Australian Shares Advance Despite a Decline in Global Markets.
Third Week of May
The ASX200 added just 13 points or 0.24% for the week to the index despite Friday’s rally of 1.4% to almost recoup the sell-off on Thursday caused by the latest jobs data that was released half-way through the day. The Index has now improved 7 of the last 8 weeks, albeit a small improvement this week.
The key limiting factor to the markets moving higher this week was the negative sentiment from the jobs data as well as a declining global market. Australian unemployment came in at 6.2%, whilst this was a beat of expectations, the forecast remains that the headline figure is to peak to 10% in June. Below the surface, the data showed that the participation rate was actually much lower than expected whilst the underemployment rate sky rocketed from 4.9% to 13.7%. The headline number is likely to be covered up by Australians ceasing to look for work and many of the wage subsidies hiding the true economic damage.
It is also important to note that the feud between our largest trading partner China may intensify. As a result of Australia joining the party on an inquiry into the origin of the Coronavirus, China has subsequently threatened to impose an 80% tariff of Barley. The commodity only makes up about 2% of our exports to China but the fear is that China moves to imposing tariffs on larger export items such as Iron Ore or Gold which would have a much more significant impact.
Top/Bottom Performers (in ASX200)
- Pilbara Minerals Ltd +19.5% (PLS)
- Southern Cross Media Group Ltd +18.5% (SXL)
- Resolute Mining Ltd +14.2% (RSG)
- Corporate Travel Management Ltd -11.8% (CTD)
- Challenger Ltd -10.9% (CGF)
- Unibail-Rodamco-Westfield Limited -10.4% (URW)
The largest company to report figures this week was by far CBA which sited a 44% fall in cash profits for the quarter but beating analyst expectations.
Elsewhere; Xero (XRO), the accounting software company, fell 5.5% on Friday after reporting the day previous its first full-year profit but warned of coronavirus impact and subsequently receiving a number of downgrades from analysts- which weighed on the Australian Technology Sector. Finishing the week down 8.8%
CSR Limited, a building manufacturing company, on the other hand moved over 10% higher on its full year report and finished the week 5% higher following. The group managed to outperform in a struggling sector, reporting a revenue fall of 5% and profit fall of 10% in a softer residential building activity climate that is down 21% on the comparable period of last year.
In other news, Caltex (CTX) will be renamed to Ampol Limited and trade under the ticker code (ALD).
US Markets suffered their worst week in two months, with the Dow falling 2.6% and the S&P500 & Nasdaq declining 2.2% and 1.1%, respectively. This also marks the third weekly decline in four weeks as the Trade War tensions are ignited once more between the world’s largest economies – a theme that has mostly negatively impacted global markets since 2018. Indices were also kept low due to unprecedented employment figures and a 16.4% plunge in April retail sales.
China released it’s ‘data dump’, which was largely mixed. However, the positive production data helped Australian miners in Iron Ore and Gold commodities as the largest exports to China.
Play of the Week?
With the growing question about the future of Airlines within Australia almost comes to a head. With Virgin (VAH) in Administration and their future unclear as many compare the circumstances to the collapse that crippled Ansett in 2001, many are speculating who will run alongside Qantas (QAN) in the Australian market.
Regional Express Holdings (REX) – an existing smaller regional airline – announced it’s plan to move into the major city market and compete with Qantas (QAN) and Virgin (VAH). The company closed 22% higher for the week to $1.10.
In order for the company to successful enter this market, approximately $200M would be need to be raised, which the company’s board has confirmed it has been approached by multiple equity partners. At its current price, REX is valued at around $120M. The company is set to make a decision in the next 8 weeks but warns if it were to go ahead with the decision it would take some time before flights take off.
Whoever is the key player or two key players will ultimately dominate the landscape and in turn the profits when passengers begin to take to the skies again.
Suppressed commodities lifted as the incremental lift of restrictions begin to take place.
Oil: moved higher again this week to $30.40 (US WTI Crude) with the contract due to expire on Tuesday, when this occurred last month the contract turned negative with limited storage for the commodity being available.
Gold: moved up to $1758US on Trade Tensions sparking back up once again.
Iron Ore: rose over 5% throughout the week to $89.50.
The week is likely to start off on a positive note taking lead from Wall Street, in particular the Technology Sector which will hopefully boost local Tech Stocks after a relatively softer week.
The market will then shift its focus to the analysis from the Central Banks, Australia is due to release the RBA’s Meeting Minutes on Tuesday. Followed by United States’ Federal Reserve to do the same. The US jobless claims will also be a focal point as the economy reopens.
The question remains will the upswing continue or will the large downward movements that are still being seen in the market outweigh the gradual recoups higher.