Global markets rallied on Friday as volatility continued, with the largest one-day rally in the S&P500 since Oct 2008. Shares in New York rebounded after President Donald Trump unleashed $US50 billion in funds to offset the impact of the coronavirus, principally to spur the nation's ability to test for it.
However, it looks as if this bounce will be short-lived with markets selling off sharply this morning. The US has extended its travel ban to the UK, and coronavius cases continue to grow globally. Closer to home, NZ and Australia have both introduced requirements for all international arrivals to self-isolate for 14-days. Major sporting tournaments have largely been suspended, including Super Rugby over the weekend. Companies reliant on tourism, travel, retail and sport broadcasting are likely first in the firing line.
This morning saw the US Federal Reserve slash its lending rate by 1.25% to 0.25%. In an emergency move, the Fed also launched a new round of quantitative easing. The QE program will entail $700 billion worth of asset purchases entailing Treasurys and mortgage-backed securities. The actions by the Fed appeared to be the largest single day set of moves the bank has ever taken, mirroring in many ways its efforts during the financial crisis that were rolled out over several months. The Reserve Bank of New Zealand has also cut the official cash rate from 1.00% to 0.25%. However, these moves have failed to inspire markets.
What investors likely want to see is a stabilisation of the coronavirus active cases globally – a peak in daily infection rates in the SARS crisis saw markets trough a week later.
Once the shock from coronavirus is over, markets will also likely rise rapidly, with expectations of massive monetary and fiscal stimulus. South Korea’s experience shows infections can be brought under control with a limited economic hit, and large cap corporates in China are now reportedly 95% back to normal operations.
Stock in Focus: US Market (S&P 500 Index)
Australia & New Zealand Market Movers
The Australian market staged a remarkable turnaround on Friday (ASX 200 index +4.4%). But even after Friday's rally through to the close, the week marked one of the biggest retreats for the ASX in its history. All sectors felt pain last week. Travel related companies Flight Centre and Corporate Travel Management both withdraw profit guidance.
The NZ market continued to sell-off on Friday (NZX 50 -4.9%) but was up from session lows as the volatile market recovered some ground as the worsening pandemic triggered a historic global selloff. Tourism Holdings led the local market lower, falling 16% after the company suspended its guidance following the United States blocking travellers from Europe from entering the country. Auckland International Airport fell after it slashed its earnings guidance by as much as 22% on the news of the travel-ban. Aged-care providers, which have been out of favour because their elderly residents are the most vulnerable to the coronavirus outbreak, lost further ground.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of driving investor sentiment.
- Moves from central banks globally in response to coronavirus,
- Data from the US including building permits, housing starts and existing home sales. Closer to home, Australia’s latest employment data is due to be released on Thursday along with the latest net migration data in NZ.
Have a Great Day,