30 Oct 2020
Virus case surge sees market volatility rise
Markets
- Local and global equity markets fell this week, fuelled by rising virus cases and a significant increase in government-imposed restrictions.
- In local stock news, National Australia Bank said 2nd half cash earnings will take a $264 million hit from provisions for customer and payroll remediation and an impairment of property assets. The charges will reduce net profit by $450 million.
- Westpac flagged a $1.2 billion hit on earnings due to write-downs of its life insurance business and further provisions for its AUSTRAC fine.
- ANZ bank’s cash profit fell 42% for the full year due to Covid-19 credit impairment charges of $2.74 billion and a 1st half impairment from Asia of $815 million. The bank will pay a final dividend of 35 cents per share. The result was largely expected, but the dividend surprised on the up.
- Coca-Cola Amatil shares rose after receiving a takeover from Coca-Cola European Partners for $12.75 per share. Looks likely it will be accepted unless another competing offer comes through.
- Boral agreed to sell its 50% share in USG Boral to Knauf, its business partner, for US$1.01 billion. Boral will make a profit before tax of $540 million from the sale.
- Coles reported a 10% increase in 1st quarter sales compared to the same period last year. Sales growth for this quarter has gotten off to a strong start, up 6.4% on the same time last year.
- The Aussie dollar fell this week on US dollar strength as market risks rose on rising virus cases, whilst the European Central Bank signalled further monetary easing by year end which saw investors flip Euros for US dollars.
- The oil price fell sharply as countries tightened restrictions in response to rising virus cases putting the global economic recovery at risk.
Economics
- Australian inflation rose by 1.6% in the 3rd quarter and the annual rate lifted to a still very low 0.7%. The RBA’s preferred inflation measure rose by 0.4% in the quarter which saw the annual rate hold at 1.2%. November is a live meeting for the RBA with a rate cut and quantitative easing expected.
- The RBA deputy governor told a government hearing that Australia’s technical recession (i.e. 2 consecutive quarters of negative growth) is effectively over as there is likely to be a positive economic growth print for the September quarter, helped by Asia’s swift recovery, particularly China.
- Australian goods export prices fell by 5.1% in the 3rd quarter to be down almost 10% over the year, whilst goods import prices were down by 3.5% in the quarter and by 5.7% over the years. A strong exchange rate was the main factor.
- Commonwealth Bank showed that lending for housing continued to grow at a solid pace in September, with a high share of new lending done surprisingly done at fixed rates. Lending for renovations is also growing, but consumer and business lending remained soft in September.
- The US economy expanded by an annualised 33.1% in the 3rd quarter, beating forecasts for a 31% surge. It is the biggest expansion ever, following a record 31.4% fall in the previous quarter. Personal spending surged and was the main driver of growth, helped by government stimulus.
- US initial jobless claims fell by 40,000 to 751,000 last week, coming in better than expected, whilst pending homes sales fell by 2.2% in September, coming in well below expectations.
- Manufacturing data in France weakened whilst German manufacturing data went the other way, not doubt assisted by Chinese trade. The service sector in Europe slipped back into contraction, not helped by increasing government restrictions.
- Profits at China’s industrial firms rose more than 10% in September on the same time last year, a 5th straight monthly rise, but growth slowed from August.
Politics
- The US presidential race gathered pace with polls and betting showing Trump cutting into Biden’s lead, with Biden not helped by his comments regarding a “transition” from the oil industry, information being released linking his family to potential corruption, and slowing down on the campaign trail versus Trump stepping up the pace. Biden fired off barbs attacking Trump’s handling of the virus. Biden and the Democrats are still showing a strong lead in the polls and betting, but anything can happen from here.
- Virus cases continue to rise globally, particularly throughout Europe and the US, resulting in further restrictions including curfews. Governments continue to take the wrong policy path regarding lockdowns, whilst betting the farm on an early, effective, and quickly distributed vaccine. It’s worthwhile betting on an early vaccine but going all-in isn’t a smart idea. On the treatment front, the US FDA approved anti-viral therapy Remdesivir for use. Better late than never!
- Victorians finally received some relief with retail and hospitality businesses given the green light to re-open, with the 25km travel limit for residents and rules for separating Melbourne from regional Victoria will be scrapped on November 8. Tasmania accepted visitors after re-opening its borders to the rest of the country.
- Facebook, Twitter, and Alphabet (Google) all fronted a US senate inquiry into claims of censorship and political interference, in contrast to the protections they get under US legislation where they cannot be sued for the content they host. They will need to choose ahead whether they remain content hosts (and hence retain protection) or are instead editors/publishers (and hence lose protection). Twitter fared the worst, whilst Facebook and Alphabet came off ok.
- China has slapped sanctions on US defence companies Boeing, Lockheed Martin, and Raytheon Technologies, in response to the recent US deal to sell weapons to Taiwan
If you would like to discuss any of the information or meet with us, please feel free to call or email us by clicking here
