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Global Market Report - 21 April

Lex Hall  |  21 Apr 2020Text size  Decrease  Increase  |  
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Australia

The Australian share market is expected to follow Wall Street lower after US crude oil futures turned negative for the first time amid a coronavirus-induced supply glut.

The SPI 200 futures contract was down 53 points, or 0.99 per cent, at 5311.0 at 8am on Tuesday, pointing to a sharp drop at the open for local stocks.

US crude oil futures collapsed below $US0 on Monday for the first time in history, ending the day at -US$37.63 a barrel as desperate traders paid to get rid of oil.

Brent crude also slumped but was nowhere near as weak as more storage is available worldwide.

The Dow Jones Industrial Average dropped 2.44 per cent to end at 23,650.44 points, while the S&P 500 lost 1.79 per cent to 2,823.16.

The Nasdaq Composite dropped 1.03 per cent to 8,560.73.

Australian stocks started the week with their worst loss in three weeks.

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The S&P/ASX200 benchmark index finished Monday 2.45 per cent, wiping out last week's gains.

The Australian Bureau of Statistics is on Tuesday scheduled to release the latest in its new range of COVID-19 economic data updates: Weekly Payroll Jobs and Wages.

The minutes of the Reserve Bank's April board meeting will also be released at 11.30am and Governor Philip Lowe will address the media in the afternoon.

The Australian dollar is worth 63.34 US cents, down from 63.62 US cents at Monday's close.

Asia

China stocks ended higher on Monday as a key Chinese lending rate was cut for the second time this year to shore up the coronavirus-hit economy.

At the close, the Shanghai Composite index was up 0.5 per cent at 2,852.55.

The blue-chip CSI300 index was up 0.36 per cent, with its financial sector sub-index higher by 0.2 per cent, the consumer staples sector up 0.38 per cent, the real estate index down 0.39 per cent and the healthcare sub-index up 0.7 per cent.

Hong Kong stocks ended lower on Monday, tracking other Asian markets, amid expectations that a busy week of corporate earnings reports and economic data would drive home the damage done by the global coronavirus-led lockdowns.

At the close of trade, the Hang Seng index was down 49.98 points, or 0.21 per cent, at 24,330.02. The Hang Seng China Enterprises index rose 0.09 per cent to 9,824.42.

Japanese shares pulled back on Monday from a near six-week high hit in the previous session, as caution set in before corporate earnings results that are likely to reveal the damage wrought by the novel coronavirus pandemic.

The Nikkei index settled down 1.15 per cent at 19,669.12, led by declines in the consumer discretionary and healthcare sectors.

Europe

European stock markets closed higher after a volatile session on Monday, recovering losses caused by a collapse in oil prices and fears of the worst quarterly earnings season since the global financial crisis.

Healthcare stocks led the charge, marching to over six-week highs after drugmaker Novartis won the go-ahead from the US Food and Drug Administration to conduct a randomised trial of malaria drug hydroxychloroquine against COVID-19.

The pan-European STOXX 600 index closed up 0.7 per cent, after losing as much as 1.2 per cent during the session as oil prices plunged due to oversupply concerns. The energy sector posted its fourth decline in five sessions.

As the first-quarter results season kicks into high gear, analysts expect STOXX 600 firms to post a 22 per cent plunge in earnings as a result of the pandemic, according to IBES data from Refinitiv, after estimates at the start of the year had initially forecast a 10.5 per cent rise.

Ray-Ban maker EssilorLuxottica became the latest company to scrap its dividend and said it could consider cost cuts to shore up cash reserves. Its shares fell 0.8 per cent.

Readings on April manufacturing from across the world are due on Thursday and are expected to hit recession-era lows.

The STOXX 600, which hit an eight-year low in March, has since recovered about 23 per cent due to big fiscal and monetary stimulus packages around the world, but still remains 31 per cent away from its record high as evidence of the economic hit from the pandemic piles up.

The travel and leisure sector, worst hit by the pandemic, has recouped almost half its losses since March lows, but still remains about 40 per cent down for the year.

With coronavirus deaths slowing in some of the worst-hit parts of Europe, some countries have signalled they could relax strict stay-at-home orders to restart supply chains, even as health officials warn of another wave of infections if the lockdowns are lifted too soon.

Hussein Sayed, chief market strategist at FXTM, said a second wave of infections and subsequent lockdown would be a disastrous outcome.

“Instead of confronting a steep recession, we might end up with a long-lasting depression,” he added. “Equity performance cannot diverge for a prolonged period of time from fundamentals, so if we do not see a true economic recovery in the coming months, we expect another leg lower in stock markets.”

Dutch health technology company Philips rose 6.1 per cent after saying sales and profit margins could still rise in 2020 if the pandemic eases in coming months.

Airbus lost 2.1 per cent after Reuters reported it had put six jets made for Malaysia’s AirAsia up for sale.

Investors will closely watch a European Union summit on Thursday for signs of the bloc’s response to the coronavirus crisis following several calls for a unified euro zone bond issuance programme.

North America

Wall Street tumbled on Monday after US crude futures turned negative for the first time ever, with traders forced to pay to unload crude as the May contract expired during a global economic slump unleashed by the coronavirus outbreak.

The S&P energy index tumbled 3.7 per cent after the front-month May US West Texas Intermediate contract CLc1 actually turned negative, with sellers offering $37.63 a barrel to any traders willing to take it.

With billions of people staying home around the world due to the coronavirus, physical demand for crude has dried up.

“What the energy market is telling you is that demand isn’t coming back anytime soon, and there’s a supply glut,” said Kevin Flanagan, head of fixed income strategy at WisdomTree Asset Management in New York.

He said lower oil prices could boost the economy if it encouraged people to buy more fuel, “but that requires people getting out.”

Year to date, the energy index has lost 45 per cent, by far the worst performer among 11 sectors.

Weathering the broad market sell-off, Amazon rose 0.8 per cent and Netflix jumped 3.4 per cent. Those companies have benefited from additional demand as millions of people stay home due to the coronavirus. Netflix reports its quarterly results on Tuesday after the bell.

Helped by a $2 trillion US government package to stimulate the economy, and by bets that the virus was nearing a peak in the United States, the S&P 500 has climbed over 25 per cent from its March low.

The benchmark index remains almost 17 per cent below its February record high, and analysts have warned of a deep economic slump from the halt in business activity and millions of layoffs.

US jobless claims touched 22 million in the four weeks to 11 April, and analysts have forecast as many as 5 million more in the latest week. A reading of an April US manufacturing survey, also due on Thursday, is expected to slide to recession-era levels.

The Dow Jones Industrial Average dropped 2.44 per cent to end at 23,650.44 points, while the S&P 500 lost 1.79 per cent to 2,823.16.

The Nasdaq Composite dropped 1.03 per cent to 8,560.73.

In extended trade, International Business Machines Corp rose 0.5 per cent after it posted quarterly revenue slightly lower than Wall Street expected, but beat profit targets.

is senior editor for Morningstar Australia

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