Second Week of July
The ASX200 gained 2.5% for the week to close at 6,057 after shrugging off a poor start to the week as markets expect its usual end of financial year volatility. Tuesday marked the end of the month of July and subsequently the quarter and financial year. For the month of July, the Index lifted just 2.5% – signifying a flat month until just this week. However, the quarters result was much better, for the quarter, the ASX200 index lifted16.2% which was the biggest lift since the September quarter of 2009. This on the back of March GDP all but confirming Australia’s first recession in 29 years.
Over the financial year, Australia’s Top 200 companies fell by 10.9% – the worst performance since the 2011/12 financial year. Leading the gains was Consumer Staples up by 39.1%, followed by Healthcare adding 31.2%. Energy stocks fell the most down 31.2% and the Banks were down 28.3%. Smaller companies actually outperformed their larger adversaries overall despite their volatility. The MidCap50 out-performed only down 2.3%, the Small Ords finished down 8.3%, the ASX100 lost 11.1% and the largest companies in Australia declined 12.5% by way of the ASX50.
Top/Bottom Performers (in ASX200)
- AfterPay +18.4% (APT.AX)
- Nearmap +17.5% (NEA.AX)
- NextDC +14.6% (NXT.AX)
- Adbri -26.1% (ABC.AX)
- Perenti Global -7.9% (PRN.AX)
- Southern Cross Media -7.9% (SXL.AX)
Concerns about a spike in coronavirus cases across the globe were partially offset by strong economic data from the US and China. US employment data showed on Thursday that the economy added a record 4.8 million jobs in June, much higher than expected, while Chinese PMI figures signaled the fastest increase in service activity for over a decade. On the coronavirus front, latest numbers showed a 50 thousand increase in daily cases in the US, a new record. On the corporate side, Moderna’s stocks fell sharply after its vaccine trial was delayed.
For the week, the Dow gained 3.2%, the S&P500 added 4% and the Nasdaq rose 4.6%. For the month, Dow was only up by 1.7%, the S&P500 increased by 1.8% and the Nasdaq finished up 6%. For the quarter, the Dow added 17.8% and S&P500 increased 20% indexes posted their biggest quarterly gains since 1987 and 1998, respectively. The tech heavy Nasdaq soared 30.6% – its best quarter since 1999.
Play of the Week – Government’s Defence Spend
On Tuesday, PM Scott Morrison announced a $270 Billion Defence Spend to amp up its military power with Chinese tensions increasing and entering a vulnerable recession period. Whilst there are likely to be a few companies to benefit from this, arguably none for than Electro Optics Systems (EOS.AX) which develops the technology for weapons systems. The Defence Department has accelerated its plans to buy 251 remote weapon stations from the company over the next 12 months. Scott Morrison even conducted a tour of EOS’s facilities, the company’s CEO that this single act will save thousands of jobs. However the company still has $130 million of high-tech military equipment sitting dormant in a Hume warehouse due to the Coronavirus lockdown, with another $50M stranded around the world – but this will surely help. The stock has been in a trading halt since Wednesday and is expected open considerably higher on Monday.
Gold improved once more, albeit only marginally, improving 0.3% for the week to $1,774.
Oil rebounded back to above $40, an increase of 4.8% for the week. Baker Hughes data, a proxy for future output, showed the number of oil and gas rigs fell to a record low of 263 this week – putting further pressure on the supply side.
Iron Ore slipped marginally to $99 this week.
Copper added 1.2% for the week once more.
In Australia, the Reserve Bank Board meeting is the stand-out event in what shapes to be a relatively quiet week for economic and financial news. The week kicks off on Monday with June readings on the inflation gauge from Melbourne Institute and job advertisements from ANZ. And a relatively quiet week is also in prospect for new economic data in the United States and China.