Weekly Market Update: 21st of December 2020

ASX Update

The market experienced its seventh straight week of gains, adding 0.7% to 6,675 despite dampened sentiment on Friday where the market sold-off throughout the day and closing on the lows. Friday’s losses accelerated to 1.2% as the cluster of Covid cases were in the spotlight yet again.

On a company specific level, Mesoblast plummeted 36% to a near eight-month low of $2.41 on poor trial results for a COVID treatment. Dairy company a2 Milk dropped 23.6% to $10.14 – its lowest in nearly two years – as it forecast a near half-a-billion dollar hit to revenue from its disrupted daigou network. QBE was the third heavy loss for the session. The insurer dropped 12.5% to $12.85 after flagging a statutory full-year loss of $1.5 billion after US write-downs and a higher than expected impact of COVID-19 and extreme weather claims.

The biggest impact on Australian investors’ sentiment will be newly imposed lockdowns that occurred over the weekend. Every state around the country has closed it’s borders to the Sydney region, the city has also rolled back the reopening by limiting the number of people in venues and an entire region shutdown. This directly impacts consumer spending and business profits – a factor the markets were pricing in would improve moving forward.

Top/Bottom Performers (in the ASX 200)

Top Gainers:

• EML Payments Ltd +13.1% (EML.AX)
• Perseus Mining Ltd +12.5% (PRU.AX)
• Resolute Mining Ltd+12.2% (RSG.AX)

Top Losers:

• Mesoblast Ltd -47.6% (MSB.AX)
• The A2 Milk Company Ltd -22.4% (A2M.AX)
• Service Stream Ltd -20.4% (SSM.AX)

Globally

Stocks slipped from record highs in volatile trading on Friday as lawmakers struggled to bridge differences on additional coronavirus stimulus measures. Party leaders said on Friday they are close to an agreement that would provide $900 billion in aid, with Senate Majority Leader Mitch McConnell saying that talks “remain productive”. The Dow declined 124 points or 0.4% to 30,179. The S&P 500 shed 0.3% and the Nasdaq lost 0.1%. For the week, the Dow gained 0.4%, the S&P added 1.3%, and the Nasdaq jumped 3.1%.

Play of the Week – Aussie Covid Christmas

The majority of the time (~70%) December is a positive month of the market, largely due to a low-volume increase throughout the holiday period. However, in keeping with the theme of 2020, Covid changes the status-quo. With further lockdowns imposed over the weekend, this ‘Santa Rally’ is less and less likely to occur if local cases continue to tick up.

In the past couple of months, the local economy has been looking significantly better than the rest of the world in terms of number of cases and subsequent lockdowns. But this recent outbreak and the prompt lockdown actions threatens this outperformance. 

Commodities

Gold gained 2.5% for the week, it’s third straight week of gains to $1,885.

Silver added 8% for the week to $25.78.

Oil continued it’s rally, improving 5% to $49 a barrel. Oil gained support this week from weekly supply data in the US showing crude inventories fell by 3.1 million barrels, beating expectations.

Iron Ore currently trades at $152.

Looking Ahead…

Going into the holiday-shortened Christmas week there will still be plenty to watch out for in markets as investors await the vote on a $900 billion coronavirus aid package. The vaccine rollout effort will widen after Moderna’s COVID-19 vaccine became the second to receive FDA approval.