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With not even a month passed of the new year, the S&P/ASX 200 index has surprised investors with its performance over the last few days, particularly this week. From observing a record high level of 7,133 points to experiencing the worst day of 2020 at 7088 points, the index has seen it all.
The index started the week on a positive note, closing it flat with a mild gain of 2.5 points on Friday (24th January 2020), ending at 7090.5 points. Among all the industry sectors, health care sector reported a considerable gain of 0.7 per cent or 315.9 points, closing at 45,193.7 points.
Let’s take a look at this week’s performance of the S&P/ASX 200 index in the below table:
It is imperative to note that the index continued to surge over 7000 points this week, continuing its solid run since the start of 2020. Moreover, it recorded its highest level on 22nd January 2020, delivering an outstanding performance amidst rising concerns over the coronavirus, geopolitical tensions and deadly bushfires.
Factors That Drove the ASX Performance This Week
The significant highs and lows in the index performance were driven by multiple factors, such as the solid performance of blue chip stocks, reduction in the probability of the February rate cut, optimistic jobs data and profit downgrades.
Blue chip stocks supported the ASX market to observe record high level on Wednesday, with ASX-listed PolyNovo Limited (PNV) witnessing a maximum rise of 11 per cent on the back of attaining its first sales in Europe. Many big players, including Woolworths Group Limited (ASX:WOW), Coles Group Limited (ASX:COL), Rio Tinto Limited (ASX:RIO) and Macquarie Group Limited (ASX:MQG) backed the gains.
Optimistic jobs data announced by the ABS, which demonstrated an unexpected fall in the unemployment rate to 5.1 per cent, significantly reduced the chances of the February rate cut by the RBA, thereby driving the ASX market down on Thursday. The index snapped the record breaking run, closing in red territory.
It is worth noting that though several companies announced their profit downgrades on Monday this week, including nib Group (ASX:NHF), Gentrack Group Limited (ASX:GTK) and Super Retail Group Limited (ASX: SUL); the ASX managed to close the trading session higher on Monday, with a moderate rise of 0.2 per cent.
- nib downgraded its FY20 Group Underlying Operating Profit (UOP) from at least $200 million to at least $170 million, due to a rise in health care insurance claims expense across its many underwriting business lines.
- Gentrack decreased its FY20 forecast revenue significantly due to tough conditions in its utility markets, now expecting its full year FY20 EBITDA to be in the range of NZ$8 million to NZ$12 million.
- Recognising the adverse effect of bushfires and sustained drought conditions, Super Retail Group projected its provisional first half revenue at $1.44 billion and EBIT between $113 and $115 million, against its 1H FY19 EBIT of $124.5 million.
In addition to these companies, insurance major, Insurance Australia Group Limited (ASX:IAG) also downgraded its insurance margin for FY20 from its previous guidance of 16-18 per cent to 14.5-16.5 per cent in the wake of the recent hailstorm event.
What are Investors Eyeing for the Coming Weeks?
With the close of one of the most volatile weeks on the ASX, numerous developments can gauge investors’ attention in the coming weeks, particularly inflation data which is expected to be released shortly.
The annualised core inflation data is likely to be in investors’ spotlight as it may provide an apparent outlook of the RBA’s interest rate decision. To recall, the recently declared unemployment data for December 2019 led to more than 30 per cent drop in chances of a rate cut in February this year.
Experts at Westpac Banking Corporation (WBC) and National Australia Bank Limited (NAB) are now anticipating a rise in annualised core inflation from 1.7 per cent in September 2019 to 1.8 per cent in December 2019. Moreover, Westpac and NAB have forecasted a 0.6 per cent and 0.7 per cent lift in quarter-on-quarter headline consumer price index (CPI).
The forecasts were supported by the recent stronger-than-expected New Zealand’s inflation data, which showed a rise of 0.5 per cent in the consumers price index in December 219 quarter. As per the NAB economist, the NZ data suggest that household goods and international travel prices in Australia can be slightly stronger than their initial forecast.
Moreover, the experts are concerned that the record market highs observed by the ASX in the last few days might get interrupted with the uninspiring February earnings season. The growth expectations of earnings per share for the Australian companies have significantly diminished from 6.1 per cent to ~ 2.2 per cent.
Besides these issues, the fatal coronavirus disease, which has already taken the lives of about 25 people in China and has spread to seven countries across the world, has been raising severe concerns for the Chinese currency as well as domestic currency.
The elevated health fears over the spread of disease are likely to impact the Australian travel industry, which has already been under pressure due to the devastating bushfires that gripped the nation in the last few months. Besides taking the lives of millions of animals and about 28 people, the deadly wildfires took a huge toll on the Australian economy.
Market experts are of the opinion that these bushfires have slashed around $4 billion from the country’s economy; however, the complete effect of the event is yet to be seen. Moreover, the bushfire crisis is anticipated to contribute up to 2 per cent to the annual rises in atmospheric carbon dioxide level.
In addition to the coronavirus disease, the recently signed the US-China Phase-1 agreement could also challenge the Australian exports to China, particularly in the energy and agriculture sectors. As China is the major destination for the Australian agricultural exports, the trade deal might intensify competition between the US and China.
With so many uncertainties surrounding the Australian economy, it would be interesting to keep a watch on the performance of the nation’s equity market in the coming days. Kalkine Media will keep you updated about the upcoming developments, so stay tuned with us!
