24 Jan 2020
Equity markets take a breather on coronavirus concerns
Markets
- Local and global markets finished flat to slightly lower this week as concerns rose regarding the spread of coronavirus and US President Trump stepped up tariff threats on the EU.
- The US 4th quarter reporting season for corporate earnings continues with analysts now expecting earnings at the largest 500 companies to drop slightly in the quarter. However, analysts have lifted their 1st quarter 2020 estimates to near 6% rise, which means 2019 might be have been the low point for earnings growth.
- In local stock news, Rio Tinto reported 4th quarter production volumes largely in line with expectations, but overall production fell in 2019 from a year earlier. Their 2020 guidance is also in line with expectations.
- Sydney Airport shares fell following their traffic update which showed international passenger numbers fell in December, no doubt the result of widespread global news flow regarding eastern seaboard bushfires.
- Westpac has selected very experienced banker and ex-ANZ bank CEO John McFarlane as their new chairman. He returns to Australia after having overseen the revitalised fortunes of UK insurance and wealth business Aviva, Barclays Bank, and Royal Bank of Scotland. McFarlane will be responsible for appointing a permanent CEO as the search continues.
- CIMIC Group shares fell almost 20% after warning it would take a $1.8bn hit exiting the Middle-East and wouldn’t offer a final dividend in 2019. The news came after the company recently announced new contract wins for its Australian mining services division and its purchase of Broadspectrum (formerly Transfield) for $485m.
- Travel related stocks saw their share prices decline this week on concerns regarding the spread of the Chinese coronavirus.
Economics
- The Australian economy added almost 29,000 jobs in December, pushing the unemployment rate down to 5.1%. The jobs growth number came in well above expectations and followed November’s large increase of nearly 40,000 jobs. The majority of new jobs are part-time. The market has significantly lowered the probability of a February rate cut.
- US homebuilding surged to a 13 year high in December, pointing towards the housing market recovery being back on track after recent period of weaker data. Sales of existing homes in December blew past economist estimates to reach a 2-year high.
- The German central bank expects the economy grew by just 0.6% in 2019, which would mark its slowest pace since 2013.
- China’s economy grew in line with expectations in the 4th quarter, whilst industrial production data came in strongly. The economy grew 6.1% in 2019, the slowest pace in almost 30 years, but within the government’s target of 6-6.5%.
Politics
- European and US trade representatives had constructive dialogue on several of their open trade disputes. However, President Trump applied further public pressure whilst speaking at the World Economic Forum where he warned of tariffs on EU goods and services if the EU did not agree to a trade deal.
- The Chinese city of Wuhan, home to nearly 9 million people, is in lock-down following the spread of Coronavirus which originated in the city at a wet market. 17 people are dead and over 400 infected. Airports globally have begun screening passengers for symptoms whilst the last flight from Wuhan to Australia came in yesterday. The Chinese President has made it clear it’s their number one priority right now.
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