U.S. markets continued to selloff on Friday despite reasonable economic data as the spread of the coronavirus drove markets lower…
U.S. markets closed lower on Friday in what was a volatile session which saw the Dow regain about half of the day’s losses and achieve a weekly gain as investors watched the number of reported coronavirus cases climb past the 100,000 mark.
Global tech stocks appeared to be the worst impacted on Friday with the NASDAQ closing 1.87 per cent lower, followed by the S&P500 and Dow Jones, which declined 1.71 and 0.98 per cent respectively. The potential for the spread of the coronavirus world-wide to disrupt economic activity has placed pressure on safe-haven asset prices, notably driving the U.S. Treasury 10-year bond yield to a new record low below 0.8% and gold prices saw the biggest weekly gain since 2016.
Concerns related to the outbreak even overshadowed robust economic data which showed better-than-expected jobs were created in February (273,000 new jobs) and that the unemployment rate fell to a 50 year low of 3.5 per cent while average wages grew by 9 cents (0.3%) to $28.52 per hour. Despite the optimistic data that shows the U.S. economy is in a strong position, the spread of the coronavirus is something that could perhaps disrupt the economic momentum currently sustained.
The risk-off positioning seen for the past two weeks intensified on Friday as local investors reduced equity market exposure and drove the ASX200 179 points (2.81%) lower to close at 6,216, a level not seen since April last year. The Australian 10-year bond yield continued to fall with markets and touched on a new all-time low of 0.675%.
After suffering the largest weekly decline since the global financial crisis to end February, the benchmark fell a further 3.5% in the first full week of March as Financials, Energy and Consumer Discretionary led a market-wide selloff.
Retailers were also walloped by news Australian retail sales recorded the largest two-month drop since the GFC over the turn of the year, led by significant weakness in discretionary sectors. The Consumer Discretionary sector slumped 3.7%, led by declines by both Flight Centre and G8 Education Limited (GEM).
Overall, it seems that markets took little notice of interest rate reductions by central banks from around the world as recent cuts made by the RBA and Fed provided little support domestic and international markets alike. Jerome Lander, portfolio manager at Lucerne Investment Partners, said the continued rout reflects growing concern towards the outlook for the Australian and global economy from the coronavirus outbreak. Lander said “before the coronavirus outbreak investors really upped their equity risk in response to the options of bonds and cash which have looked so unattractive on a long-term view because they offer very low yield,” and that “central banks can’t cure pandemics unfortunately,”.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Commodities and Currencies
Iron ore slumped 2.6% to $US90.19 a tonne after a strong week, and Brent Crude added to a week of losses and declined 8.9% to $US45.53 a barrel. Gold experienced one of the best weeks on record and advanced 1.25 per cent to $US1,691.62 an ounce as markets continued to take up defensive positioning.
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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