the week. Also, the 2018/19 business report will be made available on Friday. Will worse than expected results cause markets to retreat?
Movers & Shakers on Friday
|Stock||Trading Price||Daily Gain/Loss|
|AP Eagers Ltd (ASX: APE)||$7.57||9.87%|
|Netwealth Group Ltd (ASX: NWL)||$9.03||9.06%|
|Avita Medical Ltd (ASX: AVH)||$0.46||8.33%|
|WiseTech Global Ltd (ASX: WTC)||$23.40||7.78%|
|Altium Limited (ASX: ALU)||$36.36||6.57%|
|Western Areas Ltd (ASX: WSA)||$2.23||-3.46%|
|Perenti Global Ltd (ASX: PRN)||$1.40||-4.12%|
|A2 Milk Company Ltd (ASX: A2M)||$18.57||-4.23%|
|Vicinity Centres (ASX: VCX)||$1.52||-4.72%|
|Scentre Group (ASX: SCG)||$2.21||-4.74%|
ASX Announcements to Watch This Week
- Monday: Speech by the Reserve Bank Governor.
- Tuesday: Preliminary Trade Data (May) from the RBA and the CBA’s ‘Flash’ Purchasing Managers Survey results will be released today.
- Wednesday: Preliminary Mortality (March quarter) & Skilled Vacancies (May) data will be published.
- Thursday: Finance & Wealth (March quarter), Job Vacancies (May) and Detailed Employment (May) data will be released today.
- Friday: The Australian Business 2018/19 report is set to be published today.
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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.