Weekly Market Update: 28th of September 2020

ASX Update

Another volatile week on the ASX wrapped up on a positive note, adding 89 points or 1.5% to 5,965 – this was also the weekly gain for the market. After starting the week at a 3-month low, local markets recovered on the back of rate cut talks and a positive lead from Wall Street. This week’s Westpac’s Chief Economist forecast that the RBA would further reduce rates down to 0.10% and take up further stimulus in their next meeting. This would mean the RBA would reduce their term funding facility to 10 basis points and the ESA rate, which is currently at 10 bps to just 1 basis point – as this is the rate the banks earn on their money, it would encourage them to buy bonds further, even if the rate of return is small.

But it was Friday that pushed the market into the green thanks to the big 4 banks’ extraordinary rally after the government announced plans to loosen the responsible lending laws, which will effectively speed up the lending process. The new rules will mean ‘responsible lending’ will be replaced with the concept of ‘responsible borrowing’. This result is likely to prop up the Aussie housing market, but if it goes too far, could lead to the creation of a bubble. Ironically, this relaxation of lending laws that caused disaster in the GFC comes the day after Westpac received the biggest fine in Australian corporate history.

Top/Bottom Performers (in the ASX 200)

Top Gainers:

• Washington H Soul Pattinson & Co +14.4% (SOL.AX)
• Whitehaven Coal Ltd +14.1% (WHC.AX)
• Service Stream Ltd +12.2% (SSM.AX)

Top Losers:

• Ramelius Resources Ltd -17.0% (RMS.AX)
• Gold Road Resources Ltd -13.0% (GOR.AX)
• St Barbara Ltd -12.8% (SBM.AX)

Globally

US markets finished the week strong; The Dow added 1.3% on Friday, the S&P 500 jumped 1.6% and the Nasdaq gained 2.3%. Shares of Apple surged 3.8% and Amazon, Facebook, Microsoft and Netflix more than 2% each. It was reported that the Democrats are preparing a new coronavirus aid bill although a deal with the Republicans before the Presidential election seems unlikely. Controversially, Trump announced his pick to fill the Supreme Court vacancy left after Ruth Bader Ginsburg’s recent death. This would be Trump’s third justice appointment if it is confirmed. Traders are also worried over the need of further lockdowns in Europe as coronavirus cases pick up. For the week, the Dow Jones lost 1.8% and the S&P 500 retreated 0.6%, their first four-week losing streak since August 2019. The Nasdaq jumped 1.1% on the week and snapped a 3-week losing streak.

Play of the Week – IPOs in a Pandemic 

Whilst the focus was on the banks and other lenders when the responsible lending laws were axed this week, it is also likely to have a positive effect on the real estate sector. With it now easier to get a home loan, the risk is that Australians will take on more debt and also push house prices up – perhaps further than it should. 

Stocks linked to the Australian residential housing sector could see positive boosts this week as the implications of these laws changes are further analysed. However in the long-term, given that thousands of Australians are currently pausing or reducing their home loan repayments due to not being able to service their loans, this change could spell disaster down the road. 

Commodities

• Gold fell 4.9% for the week to $1,866 as the US dollar gained strength in its best week since early April.
   
• Oil fell 2.6% for the week to $40.25US a barrel, as fears mounted around the spike in coronavirus cases globally.
   
• Iron ore cooled off to $123US.

Looking Ahead…

Globally, the first presidential election debate between Donald Trump and Joe Biden will be keenly watched next week, as well as the last official round of Brexit talks. Key data such as US final GDP and job updates will be released. 

In Australia, we will analyse retail sales, which have been on an extraordinary expansion since the start of the pandemic. $10B in dividends will be paid out this week via blue-chips such as FMG, CBA, ANZ, WES & COL. 

China will release their company profits on Monday and data on Wednesday. Their markets are then closed Thursday and Friday so volumes are likely to be low in our region towards the end of the week.