The Monday Report – 03 August 2020

Daily Market Reports | Aug 03 2020

By Greg Peel

Wall Street had provided a weak lead, as the US squirmed over increasing unemployment and a lack of any agreement on new stimulus, but realistically at some point Australia’s second wave had to make its presence felt. Thankfully the local market did not attempt to respond on Friday to after-the-bell FAAG results.

In the opening minutes the ASX200 fell through support at 6000 which made Friday’s drubbing technical as much as anything else. From there it was all south. Every sector closed in the red.

In percentage terms, energy was the worst performer in falling -3.1% on ramped-up re-lockdowns. And this is ahead of Melbourne going into stage 4 over the weekend, which all but takes vehicles off the road. Local driving and LNG exporting do not have any great correlation, but it’s a global phenomenon.

In market cap terms, a -2.8% fall for financials had the biggest impact. Bad loan fears are growing for the banks, and AMP ((AMP)) issued a profit warning which saw it fall -12.8% to be the worst performing index stock on the day.

Also issuing a profit “warning” was Super Retail ((SUL)), but this was a goodun’, sending the stock up 9.5% to be the best performer. Throw in stay-at-home beneficiary Harvey Norman ((HVN)), up 3.5%, and consumer discretionary became the surprise best performing sector in falling only -0.6% when staples fell a full -2.1%.

Industrials (-1.9%) and materials (-2.4%) rounded out the bigger falls, with lockdowns impacting the former and profit-taking in gold a feature for the latter. All other sectors roughly fell -1.5%. Not a lot of discrimination.

The virus provided the weight, the break of 6000 provided the release.

Friday night on Wall Street saw the Dow down over -300 at one point but a late rally swung the market around. The S&P closed up 0.8% which, after our performance on Friday, might have suggested a bit of a snap-back for the ASX200 this morning, yet on Saturday morning the futures closed down one point.

The Melbourne stage 4 lockdowns had yet to be announced.

If there is any silver lining it is that Friday re-set many stock prices to levels which may provide some buffer against upcoming earnings results. Never in anyone’s memory have earnings results been such a toss-up. And as we look to FY21, re-lockdowns are only going to make those earnings forecasts a guess as well, and we may once again see companies choosing not to issue any formal guidance due to uncertainty.

The earnings season begins with a whimper this week, picks up pace next week and then becomes an avalanche in the last two weeks of August.

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