The Monday Report (On Tuesday) – 28 January 2020

Daily Market Reports | Jan 28 2020

By Greg Peel

Friday

Aloha!

Not a great summer break for some, but life goes on. Back on board now for 2020 to acknowledge the best January run to date for the ASX200, breaking 7000 for the first time.

As is typically the case with such psychological milestones, volatility became heightened last week as the momentum and FOMO traders met those deciding a round number is a good place to sell. The index was up over 60 points on Wednesday for reasons unclear, down over -40 points on Thursday after two big construction companies were trashed, and up over 30 points on Friday at lunchtime.

Those 30 points had evaporated by the close, ahead of a long weekend locally and the beginning of the week-long Chinese holiday.

While the Australian market seemed uncertain how to react to the building coronavirus issue on Friday, the situation clearly escalated over the long weekend. In short, the SPI futures fell -32 points on Friday night and another -89 last night to suggest an opening for the ASX200 of -121 this morning.

More Chinese cities have been put in lock-down as the death toll mounts. Mind you, there is no lock-down on leaving Wuhan by car. Buses have been banned from entering Shanghai. WHO is yet to declare a global emergency, but one feels that can’t be far off. Markets are not waiting around.

The comparisons are being made with the SARS epidemic in 2002-03. While coronavirus and SARS may have similarities, the glaring difference is that in 2003, China was still a backwater populated mostly by subsistence peasants, with rapid industrialisation and urbanisation just beginning. Despite GDP growth of 11% in 2002 and 9% in 2003, China was still a way off from being the world’s greatest consumer of everything, and that includes international tourism.

Wall Street began to price in the potential implications of coronavirus last week, while in Australia the market is indicating a mixed impact. Healthcare stocks, and CSL ((CSL)) in particular, are understandably popular, while mining stocks are not. Healthcare rose 0.7% on Friday and materials fell -0.9% as investors assume a hit on the Chinese economy.

Energy (flat) hung in there on Friday, but as oil prices fall further that will not be the case today.

The banks helped financials up 0.3% despite Insurance Australia Group ((IAG)) posting the worst individual index stock performance on the day (-5.4%) after downgrading guidance due to the recent hail storm. 

Meanwhile, last week’s villains Downer EDI ((DOW)) and Cimic Group ((CIM)) bounced 6.0% and 3.0% respectively after analyst calls of “oversold”.

With Australia Day now behind us we can officially declare the local market “back to work” this week. Cleary the coronavirus will remain the point of focus in the short term.

This week also brings the first trickle of earnings reports ahead of the season proper ramping up next month. So all is soon to be revealed.


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