Volatility Returns on Reopening Economy

Weekly Market Wrap May 25, 2020 / Reading Time: 4 mins
By Joshua Barker Reading Time: 4 mins

Fourth Week of May
After markets jumped out of the gates to begin this week on the hope a vaccine was on its way, the ASX200 eyed a -3.5% increase by lunch time Thursday but as Global tensions escalated the market began its descent from the 10-week highs. For the week, gains were capped at an increase of 93 points or 1.7% to 5,497.

The price of Oil was also caught in Friday sell-off, primarily due to the sentiment after the Asian Markets began their session with the main headline being that China would not give an estimate for its 2020 GDP Target. Oil declined as much as 6%, whilst the Hang Seng (China’s primary index) closed on the lows of a 5.5% decline.

Australian Market

Meanwhile, trade tensions between Australia and China persisted this week. In addition to holding back growth forecasts, China also outlined a large stimulus plan which, as our largest trading partner, could benefit the Australian economy if they choose to buy our exports. With tensions high, the danger is that China chooses to use their own Iron Ore instead of importing from Australia.

However, the Iron Ore produced within China is very low quality and causes a lot of health issues due to the smog when used – therefore is an unlikely scenario. The more likely impact that may arise is China increasing the Coal they import from other countries but this won’t be too much of impact if it were to eventuate because China is not our biggest exporter of Coal and it would be possible to fill the gap created.

Top/Bottom Performers (in ASX200)

Top Gainers:

  • NRW Holdings +31.0% (NWH)
  • Nearmap +22.1% (NEA)
  • Lynas Corporation +21.8% (LYC)

Top Losers:

  • Southern Cross Media -9.4% (SXL)
  • Austral -8.3% (AGD)
  • Unibail-Rodamco-Westfield Limited -7.9% (URW)

Company News

Wesfarmers (WES) took a large hit on Target. The conglomerate announced that it will be closing 120 Target stores, laying off thousands out of work – a theme likely to continue.

With retail still in focus, Myer (MYR) released an update to the market on Friday outlining it would reopen all of its stores and that online sales have continued to perform well. The shares reached highs of a 14% increase but settling 7.4% higher for the day.

In other news, NAB’s (NAB) Share Purchase Plan closed Friday with the new shares due to trade on the 3rd of June, with the purchase price being $14.15 if the price remains above this mark.

Globally

The US started the week strong on the news that US vaccine company Moderna announced positive results out of a trial but gains were dampened as medical experts criticised the factual information released. Further downside pressure came as the US-China power-struggle continued. The US passed a bill to delist Chinese companies in the US. Trump also said he will not re-close the country if a 2nd outbreak occurs.

For the week, the Dow gained 3.3% to post its best weekly performance since April 9. The S&P 500 and Nasdaq also rose more than 3% this week. And interestingly, the Russell 2000, which tracks small-cap stocks, outperformed this week with a 7% improvement. S&P 500 nears the significant level of 3000 (also the underside of its 200-day moving average) whilst Nasdaq nears all-time highs, just 6% away.

Play of the Week?

Australian retail sales fell 17.9%, driven primarily by lower foot traffic, and 10% of all spending shifted to online. One of the star-performers of the week, EML Payments, sited that they believe Covid-19 will actually benefit them in the long-term and shift online spending to dominate in-person spending more and more.

As it stands, the key players in the ‘online payments system’ area on the ASX are; EML Payments and Tyro Payments (TYR.AX). Whilst the Technology Sector has been fairly resilient locally with companies such as Afterpay (APT.AX) & Appen (APX.AX) breaking to all time highs, many companies in the sector are still subdued from the economic shutdown but are primed to take advantage of the new landscape, post-covid, much more than other companies.


Retail Ecommerce Performance Metrics, Australia & New Zealand

Source: Salesforce Commerce Cloud (formerly Demandware), April 2020
Note: represents activity on the Salesforce Commerce Cloud network, broader industry metrics may vary
Methodology: Data is from the April 2020 Salesforce Commerce Cloud report titled Q1 2020 Shopping Index. Behavioral data from more than 1 billion shoppers (1.9 billion visits) worldwide interacting with 1,047 sites across 34 countries were analyzed during Q1 2018-Q1 2020. Salesforce Commerce Cloud (formerly Demandware) is cloud-based ecommerce software technology company that focuses on retailers and brand manufacturers.

Commodities

Commodities lifted despite trade tension heating up.

Oil: despite Friday’s strong sell-off, the commodity managed to push higher moved this week for the fourth consecutive to $33.40 – increasing 9.8%. (US WTI Crude)

Gold: cooled off marginally but still remains historically high to $1734US as the US and China continue their feud.

Iron Ore: showed strong resilience despite the ongoing tensions, adding 1.2% to $91.40.

Looking Ahead…

US-China tensions are likely to be the biggest theme that will shape markets this week as markets will react to the two largest economies employing their powers over the other in whatever way they can. However, it will be a short week for the US & UK thanks to public holidays.

Whilst Coronavirus cases dwindle here in Australia, the focus shifts towards how companies will be able to operate alongside the virus. There are a number of virtual AGM’s (Annual General Meetings) for companies such as Coca Cola (CCL), Spark Infrastructure (SPK) & Costa  Group (CGC).