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Morning Market Wrap: U.S. markets ignore stimulus plans and close lower

23 Mar 2020
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U.S. markets appeared to focus on the continued climb in reported cases and death rate being recorded in the U.S. and moved lower as a group…

All three major US indexes moved lower on Friday as panic over the coronavirus outbreak refused to abate, amid the acceleration of the global death toll. The Dow Jones fell 913 points (4.6%) to close at 19,173.98, representing the lowest level since October 10, 2016, even after the index touched an intraday high at 20,531.26. For the week the Dow Jones declined 17.3% for the week while the respective decline of 4.34 and 3.79 per cent recorded by the S&P500 and NASDAQ on Friday resulted in a weekly declined of 14.98 and 12.64 per cent. The Dow is off 35.1% from its February 12 peak, while the S&P 500 is 32% and the Nasdaq is down nearly 30% from their February 19 peaks, according to Dow Jones Market Data.

While the government looked to assemble its ‘phase-two’ bailout package to soften the economic blow from the coronavirus, it appears it was too slow for Wall Street, with U.S. markets recording their worst week since 2008.

Markets seemed to only momentarily enjoy the recent stimulus package announced by Republican Senate Majority Leader, Mitch McConnell, released on Thursday. McConnell introduced a stimulus package that could top $1 trillion and included direct payments to individuals as well as other supportive measures for small and medium-sized businesses. The issue being is it seems the market is more concerned with the lack of certainty about how long temporary closures could remain in place. The stimulus packages came at the same time New York Governor, Andrew Cuomo, ordered all non-essential businesses and for all residents to stay home amid the pandemic.

In economic news, sales of previously owned U.S. homes surged in February to a 5.77 million annual rate, according to National Association of Realtors data released Friday, representing the fastest pace in 13 years. Additionally, first-time unemployment claims jumped to 281,000, which is the highest level since 2017.

The ASX200 ended the week with a bounce and climbed 33 points higher to close at 4,816 as a recovery in Energy and Financials lead half the market higher. One hundred and twenty-four stocks rose on the day despite tumbling to fresh four-year lows a day earlier. Friday’s gain resulted in the ASX200 recording a 13% decline for the week, which is second only to the 15.6% weekly drop recorded October 2008. For the month, the ASX200 has given up 32.8% after tumbling from its February 20 high of 7,162 to close at 4,816 on Friday. The support

Industrials and Information Technology also climbed higher with tech names, such as Afterpay Limited (APT), offsetting declines by other constituents. APT climbed 25.66% higher to close at $12.44 after analysts at UBS dropped their long-held sell rating on the stock.

Materials made a 0.35% gain on Friday, despite BHP Group Limited (BHP) and Fortescue Metals Group Limited (FMG) moving lower, as Rio Tinto Limited (RIO) climbed 1.84% and Amcor (AMC) jumped 6.25%.

Financials climbed higher with three of the big-four banks closing higher. Westpac Banking Corp (WBC) rallied 7.09%, National Australia Bank rose 6.12% and Australia and New Zealand Banking Group (ANZ) advance 6.80%. In comparison, Commonwealth Bank of Australia (CBA) moved in the opposite direction and declined by 1.71%.

A 4.59% decline by CSL Limited (CSL) appeared to spill over into constituents of the Healthcare and ultimately result in the sector declining 5.33%. Had it not been for the declines seen by CSL and CBA, the index appears it would have been able to achieve a higher return. Markets over the week seemed to reflect increased angst over the spread of the coronavirus and the worry brought on by drastic stimulus plans proposed by several countries. The ongoing sell-off very much reflects the growing concern that Australia will not only fall into recession for the first time in nearly 30 years but that the downturn will be particularly ugly. “Given the rapid deterioration in the outlook, we now estimate the Australian economy will contract 6 per cent in 2020 in annual average terms,” Goldman Sachs’ chief Australian economist Andrew Boak said in a note. “This represents the sharpest annual GDP contraction since the great depression of the 1920s.”

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

Commodities and Currencies

Iron ore saw its first movement higher than 1%, in more than a week, on Friday and declined 3.7% to $US8,798 a tonne. After seeing a significant jump, a day earlier, Brent crude declined 3.2% to $US27.56 a barrel. Gold edged marginally higher by 0.56% to close at $US1,492.53 an ounce.

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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