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Weekly market update - 4th of May 2020

Written and accurate as at: May 04, 2020 Current Stats & Facts

Signs that governments are looking to ease COVID-19 restrictions prompted a more optimistic tone in markets towards the end of April.  

Health data

Global new daily cases remain on a plateau, with Latin America offsetting improvements elsewhere.  Roughly half of the States in the US have begun to relax restrictions, despite the fact that case numbers are not falling significantly. The focus in coming weeks will be on whether it has reopened too soon. While this is a risk, we note that testing levels are now far higher than they were a month ago. This allows pockets to be identified faster and local containment measures put in place, rather than a nation-wide shutdown.  In Singapore a second wave of infections seems to be under control.

Daily testing in Australia roughly doubled over the previous week. This has seen new cases pick up, but overall we remain at very low levels.

On the medical front, trials indicate Remdesivir can help reduce death rates and recovery time. It could be widely available in October, pending FDA approval.


As expected, we are starting to see very weak March data. US consumption was down -7.3% month on month. Given March includes only two weeks that were materially affected by COVID-19, April is likely to be worse.  US payrolls this week are expected to reveal 21 million jobs lost and unemployment at 16.3%. That said, there are indications the economy has reached a (very low) base in terms of impact.


The US market has been far stronger than the ASX, but rolled over last week as it neared the technical resistance level of a 33% rebound from the lows. Negative reaction to Amazon’s quarterly result provided something of a catalyst in this regard.

Many think equity markets may face a slog in coming weeks as more data comes in — and may find it hard to break materially higher. There is risk on the downside if we start to see a large second wave of infections as economies open up. However we are mindful that cash held in money market funds is at record highs, which could ultimately provide some support for equities.

The oil price bounced 20%. Some pick-up in demand will slow the rate at which storage is filled. However the market remains oversupplied and we need to see further production closures. Many continue to remain cautious on the near-term outlook.

The tide of capital raisings has continued. Large raisings such as National Australia Bank and Lendlease remained well supported.

Metals & Mining fell -4.0% for the week, reflecting the broader underperformance of sectors that had been defensive. There is some caution over the outlook for the iron ore price at the prospect of shuttered mines overseas resuming production. In the same vein, Consumer Staples were down -3.6% and utilities -3.0%.

Technology gained +6.3%, Energy +5.4% and Consumer Discretionaries +5.2%.

National Australia Bank (NAB, +4.3%) and ANZ (ANZ, -1.7%) both reported half-yearly results. The market focused on the outlook for bad debts and additional provisioning. Projections in both cases were not as conservative as many thought they could have been. This leaves the door open for increases in provisioning down the track.

The biggest surprise related to the effect of risk weighting in the loan books. An increase in provisioning to account for potential declines in credit quality among corporate lenders was greater than most expected. The net effect of the increased strain on capital was that ANZ deferred its dividend. NAB paid a dividend but also raised capital. ANZ had previously been in a stronger capital position than NAB but these moves leave them roughly on par.

Gold miners were the worst performers in the ASX 100. Newcrest (NCM) fell -11.9%, Northern Star (NST) – 10.9% and Evolution (EVN) -8.9%. Newcrest announced launched a $1 billion capital raise to fund an Ecuador acquisition.

Coles (COL, -6.2%) gave a quarterly trading update. Coles and Woolworths (WOW, 4.0%) have flagged an increase in costs associated with the surge in sales in March and April. Coles flagged that sales have scaled back in the last few weeks.

Rio Tinto (RIO, -5.4%) was down as the miners gave back some of their recent gains. Fortescue (FMG, -4.1%) was not far behind. CSL (CSL, -4.8%) was another recent outperformer that came off during the week.

There was a possible rotation out of the insurers and into the banks last week, with Insurance Australia (IAG, -4.4%) and Suncorp (SUN, -4.4%) possibly acting as funding sources for participation in NAB’s capital raise.

Worley (WOR, +20.0%) was the ASX100’s best performer, helped by the perceived leverage to the oil price. Many remain wary, conscious that CAPEX for new production in the oil/LNG complex is likely to remain curtailed given current volatility.

Optimism over the relaxation over restrictions saw a bounce in some previous laggards such as Nine (NEC, +19.1%), Domino’s Pizza (DMP, +16.9%), James Hardie (JHX, +16.2%), Downer (DOW, +12.5%) and Boral (BLD, +12.2%).

The casinos also caught this tailwind, with Crown (CWN) up 12.9% and Star Entertainment (SGR) +14.2%. We also saw private equity group Blackstone purchase a stake in CWN from Melco Resorts, with the expectation they may look to split out the property and realise its value in a REIT structure.

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