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Morning Market Wrap: Coronavirus updates rattle Wall Street

14 Feb 2020
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Markets appeared perplexed by an adjustment in reporting tactics related to the coronavirus and statements by the World Health Organisation (WHO) which indicated growth rates of infection outside of China are not growing dramatically…

Stock Markets

Wall Street appeared to experience selling pressure as the S&P 500 and the Nasdaq struggled to maintain altitude in record territory and consequently followed the Dow Jones lower in the final hour of trading as increased concern over the coronavirus outbreak rattled market participants.

The movements seen appear to be more of a knee-jerk reaction to a change in methodology in reporting cases established by Chinese authorities. China reported 254 new deaths from the virus over the past 24 hours, and 15,152 new cases after the government developed an alternative diagnostic method to be applied in the Hubei province. As stated by Seema Shah, Chief strategist at Principal Global Investors, ” the surge in reported cases reported today is a one-off change due to methodology and by itself, doesn’t imply an acceleration in the pace of infection,” but went onto say “if the change in methodology does result in a rise in the growth rate of reported cases, market sentiment will inevitably deteriorate, reversing the more upbeat tone of recent days as markets had become increasingly reassured that the virus will soon plateau”. Markets appear perplexed following conflicting reports by the World Health Organisation, which indicated that the number of cases outside of China is not rising dramatically.

US CPI data for January marginally missed a forecast of 0.2% with a 0.1% recording and unemployment claims came in lower-than-expected with 205,000 new claims.

On Capitol Hill, a pair of President Donald Trump’s nominees to the Federal Reserve Board of Governors — Judith Shelton and Christopher Waller — faced scrutiny from the Senate Banking Committee and a superseding indictment was filed by the US government against the Chinese smartphone maker Huawei Technologies Co and its chief financial officer Wanzhou Meng.

The ASX200 climbed 15 points higher to close at 7,103 as better-than-expected earnings results and advancing blue chips offset declines by more than half the market. The gains seen by a handful of names allowed the index to close in the black despite decliners outpacing advancer 105 to 87. The sheer weight of those advancing resulted in 62 per cent of the index’s market cap increasing in value during a day where volume levels climbed to their second-highest year-to-date record.

Materials closed 0.20% lower and recorded a five-day decline of 1.65% with 22 of the sectors 37 constituents closing lower. Had Rio Tinto Limited (RIO) and BHP Group Limited (BHP) not recorded a 0.52 and 0.36 per cent return on the day, the index may have closed lower. Similarly, Financials saw 17 of its 27 constituents move lower, but was able to record a marginal gain of 0.34% as the big four banks continued to climb higher.

National Australia Bank Limited (NAB) posted its quarterly results which showed a 1% increase in cash earnings and a slightly small jump in revenue. While the NAB report isn’t exactly in the same league as Commonwealth Bank of Australia’s (CBA) consensus-beating performance, its ability to report a higher net interest margin (NIM) surprised the market. CBA followed NAB higher and recorded a 0.62% advance while Westpac Banking Corp (WBC) and Australia and New Zealand Banking Group (ANZ) recorded returns of 0.63 and 0.34 per cent respectively.

The best performer on the day was Breville Group Limited (BRG), which closed 27.63% higher following consensus-beating results. The Australian kitchenware group showed a 25.4% revenue increase for the first half of 2020 and indicated that it has been immune to problems caused by the coronavirus outbreak. As a result of the announcements, BRG closed at an all-time high of $25.50.

TPG Telecom Limited (TPG), was the second-best performer with an 11.49% advance after the Federal Court of Australia gave the green light for the proposed merger with Vodafone Hutchins Australia (HTA). For almost a year TPG has faced significant price volatility following the initial rejection of the merger by the Australian Competition and Consumer Commission (ACCC), which stated (May 2019) that the $15bn merger would discourage both parties from competing in each other’s market.

The most positive influence on the market was a 5.84% gain by Goodman Group (GMG), which reported a statutory profit in 1H20 of $810.6m and upgraded earnings per share (EPS) for FY20 by 11% to 57.3 cents. When describing the positive outlook for FY20, Greg Goodman said “the deliberate concentration of our assets in urban logistics locations is delivering high quality properties for our customers and strong returns for the Group and our Partners,” and “the combined effect of robust customer demand, scarcity of land and available space, and competition from alternative uses in our chosen markets, is generating strong property conditions.”

Outside the advances seen by GMG, NAB CBA and BRG, CSL Limited (CSL) advanced 0.83% to close at $330.99. In total, the above five names represent 19.56% of the index’s total market cap.

*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.

Commodities and Currencies

Brent crude climbed 0,8% higher to $US56.24 a barrel, and iron ore continued to add gains seen earlier this week and advanced 1% higher to $US88.56 a tonne. Despite weak price movements seen during the domestic trading session, gold pushed 0.55% higher to $US1,576.04 an ounce overnight as markets appeared to take defensive positioning following coronavirus update reports.

This article was written by Thomas Brunton – Senior Equity Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via [email protected] or by phoning +612 8302 3633.

 

 

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