Markets take the stairs up, and the elevator down

February 14, 2020 - 2 weeks ago
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There’s an old adage that “markets take the stairs up and the elevator down”.

When you look at the recent market activity this week, or more to the point, “a topsy turvy week”, can only imply that the markets have lost their trend in the short-term and instead, we are only witnessing ‘market noise’.

Market noise is simply all of the price data that distorts the picture of the underlying trend.

Small corrections and intraday volatility can lead to uncertainty in the underlying trend.

Traders can get caught by false technical signals and sometimes lose the pattern (or picture) of the prevailing trend.

Viewing this week’s price action, although we have witnessed record highs in global equity markets, (as well in the S&P/ASX 200, yesterday), it is now assessed that a possible new trend is brewing, either in a renewed bull-run or a significant downturn.

Overnight, all three of the major U.S. stock market indices traded mixed after first shrugging off the update jump in the reported Covid-19 coronavirus cases, but once again, prices took a tumble ahead of the closing bell.

The S&P 500 and Nasdaq declined -0.16% and -0.14%, respectively, while the Dow Jones Industrial Average suffered a more painful blow and ended down 128.11 points, or 0.43%.

The number of new confirmed cases of coronavirus disease (COVID-19) in China hit roughly 15,000 within the past 24 hours, a significant increase, according to news reports.

Nearly 60,000 confirmed cases of the coronavirus, with 59,804 in China, most of them in the province of Hubei where it was first detected.

More than 240 deaths were reported on Wednesday alone, the highest number of fatalities on a single day since the virus was first reported in December.

There have also been 1370 deaths, including one each in Hong Kong, the Philippines and Japan.

Of the 15 cases in Australia, six have been cleared, and the remaining nine are all stable.

Chinese scientists are currently testing the effectiveness of two antiviral drugs, though chiefs from the World Health Organization have cautioned that a vaccine could take 18 months to procure.

It is assessed, the Australian share market may start to a mute beginning, after an uncertain night on the direction of the overseas market.

However, the SPI 200 futures rise overnight points to a gain of +4 points at the open for the S&P/ASX 200, after closing at 7,033.

Daily outlook on the benchmark S&P/ASX 200

Looking to yesterday’s, Wall Street stocks finished to substantial gains on Wednesday, which supported the S&P/ASX 200 opening on Thursday’s morning to a firm foothold.

However, by lunchtime, those gains were almost all given back following the release of the jump to the Covid-19 coronavirus numbers.

In a Thursday press conference, China said it confirmed 15,152 new cases and 254 additional deaths.

Those figures include the ones reported earlier by Hubei province under its new diagnosis methodology.

That brings the country’s total death toll to 1,367 as the number of people infected hit 59,804, according to the government.

Losses from some consumer-facing stocks, building products makers, Cochlear (COH) and property groups weighed most heavily on the ASX.

The benchmark S&P/ASX 200 index rallied to a fresh all-time high of 7,145.80, just above 7,144.89, previously posted in January, before tumbling to a finish on Thursday just up +15 points, or +0.21%, to 7,103.2, lifting for a third day, in what was a choppy day session for the local share market, while the broader all ordinaries index closed up +19.3 points, or +0.27%, at 7,204.6.

Consumer staples, telecom stocks and mining shares were lower while all other sectors were managing to hold or add slight gains, led by utilities, collectively up +1.6% after AGL Energy beat expectations.

Australia’s largest energy producer rose +3.6% to $20.22 after reporting a half-year profit of $432 million, down from a year ago but up than what analysts had forecast.

Breville Group was the main shiner on the ASX after surging a whopping +27.63% advance to an all-time high of $25.50 after the small home appliance company reported an impressive +14.1% spike in first-half net profit.

Meanwhile, Warehouse owner and operator Goodman Group advanced +5.8% to an 11-year high of $16.30 after its operating profit climbed +14% to $530.4 million on strong demand from e-commerce platforms and data centre users.

TPG and Vodafone Australia co-co-owner Hutchison Telecommunications both shined after rally after the Federal Court cleared the way for their $15 billion mergers, which the Australian Competition and Consumer Commission had opposed.

TPG gained +11.5% to a two-year high of $8.15 while Hutchison soared +17.9% to a nine-month high of $0.165.

Meanwhile, Telstra slipped -1.6% to $3.76 after its first-half profit plummeted -7.6% to $1.14 billion, in line with market expectations.

Health care stocks, biotechnology manufacturer CSL gained +0.83% to $330.99, closing over $330 for the first time as the blood products giant’s strong run continued, while Ramsay lost -0.61% to $79.42, with Sonic losing -0.66% to $31.51, and Fisher & Paykel Healthcare slipped -1.18% to $23.39, and Cochlear weighed on the ASX after falling -2% to $228.21.

NAB gained +1.4% to $26.49 after Australia’s third-largest lender narrowly beat first-quarter profit expectations with cash earnings of $1.65 billion.

Meanwhile, the other “Fab Four” (three) (banks)) were up as also, with the Commonwealth adding +0.6% to $88.73, while Westpac rose +0.6% to $25.41 and ANZ managed to rise +0.3% to $26.43.

Embattled financial services business AMP fell -0.55% to $1.81 after posting a $2.5 billion full-year loss. The losses were mostly attributed to some one-off costs as the business restructures itself in the light of scathing Hayne Royal Commission reports.

Intellectual property services law group IPH rose +4.7% to an all-time closing high of $9.95 after announcing first-half profit surged +12% to $27.2 million.

Elsewhere, Synlait nosedived -18.7% to $6.54 after the milk processor warned that significantly lower-than-expected infant powder sales caused by Chinese market consolidation would sap its first-half net profit.

Treasury Wine Estates (TWE) plunged -6.16% to $11.13 following its pre-released profit results together with concerns of less demand in China due to the coronavirus. TWE – which owns many of Australia’s best-known wine brands including Penfolds – recorded just a +1.9% lift in net profit to $229.2m for the six months to December.

The result was predominantly held back by its American operations, which have been impacted by competitors flooding the market with the product at low prices.

Meanwhile, the materials sector declined slightly by the end of the day, despite Titans BHP gained +0.4% to $38.54, while Rio Tinto gained +0.5% to $98.01 and South32 rose +1.6% to $2.59, while those gains were offset by Fortescue Metal, down -0.63% to $11.04.

Woodside reported over $500 million in profits over 2019, causing a morning surge in its share price. However, those gains were pared back and ended in the red at $33.74, down by a -0.35% decline.

Nevertheless, Santos gained +1.23% to $8.23, while Origin climbed +2.21% to $7.86, and Oil Search rose +0.63% to $6.42.

The Reserve Bank Governor Philip Low participated in a panel discussion yesterday morning and said, “it is quite likely that we are going to be in this world of low-interest rates for years, if not decades because it is driven by structural factors.”

For now, he added that RBA is not “obsessed” with getting inflation back to 2-3% target in a hurry.

RBA Governor Lowe also urged more from the government to help the economy. “We have not had any fiscal stimulus in Australia,” he said.

“I would like to see both business and government use the opportunity to make investments.

The Australian governments and business can borrow at the lowest rates since Australia became a federation.”

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