Weekly Market Update: 5th of October 2020

ASX Update

This week saw increased volatility with the end of the quarter, a trend that continued into the start of the next month. Wednesday wrapped up the end of the month and quarter, a typically volatile event as funds conduct their typical window-dressing before their quarterly reports and considering it was a negative month, this was heightened. In fact, it was the first monthly decline since March, as the Aussie market lost 4% in September.

For the week, the ASX200 lost 3% or 180 points to 5,791 – its worst week since April. This loss was exacerbated by Friday’s movement, which was a down day to begin with but really turned in the last hour of trade after Trump announced he and First Lady Melania tested positive for COVID-19 via Twitter. The market dropped 50 points in just 7 minutes after the tweet and 65 points in the last hour. The movement arguably could have been a lot worse if the Asian markets were not on holidays too. 

Top/Bottom Performers (in the ASX 200)

Top Gainers:

• Janus Henderson Group PLC +16.7% (JHG.AX)
• EML Payments Ltd +13.0% (EML.AX)
• Premier Investments Ltd+11.9% (PMV.AX)

Top Losers:

• Mesoblast Ltd -35.0% (MSB.AX)
• The A2 Milk Company Ltd -18.5% (A2M.AX)
• Blackmores Ltd -11.1% (BKL.AX)

Globally

The Dow Jones closed 134 points or 0.5% lower at 27,683 on Friday, as President Trump tested positive for coronavirus but reversed from steep losses earlier in the session after the House Speaker Nancy Pelosi said that she was optimistic about striking a deal on a new aid package. The S&P 500 dropped 1% and the Nasdaq declined 2.2%. The jobs report also weighed on investor’s sentiment as nonfarm payrolls rose by 661,000 in September, well below expectations of 850,000, while the jobless rate dropped to 7.9% from 8.4% in August. For the week, however, the Dow Jones jumped 1.9%, the S&P climbed 1.5%, and the Nasdaq gained 1.5%.

Play of the Week – Election Delays

With Trump testing positive for COVID-19 and subsequently needing to quarantine for at least 14 days, the question is – will this delay the election? The certainty ahead of the election is a widely discussed topic and historically speaking, elections tend not to have a large impact of the long-term direction of markets. However, they can impact markets in the short-term due to the uncertainty factor. What’s more important for markets is not who wins, but rather that the transition is smooth between the parties and the change in laws.

With this in mind, those with high cash positions ready to deploy into the equity markets (retail or institutional) may delay this injection longer than they initially thought. The lack of buy-side volume will cause equity markets to slip lower and this timing aspect should be taken into account before taking up an allocation.

Commodities

• Gold added 2% for the week after a flat but volatile session on Friday, to trade at $1900 an ounce.
   
• Oil dropped 8.1% for the week to $37 a barrel as a weaker economic outlook was coupled with Friday’s news, which accounted for almost half of this drop.
   
• Iron ore continues to slip, now down to $120.

Looking Ahead…

Here in Australia we have the RBA Monetary Policy decision where interest rates are expected to hold at 25 basis points (bps), but there is speculation of it dropping to just 10 bps. Tuesday will also see the release of the Federal Budget, something we will all be eying off on the hope of tax cuts for both individuals and companies. On a company specific level, AGMs will also kick off this week – all of which will be conducted online this year.

Overseas, the presidential election debates continue with the Vice Presidents up this week as well as a raft of economic data that comes with a new month.