Morning Market Wrap: Flat movements seen in U.S. as markets monitor coronavirus

12 Feb 2020
U.S. markets appeared resilient to announcements that major US tech company acquisitions will be reviewed from 2010 onwards...

Stock Markets

U.S. Markets stagnated overnight with the Dow Jones closing flat and NASDAQ and S&P500 only managing a marginal return of 0.11 and 0.17 per cent respectively. The S&P500 volatility index moved slightly higher (0.93%) to 15.18, which is a value not seen since early October. Markets appeared to be making marginal gains throughout the day until U.S. federal authorities indicated they will review several acquisitions made by some of America’s largest tech companies. The U.S. Federal Trade Commission issued special orders requesting overviews of deals between 2010 and 2019 from Alphabet Inc (GOOGL), Inc (AMZN), Facebook Inc (F.B.) and Microsoft Corporation (MSFT), which sparked concerns of a tighter regulatory regime. Despite sluggish movements, both the NASDAQ and S&P500 were able to touch on new record-highs.

Concerns related to the outbreak of the coronavirus appeared to ease as reports indicated that the spread is possibly slowing, and as Federal Reserve Chairman, Jerome Powell, stated that while the U.S. economy seems resilient to overseas headwinds, he is monitoring the impact of the virus on global growth. E-Trade vice president of investment strategy, Mike Loewengart, stated: “with fundamentals strong, a robust employment situation, and inflation on track, Powell’s cautiously optimistic stance isn’t too surprising, especially since coronavirus fears and trade tensions are at bay”. The World Health Organisation’s (WHO) most recent situation report indicated, yesterday, that the death toll now stands at 1017, and there are more than 43,100 confirmed cases across 24 countries.

Additionally, the newly established Monmouth University national poll showed that Bernie Sanders now sits ahead of Joe Biden within the democratic pack and that two-thirds of registered voters think the incumbent is going to be re-elected even though most don’t think he deserves a second term. 42% of voters feel President Trump should be re-elected, whereas 55% believe its time for a new President.

The ASX200 made a strong recovery from the previous day and closed 42 points (0.61%) higher at a two-week high of 7,055 as impressive reporting season results and advancing blue chips sparked a market-wide climb.

Advances outpaced declined 141 to 48 as 85% of the indexes market cap increased in value, and as volume reached above its 30-day average. All sectors closed in the black with Information Technology and Telco’s closing 1.70 and 1.03 per cent higher respectively.

Challenger Limited (CGF) was the best performing stock on the day with a 13.87% gain on the back of better-than-expected earnings, which showed the investment manager had a net profit after tax of $220 million and was on track to achieve the top end of 1H20 guidance stated. Goldman Sachs analysts indicated that “all FY20 guidance has been maintained and CGF is now suggesting a bias toward the high end of its normalised pre-tax profit of $500m-A$550m range, which looks consistent with our current estimates (A$544m)”.

CSL Limited (CSL) was the most positive impact on the overall market and drove the Health Care sector 0.73% higher after reaching a new all-time high of $326.3 and recording a 0.86% gain. Financials closed 0.52% higher as the big-four banks recorded gains ranging between 0.47 and 0.69 per cent. Commonwealth Bank of Australia (CBA) climbed 0.47% and added to the support provided by CSL and CGF. Other major blue chips directing the overall market movement included Telstra Corporation Limited (TLS), which advanced 1.83% and closed at a three-week high of $3.89, and Fortescue Metals Group Limited (FMG), which closed 2.40% higher. In total, these five most impactful companies represent more than 18% of the index’s total market cap.

A marginal recovery in iron ore prices, seen during the domestic trading session, resulted in Materials advancing 0.59%, with BHP Group Limited (BHP) and Rio Tinto Limited (RIO) adding to gains seen by FMG and advancing 2.40, 0.42 and 0.33 per cent. Despite iron ore prices recording the largest weekly loss (-15%) in six months, Chinese futures picked up following reports that Australian miners were bracing for a tropical cyclone. That said, travel restrictions imposed in response to the coronavirus epidemic are still disrupting activity across many of the largest steel-producing provinces of China. The efforts to control the spread of the infection have restricted vital supply chains, reduced business confidence and slowed down international trade with major regions that represent approximately 90% of China’s major iron ore ports.

While iron ore is still seeming somewhat resilient, given its central role in construction, infrastructure and manufacturing, especially vehicles, it is likely that demand will slump in the first quarter. The current debate that is still open is how badly China’s economy will be hit, whit some analysts seeing growth in gross domestic product halving to about 3% year-on-year.

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

Commodities and Currencies

Iron ore prices made a strong recovery and climbed 4.9% higher to $US86.93 a tonne. Similarly, aluminium and copper rose 1.9 and 1.4 per cent higher to $US1,734 and $US5,745 a tonne respectively. Brent crude appeared to trail metal price movements and climbed 1.7% higher to $US54.16 a barrel. Gold appeared to face overhead resistance at the $US1,575 level and retraced 0.43% to $US1,567.93 an ounce overnight.

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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