7-week wonder for ASX 200 but COVID-19 concerns on the rise

Summary

  • Australian benchmark equity index ASX 200 has posted gains for the seventh week in a row.
  • The ASX representative index closed Friday’s session at 6675.50, down 1.20 per cent from the previous day’s close and up 0.50 per cent in the last five days.
  • The A-VIX, measure of the stock market's expectation of volatility, gained 17.08 per cent in the last five days and 9.67 per cent from the previous day close to close at 15.29 on Friday.
  • The rising number of coronavirus cases on Sydney’s northern beaches dented investors’ confidence as other states and territories implemented restrictions for travellers.

The Australian benchmark equity index ASX 200 closed Friday’s (18 December 2020) session at 6675.50, down 81.20 points, or 1.20 per cent as against the last closing on Thursday, 17 December 2020.

The top laggards in the index included Mesoblast Ltd (ASX:MSB) and the A2 Milk Company Ltd (ASX:A2M), down 36.07 per cent and 23.64 per cent, respectively.

 

During the last five days, ASX closed with a gain of 0.50 per cent. However, the index has remained virtually unchanged in the last one year to date. It’s the seventh week in a row that the index has posted gains. However, the rising number of coronavirus cases reported this week on Sydney’s northern beaches, dented investors’ confidence as other states and territories implemented restrictions for travellers.

Image Source: Shutterstock

Volatility

The A-VIX, measure of the stock market's expectation of volatility, closed up sharply on Friday, gaining 9.67 per cent to 15.29 from the previous day close. The index has gained 17.08 per cent in the last five days and 22.57 per cent on year to date.

Source: ASX website, 19 December 2020

Sectoral Glance

  • On the last day of the week, the large-cap indices ASX 20, ASX 50 and ASX 100, all closed in red with a 0.67 per cent, 1.25 per cent and 1.19 per cent fall, respectively.
  • Two of the eleven sectors ended in the green on Friday. ASX 200 Materials (ASX:XMJ) and ASX 200 Utilities (ASX:XEJ) were among the gainers, with 0.01 per cent and 0.40 per cent gain, respectively.
  • The sectors that closed in red included ASX 200 Information Technology (ASX:XIJ), ASX 200 Industrials (ASX:XNJ) and ASX 200 Health Care (ASX:XHJ), with 2.91 per cent, 1.45 per cent and 0.23 per cent fall, respectively.

READ MORE: Weekly Market Wrap: ASX 200 Charged Up; Economy on the Road to Recovery

Market movers on Friday

Three stocks that gained the most on Friday were:

  • Whitehaven Coal Ltd (ASX:WHC) was the top gainer and ended Friday’s session at A$1.645, up 5.78 per cent.
  • Megaport Ltd (ASX:MP1) was second in the list, ending at A$14.99, up 5.11 per cent.
  • Nufarm Ltd (ASX:NUF) closed on Friday at A$4.34, up 4.83 per cent.

Three stocks that lost the most on Friday were: 

  • Mesoblast Ltd (ASX:MSB) was the top loser, ending at A$2.41, down 36.07 per cent.
  • The A2 Milk Company Ltd (ASX:A2M) was next in the list and ended at A$10.14, down 23.64 per cent.
  • QBE Insurance Group Ltd (ASX:QBE) closed at A$8.81, down 12.46 per cent.

Iron ore rally

Iron ore prices are on fire amid rising demand from the Chinese mills and muted supply from Brazil. The primary reasons behind the surge are lower production by Vale, Brazil’s leading iron ore producer and increased investment by China in the infrastructure sector to boost the domestic economy.

According to the September 2020 edition of the Resources and Energy Quarterly, the price of iron ore is expected to remain at nearly US$100 per tonne during Q4 2020.

Source: @Kalkine Group Image 2020

In 2020, the iron ore exports from Australia have already surpassed the A$100 billion mark, ensuring that surging prices of iron may help it to compensate for the import ban of thermal coal, barley, among other items by China.

The stock of Fortescue Metals Group (ASX:FMG) closed at A$22.9, up 0.50, or 2.23 per cent on Friday as compared to the last close on Thursday. Similarly, Rio Tinto Limited (ASX:RIO) share price ended up  0.94 per cent at A$117.53 as against the previous close on Thursday.

READ MORE: Ahead of an IPO, Robinhood agrees to pay US$65 million to settle SEC charges

Travel stocks under stress

After new coronavirus cases were reported from Northern Beaches, various nearby states and territories have imposed fresh border restrictions ahead of Christmas, leaving travel stocks under stress. Victoria, Queensland, WA, Tasmania, and Northern Territory have put in place border restrictions. Some of the major stocks to have tumbled post announcement include Flight Centre Travel Group Limited (ASX:FLT) (-2.70 per cent),  Sydney Airport (ASX:SYD) (-2.88 per cent), among others.

APRA update’s impact on banking stocks

Earlier this week on 15 December 2020, the Australian Prudential Regulation Authority (APRA) lifted the dividend cap on banks and announced that they were no longer needed to hold a minimum level of earnings retention. Even as bank shares reacted positively on the day of announcement, but they settled lower on Friday.

The stock of Australia & New Zealand Banking Group Ltd (ASX:ANZ) ended down 1.44 per cent on Friday after rising in the previous two sessions. Similarly, National Australia Bank Ltd (ASX:NAB) settled 2.01 per cent lower on Friday.

Economic scenario remains upbeat

Investor sentiments have remained high through the week, thanks to an improved fiscal outlook, better than expected unemployment data and hopes of a US stimulus package. According to the mid-year economic and fiscal outlook (MYEFO), the gross domestic product (GDP) is expected to grow 0.75 per cent, as against the earlier estimated fall of 1.5 per cent. Similarly, forecasts by MYEFO say that the official unemployment rate will stand at 7.25 per cent at the end of this fiscal, same as the budget forecast.

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