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Global Market Report - 6 July

Lex Hall  |  06 Jul 2020Text size  Decrease  Increase  |  
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Australia

Shares on the Australian market are tipped to fall early after global markets closed weaker last week on concerns about continuing growth in COVID-19 cases in the US.

The Australian SPI 200 futures contract was lower by 35.0 points, or 0.58 per cent, to 5,999.0 points at 8am Sydney time on Monday.

ASX investors are taking the lead of mixed results from European markets, with Wall Street closed on Friday on account of the US Independence Day.

The STOXX Europe 600 was down 0.8 per cent and the UK FTSE ended 1.3 per cent lower.

Investors have become less optimistic about further gains as the US has continued to report more than 50,000 COVID-19 cases daily for the past several days.

There are also doubts about the pace of the recovery with some countries in Europe reimposing restrictions due to a resurgence in COVID-19 cases.

Local investors are also likely to be concerned about the situation in Australia too. Nine housing commission blocks in Melbourne remain in lockdown amid rising infection numbers in Victoria.

Among key events this week, the Reserve Bank Board will meet tomorrow to set the cash rate and consider any further response to the economic crisis from the coronavirus.

The Australian dollar was buying 69.30 US cents at 8am, lower from 69.36 US cents at the close of trade on Friday.

Asia

China stocks rose for a fourth straight session on Friday, with the blue-chip index scaling a five-year high on hopes of recovery in the world’s second largest economy as Beijing rolled out more stimulus.

The Shanghai Composite index closed up 2.01 per cent at 3,152.81, while the blue-chip CSI300 index climbed 1.93 per cent to 4,419.60 points, its highest since 1 July 2015.

Hong Kong stocks ended higher on Friday to post their best weekly gain in one month, as investors reckoned that Beijing’s new security law will benefit local markets and lead to more listings by Chinese companies.

At the close of trade, the Hang Seng index was up 248.93 points or 0.99 per cent at 25,373.12. The Hang Seng China Enterprises index rose 1.85 per cent to 10,243.29.

Around the region, MSCI’s Asia ex-Japan stock index rose 1.11 per cent while Japan’s Nikkei index closed up 0.72 per cent.

Europe

European stocks fell on Friday after gaining ground during the week as a surge in US coronavirus cases made investors less optimistic about prospects for a rebound in the global economy.

After opening largely flat, the pan-European STOXX 600 index lost ground as the session wore on, with personal & household goods makers, miners, automakers and banks leading declines.

The benchmark index closed down 0.8 per cent, with trading volumes thin because of a US market holiday. The index logged a 2 per cent weekly gain.

Hopes of a COVID-19 vaccine and signs of the global economy recovering from the health crisis supported markets last week, but investors have become less optimistic about further gains as the US set a new daily global record for COVID-19 cases on Thursday.

A private survey showed that China’s services sector expanded at the fastest pace in over a decade in June as the easing of lockdown measures revived consumer demand, though companies continued to shed jobs.

A final reading of euro zone business activity showed a coronavirus-inflicted plunge eased sharply last month as more businesses reopened and people ventured out.

But there are doubts about the pace of the recovery with some countries in Europe reimposing restrictions due to a surge in COVID-19 cases.

In France, President Emmanuel Macron named Jean Castex, a top civil servant and local mayor who orchestrated the country's coronavirus lockdown exit strategy, as his new prime minister as he acted to win back voters. France's CAC 40 ended down 0.8 per cent, in-line with the broader markets.

Among individual movers, Germany’s Delivery Hero rose 4.7 per cent after the takeaway food company said its order growth nearly doubled in the second quarter.

France’s utility firm EDF jumped 5.6 per cent after it revised upwards its 2020 nuclear output target.

UK retailer Next fell 4.6 per cent after Goldman Sachs downgraded the stock to “sell”, while Primark-owner AB Foods slipped 0.9 per cent after the US bank downgraded its stock to “neutral”.

North America

S&P 500 companies are likely to see an aggregate 2 per cent decline in 2020 dividend payments, compared with analyst projections earlier this year of around 10 per cent, according to S&P Dow Jones. 

That's good news for income-seeking investors at a time when a series of rapid interest rate cuts by the Federal Reserve has taken US Treasury yields to near zero, sending market participants further afield in search of steady payouts. 

"We saw a devastating amount of dividend cuts, but the second half of the year does look a bit better," S&P Dow Jones analyst Howard Silverblatt said.

US financial markets are closed on Friday for the 4 July holiday. On Monday, data firm IHS Markit reports its surveys of US business activity, while Walgreens Boots Alliance Inc reports quarterly results on Thursday and US initial jobless claims are also due out that day.

S&P 500 companies slashed or suspended over $40 billion in dividends in the second quarter, the deepest quarterly drop since 2009, according to S&P Dow Jones.

The cuts tapered off in the latter part of the quarter as the US economy began to rebound, fuelled by Fed stimulus and easing lockdowns across the nation. 

"The hope is that we have turned a corner, but that is going to depend on the reopening of the economy," Silverblatt said.

The fall in Treasury yields to historic lows has raised the allure of stock dividends, which are generally paid four times a year. The gap between the S&P 500 dividend yield and the 10-year Treasury yield in March hit a high not seen since at least the 1970s, according to Datastream data, which does not go back further.

Currently, the S&P 500's dividend is nearly 2 per cent, compared with the benchmark 10-year US Treasury's 0.67 per cent yield.

Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, Oklahoma, has been buying shares of dividend-paying companies that have also been outperforming in the epidemic, including Johnson & Johnson, Campbell Soup, General Mills, and retailers Costco Wholesale Corp  and Walmart.

Johnson & Johnson, which is among companies rushing to develop a coronavirus vaccine, raised its dividend in April.

In June, Kroger and Target, which have been seeing more business with people staying at home, upped their dividends.

“I have plenty of older clients who only want dividend stocks," Dollarhide said. "There are plenty of COVID-19 dividend plays," he added.

With California, Texas and many other states reporting record increases in new cases of COVID-19, the pandemic's trajectory remains the main source of uncertainty of whether more companies will suspend or cut their dividends.

Over 40 per cent of the US has now reversed or placed reopenings on hold, analysts at Goldman Sachs said in a recent note.

is content editor for Morningstar Australia

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