Weekly Market Update: 12th of October 2020

ASX Update

The Aussie market rallied off 4-month lows on the back of positive stimulus, notching it's best week since April. Five straight green days caused the ASX200 to gain 5.4% for the week after announcements from both the Government and the Central Bank.

By far the biggest news of the week in local markets was the release of the Fiscal Budget whereby the Government announced big tax cuts for individuals backdated to the start of the financial year. The effects of this is clearly expected to flow through to spending on an individual level, evident in the rally of retail stocks the very next day. The RBA also kept interest rates steady at 0.25%, markets were pricing in a 40% chance of a cut occurring to just 0.10% as a target rate.

The ASX200 VIX jumped 12% on what was a green day in the end on Friday. The VIX is a volatility index that measures the perceived volatility based on option prices - effectively investors paying a premium to protect their positions in the market. Also known as the 'Fear Index'. 

Top/Bottom Performers (in the ASX 200)

Top Gainers:

• Cimic Group Ltd +20.4% (CIM.AX)
• Virgin Money UK PLC +20.0% (VUK.AX)
• Seven Group Holdings Ltd +17.8% (SVW.AX)

Top Losers:

• Megaport Ltd -1.9% (MP1.AX)
• Nanosonics Ltd -1.1% (NAN.AX)
• Transurban Group -0.9% (TCL.AX)

Globally

In a week that started with Trump in the hospital after contracting Coronavirus, the market surprisingly enjoyed a positive week. The Dow jumped 3.3% and posted its biggest one-week gain since August. The S&P 500 and Nasdaq added 3.8% and 4.6%, respectively. Both benchmarks booked their biggest weekly gains since July. The main driver was the speculation of the pending stimulus talks, the Trump administration will increase its Coronavirus stimulus offer to $1.8 trillion or $400 billion less than the $2.2 trillion bill Democrats previously passed, yet $200 billion more than the $1.6 trillion proposed by the White House. President Trump later said that he would like to see an even bigger package than what either the Democrats or Republicans offered. Earlier Friday, Senate Majority Leader Mitch McConnell said another aid package is “unlikely in the next three weeks." 

Play of the Week - The ASX Stuck in a Range

For the past five months, the ASX200 has traded in a relatively tight range, considering the time frame, of between 5,800 to 6,200. Which means that any buying near 5,800 and any selling near 6,200 has proven to be an effective strategy. The question is, will past performance continue.

Whilst it is important to be invested to benefit from upswings in the market, it is also important to have a cash position at times to take advantage of any subsequent dips in the market. With so much uncertainty regarding the economy and businesses, coupled with the uncertainty of how much longer the virus will stick around - it certainly seems prudent to be active on both sides in these times and the ASX's clear range could be a simple overlay to monitor when making the decisions on a specific investment. 

Commodities

• Gold added 1.6% for the week to $1.929 on the back of a weaker US dollar, being at just a two week high (whilst the US dollar is at a two week low) it appears the commodity to correlating more with its currency rather than its typical safe haven use.  
   
• Oil notched a gain of 9.6% for the week - its largest increase since June to trade at $40.60 a barrel. 
   
• Iron ore currently trades at $123.

Looking Ahead...

The US kicks off its earning season for the third quarter, with updates to come from Johnson & Johnson, JPMorgan, Citigroup and Well Fargo in the coming week. On the data front, US retail sales and industrial production will be closely watched.

Here in Australia, we have the employment data and consumer sentiment reports. The unemployment rate is expected to rise to 7.1% after a surprisingly low reading last month of just 6.8%. Unemployment could continue to rise as Government incentives such as JobKeeper ease off and are replaced by new incentives which encourage businesses to hire, especially young people, but businesses still have to be willing to expand in a time like this.