Futures up 1.7% as overseas markets rally, but will COVID derail recovery?

As concerns deepened on Friday regarding the spread of coronavirus, the S&P/ASX 200 index (XJO) shed 36 points or 0.6% to close the week at 5919 points.

With COVID being the key concern, once again it was travel stocks that took a hit with Flight Centre (-2.5%), Webjet (-4.4%) and Corporate Travel Management (-7%) getting caught up in the sell-off.

As has been the case for most of the week, companies in the gold sector thrived as the precious metal maintained its gains, finishing the week just above US$1800 per ounce.

While our market finished down more than 2% for the week, it could be set for a more positive start on Monday given strong leads from overseas.

The ASX SPI200 futures index reflects this trend, up 95 points to 5971 points.

24 hours

Markets in a similar time zone to Australia also finished in the red on Friday.

While on one hand you could say that the 2% fall in the Shanghai Composite to 3383 points on Friday was much more significant than the decline in the Australian market, putting this in context, the index still finished up 7% on a week-on-week basis following four days of extremely strong gains.

It is now up 400 points or 13.5% since the end of fiscal 2020.

It has taken the much lauded highflying NASDAQ about two months to achieve a similar gain.

Getting back to Asia though, the Nikkei 225 fell 1% to close at 22,290 points.

The Hang Seng shed 482 points or 1.8%, closing at 25,727 points.

As Europe came under the microscope, the mood turned, and the FTSE 100 led the way, gaining 0.8% or 45 points to close at 6095 points.

Mainland Europe was even stronger with the DAX up 1.2% or 144 points to close at 12,633 points.

The CAC 40 went close to matching that, up 1% to 4970 points.

In the US, the Dow finished the week strongly as it gained 1.4% or 369 points to close at 26,075 points.

The S&P 500 rallied 1% to close at 3185 points.

For a change, the NASDAQ played second fiddle to the other indices only gaining 0.7% or 69 points as it closed at 10,617 points.

On the commodities front, gold trended lower for most of the day, at one stage falling below the US$1800 per ounce mark, but a late rally saw it close just above that level.

Oil finished the week strongly with the Brent Crude Oil Continuous Contract closing at US$43.24 per barrel, close to the high it hit on Monday.

There was plenty of action in base metals with copper continuing its strong run as it notched up its fifth consecutive day of gains and finished the week at US$2.90 per pound, up from US$2.71 per pound at the end of the previous week.

The red metal is now closing in on early-2019 highs.

Zinc also performed well finishing close to US$0.98 per pound, a level it hasn’t traded at since February.

As is often the case lead followed suit, and it also has strung together five consecutive days of gains closing just shy of US$0.84 per pound, a four-month high.

Nickel gained approximately 2%, placing it close to a six-month high of US$6.10 per pound.

The Australian dollar continues to trade in a tight range, finishing around the midpoint between US$0.69 and US$0.70.

The week ahead

Looking at macroeconomic news this week, Australian wages data to be released on Tuesday, as well as employment data which will surface on Thursday will shed further light on the employment situation.

Combined with consumer confidence figures to be released on Wednesday, the retail sector will be front and centre with the potential for significant downside one would expect.

Dwelling commencements will be released on Wednesday, providing an insight into the all-important building sector.

In the US, most of the attention is likely to be on the Fed Beige Book, a broad summary of economic conditions and a fairly accurate barometer of strategies likely to be employed in terms of fiscal and monetary policy.

Importantly, it is the forerunner to the Federal Open Market Committee (FOMC) meeting which deals specifically with monetary policy, including changes in interest rates and from a broader perspective the committee holds the reins in terms of tightening or loosening money supply.