ASX futures point to a recovery, but reality bites in the US
After plummeting more than 1800 points on Thursday and dragging global indices with it, the Dow recovered on Friday, increasing 477 points or 1.9% to close at 25,605 points.
Relative to the previous day’s loss, the recovery was fairly nominal and there wasn’t any material information behind it.
In short, the sell-off was a reality check and the bounce was simply a ‘surely this can’t be happening response’.
But it is happening and it will continue to occur as investors are faced with the fallout of post-coronavirus economic woes, business failures, erosion in profits, sustained unemployment and near to medium-term headwinds in terms of restoring equilibrium.
Add this to mounting geopolitical tensions that have the potential to exert further economic stress, along with uncertainty surrounding the November US presidential election and you have a perfect storm.
Australia appears to have fared better on all fronts, but our markets don’t operate in a vacuum, and we also have our own geopolitical issues, particularly in the area of trade relations.
The S&P/ASX 200 (XJO) plunged 113 points or 1.9% on Friday in response to Thursday’s rout in the US.
We are yet to see how our market will react after Friday’s rebound in the US, but at this stage the ASX SPI200 Futures index is up 24 points to 5834 points.
Our market could receive further support from the federal government’s large multifaceted infrastructure development program due to be released today.
The likes of construction and engineering groups, as well as materials suppliers, recently received a boost when details were announced regarding support for the residential building sector.
The infrastructure plans outlined by the government today are likely to have a similar impact.
Other markets in the Asia-Pacific region also suffered the Wall Street blues, albeit recovering some ground towards the end of week.
The Nikkei 225 finished the week down approximately 1800 points, closing at 22,305 points.
The Hang Seng both fell 0.75%, closing at 24,301 points.
The Shanghai Composite was relatively stable, down one point to 2919 points.
The FTSE 100 gained 0.5% on Friday to close at 6105 points, down roughly 400 points on the week.
With sharp falls in the latter part of the week, the German DAX finished at 11,949 points after hitting a high of around 12,900 points earlier in the week.
The mood was similar in France, and after the CAC 40 broke through the 5200 barrier earlier in the week, crashing to 4800 points was a disappointment.
Looking outside the Dow, the S&P 500 (+1.3%) and the NASDAQ (+1%) also fared well in the US.
After breaking through the 10,000 point barrier earlier in the week, the NASDAQ finished 500 points lower, closing at 9588 points.
However, it is worth noting that this is only 200 points shy of its record pre-coronavirus level.
The CBOE Volatility Index (VIX) finished the week at 36 points after breaking through the 40 point mark for the first time since April.
Not surprisingly, gold was a winner during this period of volatility as it surged from less than US$1700 per ounce to break through US$1750 per ounce before settling at US$1737.
In what was shaping up as a good week for oil, it plunged on Thursday before recovering some ground on Friday to finish at US$39 per barrel, a fall of about 10% since Monday.
Base metals fell in line with global equities markets on Thursday, but most regathered some back on Friday.
Copper continues to maintain its momentum, having increased from about US$2.28 per pound in April to push through the US$2.60 per pound mark.
Iron ore continues to hold in the vicinity of US$105 per tonne.
As US markets unravelled during the week, the Australian dollar pushed up above US$0.70, but it retraced towards the end of the week, and is now sitting just above US$0.68.
The week ahead
It could well be local macroeconomic data rather than gyrations in overseas markets that have the most impact this week.
Today’s release of visitor arrivals for April will provide some insight into the impact coronavirus has had on our tourism industry.
Tuesday will see the release of house price data, as well as wages and payroll numbers with the latter arguably being of more significance in terms of gauging the status of the broader economy.
Minutes from the RBA meeting will be released on Tuesday, perhaps providing a lead on upcoming monetary policy.
On Tuesday and Wednesday we will get an insight into US consumer behaviour during May with the release of retail sales figures and housing starts. May industrial production data will also be closely followed as it can be a useful lead indicator of economic growth and employment.
Changes in the Australian employment landscape will also become evident on Thursday when employment and unemployment data are released.