It has only been a month into the year 2020, and the risks and uncertainties in the market have only mounted. Investors across the globe have been in the middle of ambiguity due to the various unprecedented consecutive events taking place in the domestic as well as the international business environment.
Not only the downs, but there have been several ups in the domestic environment that have driven the performance of the stock markets.
Coronavirus Takes Driver’s Seat
Firstly, the prevailing coronavirus has taken the driver’s seat for the Shanghai Stock Exchange as well as the other stock markets. Declared as “a global health emergency” by WHO, the coronavirus is said to have a significant impact on the Chinese economy.
The disease has caused negative sentiment flow among the investors, thus pulling off money from the market and plunging the market. On the first day of trade in China since the Lunar New Year, negative sentiments among the investors rode higher than the market as the benchmark Shanghai Composite index tumbled 8.3% as of 2:49 PM CST on 03 February 2020. However, on 4 February 2020, the same index was trading 0.81 percent up (at 10:28 am CST).
The investors returned to trade after an extended holiday amid escalating fears over coronavirus outbreak and negative territory influenced Asian stock markets.
Being sensitive to the Chinese market volatility; the Hong Kong stock market had finished lower in three straight sessions on 02 February 2020, as the risks from the coronavirus only dampen.
The rising number of deaths due to coronavirus and the mounting number of cases being reported globally, Hong Kong has closed most of its border crossings with mainland China on Monday.
As the global forecast showed broadly negative concerns over the coronavirus, the European and US markets were steeply lower on Friday, and the Asian markets figure opened low in a similar fashion on Monday.
With business in China still shuttered, and travel bans still remaining in place, the Japanese stock market was sharply lower while the safe-haven yen strengthened on 03 February 2020.
The benchmark Nikkei 225 Index had already lost 370.65 points (1.60 per cent) to 22,834.53, after falling to a low of 22,775.92 in early trades on 03 February 2020.
With several cities in complete lockdown and transport at a halt, there have been rising concerns about lower Chinese resources demand that could hit the international trade and stock markets.
ASX Amidst the Uncertainties
On 03 February 2020, the benchmark index of Australia S&P/ASX200 closed at 6923.3, sharply down by 93.9 points (1.34 per cent) with the energy and resources sectors among the worst hit. However, on 4 February 2020, the benchmark index was trading at 6955.9 points, up by 0.5 percent (at AEDT 1:37 PM).
The major impact of the falling index on 3 February 2020 was seen to drive down the local energy stocks lower, which might be due to the slowdown in trade with China.
With IDP Education amongst one of the top declines for the day, Investors withdrew from companies whose business is directly engaged with the Chinese market.
The ASX at the beginning of the year 2020 reflected strong sentiments in the market and climbed new high of 7132.727 on 22 January 2020. Prior to this, the market had been on a steady rise defying all the factors that were believed to, potentially, put negative influences on the market.
Initially, the market disregarded the international trade, and geopolitical concerns line the US-China trade war and the US-Iran tensions. The US-Iran scenario took the turn to cool down only after the two countries had bombed each other.
Moreover, the tussle between US and China settled after a phase one trade deal between the two countries. Although, Australia is said to show signs of impact from the US-China trade deal as there are predictions in the market for declining Australia-China trade.
Have the aftereffects of the Bushfire cooled down?
The recent bushfires in Australia burned over 8 million hectares of land and temperatures have been soaring over 40 degree Celsius and took its dire economic toll as well.
The bushfires amplified the already crippled consumer confidence in the country and also negated the growth in tourism, farming, consumer staples and retailers were expected to be the severest sufferers.
Soon after the Bushfire took charge in the Australian continent, the Westpac-Melbourne Institute Index of Consumer Sentiment plunged 1.8% to 93.4 in January from 95.1 in December, primarily eroded by the bushfires and is seen to be consistent with the general lacklustre reports on consumer spending.
On the other hand, the employment data gave hope to the dipping consumer sentiments with Australia's trend unemployment rate decreased to 5.1% in December 2019. Moreover, trend monthly employment increased by around 18,000 people in December 2019.
The trend unemployment rate had decreased its lowest level since April 2019 in December 2019, and the trend employment increased by around 261,000 people which is 2.1 per cent.
Moreover, there had been stronger growth in part-time employment over the past year, and the trend monthly underemployment rate remained steady at 8.3 per cent in December 2019.
RBA Monetary Policy Board Meeting
The Reserve Bank of Australia monetary policy board meeting is scheduled to be held today i.e. 04 February 2020. From months of amplifying uncertainties, global as well as regional economists have been expecting RBA to make a cash rate cut in the meeting.
Viewing the fall in the Westpac-Melbourne Institute Index of Consumer Sentiment and the lows of the Global Financial Crisis, the Westpac expected that the Reserve Bank Board would decide to cut the cash rate by 0.25% to 0.5%.
However, with recent inflation, housing prices and employment data which reflects the numbers to be in line with the anticipations, some of the economists now favour the opposite view of holding the cut in the rate by the central bank for a longer period of time.
Coronavirus is the most recent risk in the market that is impacting the international stock markets. At present, the risks arising from the highly contagious coronavirus remain in place, while the Chinese government is fully confident and capable of winning the battle against the outbreak of the novel coronavirus. In the Australian context, the numbers indicating favourable growth in the economy can trigger a further recovery in the market as well as the economy.
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There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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