21 Feb 2020
Coronavirus fears subside
Markets
- Local and global equity markets moved higher this week as concerns regarding the spread of the Coronavirus began to subside.
- Chinese shares pushed higher as policymakers ramped up support for the economy and the companies that have been hit by a slump in sales and activity.
- Italian bank share prices have soared following long awaited consolidation amongst large and small banks, and better expected earnings ahead.
- More than ¾ of the largest 500 US companies have reported 4th quarter results with 72% of those exceeding expectations and overall earnings rising at an annual pace of 2.6% versus expectations of decline as recent as 1 January.
- In local stock news, Caltex shares rose again this week after the fuel refiner announced it would give Canada’s Alimentation Couche-Tard the opportunity to conduct more due diligence on its takeover proposal.
- BHP raised its dividend after announcing its 1st half profit rose 29% to $7.25bn. Revenue was up 7%. The company plans to expand its copper and nickel output, and is a ready seller of its thermal coal operations at the right price. The dividend payout ratio was reduced as a precaution against Coronavirus impacts.
- Brambles share price rose after the company forecast full year earnings growth of 5% as margins improved in its US business. The company posted a 5% rise in underlying 1st half profit, with sales and earnings growth across all segments of the business.
- Coles met its upgraded 1st half guidance, confirming a strong Christmas period and a much better 2nd quarter performance with 3.6% sales growth.
- Scentre Group’s (Westfield Australia) full year earnings and distributions grew in line with their guidance with funds from operations up 3.2%.
- Domino’s Pizza shares rose sharply, hitting a three year high, after strong online delivery sales lifted its 1st half net profit almost 30%. Global food sales were up more than 10% on the prior year result.
- Sydney Airport has said that 2019 delivered some of the toughest trading conditions since the financial crisis, with the bushfires and the Coronavirus significantly impacting both domestic and international travel. However, revenue and earnings both grew whilst traffic growth was flat.
- The Aussie dollar continued to fall against the US dollar this week as the US dollar rose on strengthening US economic outlook.
- The oil price rose this week on strong Chinese buying and on lower concerns regarding the Coronavirus as contraction rates began to decline.
Economics
- Eurozone economic growth slowed as expected in the last 3 months of 2019, which resulted in growth falling below 1% for the year, whilst Germany recorded no growth in the quarter.
- Eurozone finance ministers will discuss a document that calls for more growth friendly fiscal policy as recession fears grip Germany.
- A survey showed German investor sentiment deteriorated far more than expected in February on concerns regarding the Coronavirus impacting world trade.
- Japan’s economy shrank at an annualised rate of 6.3% in the last quarter of 2019 following the country’s GST increase from 8% to 10%. Private consumption, corporate investment, and imports all fell sharply in the quarter. The government will need to provide significant fiscal support to counter the drop in economic growth.
Politics
- Pro-Donald Trump groups raised more than $89m in January and have nearly $300m on hand for this year’s general election, shattering fund raising records on the path toward a goal of raising $1.5bn. The large January raise took place during Trump’s impeachment trial.
- In contrast, Democrat hopeful Michael Bloomberg, who has reportedly burnt through more than $600m of campaign spending, performed poorly in his first Democrat debate with other hopefuls Bernie Sanders and Elizabeth Warren attacking Bloomberg’s corporate history. Fair to say President Trump was happy with the result given Bloomberg is likely to be his toughest opponent.
- Coronavirus contraction and death rates appear to be slowing based on recent data. If that’s the case, the epidemic may be all over by April. Governments around the world have extended travel bans to ensure there’s no re-escalation in contraction rates.
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