First Week of July
The ASX200 rebounded 1.5% on Friday after falling 2.5% on Thursday. For the week, the index fell 0.7% to close at 5,904. The market weakness came as Coronavirus cases locally and globally picked up yet again. As fear-mongering journalists write of a second wave whilst medical experts continue to call it a continuation of the first wave, the facts are indisputable. Australia added a 2-month high of 37 new cases on Thursday, predominately stemming from Victoria, and global cases return to their exponential movements.
Top/Bottom Performers (in ASX200)
- Western Areas +22.0% (WSA.AX)
- Saracen Minerals +13.6% (SAR.AX)
- Fisher & Paykel Healthcare +10.2% (FPH.AX)
- Mesoblast -19.8% (MSB.AX)
- Corporate Travel -18.8% (CTD.AX)
- Flight Centre -16.8% (FLT.AX)
US Markets slid marginally up until Friday but the final session of the week caused most of the weeks loses as investors finally started to price in the uptick of Coronavirus cases. For the week, the Dow lost 3.3%, the S&P500 declined 2.9%, whereas the Nasdaq outperformed but still fell 1.9%. Snapping the hot streak once more. The late week sell-off came as the number of new cases hit ~45,000 – a record daily figures and bringing the 7-day average up more than 40% from the last week.
Whilst there have been no official nationwide shutdowns, states such as Florida and Texas where cases are accelerating, have imposed lockdowns on bars and other hotspots. Interestingly to note, the country has a number of national holidays coming up which could bring congregation with it such as Independence Day Friday this week on the 4t of July (Markets closed for it). This could ultimately lead to another spread but at this point the numbers are so high that only drastic measures would slow the rate down. Globally cases peaked to over 10 million with over 500,000 deaths.
As somewhat expected, the IMF slashed its forecast on the economy. The comprehensive forecast of the entire world’s GDP is now estimating a 4.9% decline in global GDP with the recovery to be more gradual than last expected – damping hopes a ‘V-Shaped’ recovery in the economy. US GDP is expected to decline 8% this year. The downgrade in revisions was cited due to social distancing likely to continue right through to the end of the year. More alarming from the fund, was the warning it gave of the soaring public (government) debt levels.
Play of the Week – Overshot Rally in the US?
Many US companies have reached pre-Covid or all-time highs in the last few week despite the record crippling affects this pandemic is having on the economy. This is evident especially on the Nasdaq with the index continuing to peak out new highs – important to note that Tech companies have been particularly resilient and dynamic throughout the adversity. Nevertheless, investors are slowly starting to reverse their optimism on the market given that cases continue to skyrocket and further shutdowns may be the only solution.
The more diversified S&P500 currently sits right on the significant 3,000 level. A break of this even-number support could be the catalyst for markets to change direction to the downside again.
Gold reached near its 8-year highs of $1,785US, a weekly 1.6% increase, the third weekly gain. The safe-haven demand continued due to fears over a global covid cases and the expectations government stimulus would continue.
Oil cooled-off to $38.50, slippage of 3.4% for the week.
Iron Ore continues to hold up about $100 again this week.
Copper added 1.8% for the week once more.
Australian shares are going to beginning the week with a significant drop following the negative US sentiment as we head into the end of the financial year. The time period typically brings a spike in volumes and increased volatility. As it stands the Aussie market is currently down 11% this financial year – marking a rare red mark on the historical returns. The best performing sectors have been Healthcare and Technology, whilst the worst performing have been Financials and Energy.
Adding the to headline figure pressure, a number of stocks will go Ex-Dividend on Monday. Mainly Real Estate stocks such as; Goodman Group, GPT, Dexus, Mirvac, Stockland & Charter Hall. Plus other large dividend companies such as Transurban and APA Group.