Monster Rally Loses Steam – Banking Sector Stocks

Summary

• The banking sector stocks on ASX rallied with significant gains on Thursday, 28 May 2020, and the benchmark index (S&P/ASX200) settled the day’s market session by gaining 1.32%.
• The stocks of big four banks on ASX closed the trading session, tumbling down on 29 May 2020, breaking the rally.
• The heated tension between the US and China over a new resolution passed by the Chinese government impacted the sentiments of international investors.
• Investors await the address of the US President Donald Trump in the press conference scheduled on 29 May 2020 to talk about China.

The Australian Stock market grew by 1.32 per cent on 28 May 2020 with continuous growth in the bank stocks driving the market up and took the market to the highest level of 5851.1 points which is the highest level since 10 March 2020. The big four banks collectively gained through the day, reflecting positive sentiments and growth in the market.

Moreover, there was optimism in the market that the index shall weather the storm and surpass 6000 points mark soon.

On 28 May 2020, National Australia Bank Limited (ASX:NAB) settled at $18.79 after gaining 4.7% intraday, and Westpac Banking Corporation (ASX:WBC) gained 4.4% to reach $18.39. The other two banks, Commonwealth Bank Of Australia (ASX:CBA) and Australia And New Zealand Banking Group Limited (ASX:ANZ) gained 2.2% and 4.5%, respectively. The banks added a significant amount of dollars to their market capitalisation during the day’s trade.

However, the rally in the banking stocks ran out of steam on Friday, 29 May 2020 with big four banks recording a fall in their respective share prices. By the end of the trading session on the same day-

• NAB had dropped by 5.216% and was noted at $17.81
• WBC dropped by 6.362% and was at $17.22
• CBA was noted at $63.75 after a decline of 3.012%
• ANZ fell by 4.536% and settled at $17.89

Further, the benchmark index S&P/ASX 200 settled the day’s market session 0.98% below its previous close at 5,755.7 points. Moreover, the S&P/ASX 200 BANKS (INDUSTRY) also tumbled down by 4.52% and was noted at 1,741.6 points after the big four banks lost huge amount of dollars on ASX on 29 May 2020.

With unending uncertainties in the international, as well as the domestic environment, it is a foregone conclusion that the fluctuations in the market might continue for some time. The prevailing uncertainties due to the COVID-19 and the international geopolitical tensions among nations are putting investors in the eye of the storm.

Moreover, on 28 May 2020, the S&P 500 index maintained above 3000 at 3029.73, and Dow Jones Industrial Average index lost 147.63 points and closed at 25,400.64 on the same day. The wall street closed on a lower note, ending a three-day streak, after the US President Donald Trump’s statement indicated him to be unhappy with China.

The markets across the globe are affected by the worsening relations between the US and China, initially over the COVID-19 and freshly due to the national security legislation curbing freedoms in Hong Kong that was passed by the Chinese government.

The top economic adviser of the US President Donald Trump said that passing the new national security law is a huge mistake that China has made, and the US shall hold China accountable for the same.

Moreover, the US President had initially accused China of spreading disinformation about the COVID-19 pandemic, putting the US-China relations to a fresh low. Moreover, the President lashed out at China’s inefficient way of handling the pandemic and claimed that COVID-19 led massive worldwide killing was seen because of China’s incompetence in responding to the disease outbreak.

In a bold attempt, the President also threatened WHO of entirely stopping the funding from the US to the organization and would reconsider its membership with the WHO. The President, in his letter, also claimed that the WHO had repeated missteps in tackling the COVID-19 pandemic and that had cost hugely to the world.

President Donald Trump had scheduled a press conference to be held on 29 May 2020 to speak on Beijing’s developments in Hong Kong and the effects of COVID-19. It is expected that the President shall make an announcement regarding their course of action against China.

The cold war between China and the US had only taken its initial step by signing the first phase of the trade deal in January 2020, and the two nations were hopeful for the next phase of the agreement to sweeten the deal.

However, the current situation resembles the cold war between China and the US that was seen before the signing of the trade deal in January 2020.

Times are tough, and the uncertainties are all the rage among the investors that is reflected in the stock markets. The international geopolitical environment remains unstable, as more events emerge in the neighbouring countries to China as well as Australia.

By the end of the day’s session, the S&P/ASX 200 index settled at 5,755.7 points, down by 1.02% on 29 May 2020 and the S&P/ASX 200 BANKS (INDUSTRY) closed 4.52% below its previous close. Although the market closed with a decline to end the week, overall, it recorded a fifth consecutive week of gains.

As tensions in the international environment ease, investors are likely to gain confidence. The prevailing clouds of uncertainties might be pulling the investors away from paying top dollar in the market. However, as situation eases, it is likely that the market shall respond positively to the likely favourable developments.

As investors might be eager to learn the announcements made during Donald Trump’s press conference on 29 May 2020, there are hopes for a breakthrough solution that can stabilise the tilting sentiments in the markets across the globe.

(NOTE: Currency is reported in Australian Dollar unless stated otherwise)