Third Week of June
The ASX200 lost 112 points or 1.9% to 5,847 on Friday, falling 2.2% for the week. Investor sentiment retreated following the Federal Reserve’s economic projections, forecasting 9.3% unemployment and near zero interest rates until at least 2022. The energy sector was worst hit, falling 3.69% as global oil prices continue to slip, with WTI crude falling 2.83% after US oil inventories jumped last week to a record 2.1 billion barrels, boosted by large supplies from Saudi Arabia.
The short week was filled with plenty of economic data, the week started with National Australia Bank’s index of business confidence which rose to -20 in May 2020 from a downwardly revised -45 in April and beating market consensus of -32, as the country began to emerge from coronavirus lockdowns. Still, the latest reading remained below the long-run average, with the figure last seen around the 1990s recession.
The Westpac Bank Consumer Sentiment Index for Australia rose by 6.3% month-on-month to 93.7 in June 2020, after a 16.4% surge in May. The index is now only 2% below the average in the preceding September to February period, further highlighting Australia’s continued success in bringing the COVID-19 under control.
Adding to the story, job advertisements grew by 0.5% month-over-month in May 2020, after suffering its largest decline ever in April. On the back of some businesses beginning to reopen, extended trading hours and the increase in activity is seeing a recovery in household spending.
The Australian Dollar was little changed at 0.685USD on Friday, but lost 1.7% in positioning for the week.
Top/Bottom Performers (in ASX200)
- IPH Limited +6.6% (IPH.AX)
- TPG Telecom +3.9% (TPG.AX)
- Mineral Resources +3.8% (MIN.AX)
- URW -14.2% (URW.AX)
- Estia Health -13.7% (EHE.AX)
- Southern Cross Media -13.0% (SXL.AX)
Wall Street rebounded on Friday in a volatile session but failed to recoup sharp losses from the previous session, booking the largest weekly loss since March 20th. Investors feared that the reopening of the economy could be delayed amid signs of resurgence in coronavirus cases across the US. Meanwhile, sentiment was lifted by Moderna’s last-stage COVID vaccine trial involving 30 thousand volunteers. The Dow Jones climbed 477 points or 1.9% to 25,606. The S&P 500 gained 1.3% and The Nasdaq jumped 1%. For the week, the Dow Jones lost 5.5%, the S&P 500 retreated 4.7% and the Nasdaq declined 2.3%.
Play of the Week – Index Quarterly Rebalance
Last week the S&P/ASX Indices released their June Quarterly Rebalance whereby the governing body decides upon the individual names that will make up each index. Occurring on a quarterly basis for the ASX Indices and a yearly basis for the All Ords, the announcement does carry a lot of following for few different reasons. Firstly, and most impactful, is that once the announcement is released Index funds that track the Top 200 or 300 will have just 5 trading days to add or remove the outlined companies, creating large institutional impact in the short-term. Secondly, many funds are only mandated to buy companies that are listing in these indices, giving even more institutional funds the option to buy these companies now. And lastly, because of this, retail investors may feel more confident to allocate into these companies now as confirmation the firm is of a stable size for a sustained period of time.
Some the noteworthy movements were; A2 Milk replaces AMP in the Top 50, NextDC and Saracen replaced URW and Whitehaven Coal in the Top 100, whilst names such as Megaport, Mesoblast and Perseus Mining were added to the Top200.
Gold reached $1,730US, a weekly 2.7% rise, its first in four. The safe-haven demand was boosted by fears over a second wave of Covid-19 infections.
Oil settled at $36.30, an 8% weekly fall, the first since April. In addition to the second wave fears, data released earlier in the week showed an unexpected rise in US crude inventories.
Iron Ore continues to battle with ongoing supply issues out of Brazil, holding up above $100USD.
Investors will continue to monitor the spread and impact of the pandemic on the global economy amid growing concerns that a second wave of infections in the US could lead to additional lockdown measures.
The Reserve Bank of Australia will be also releasing the minutes of its last monetary policy meeting. On the economic data front, important releases include employment figures, Westpac leading index and house price index.