Reopening of Economies Fuels Optimism in Equity Markets Despite Weak US Jobless Figures

The black swan event of COVID-19 is continuing its spread worldwide infecting over 4.1 million people and claiming lives of more than 0.28 million in 187 countries till date. Adding to the woes, the coronavirus induced shutdowns are aggravating widespread job losses across the globe, severely wounding businesses.

A recently released data by the US Labor Department demonstrates a surge in the US unemployment level to 14.7 per cent in April 2020, marking the worst level on record since the 1930’s Great Depression. The data indicated that the nation lost about 20.5 million jobs in April 2020, sparked by the coast-to-coast shutdowns of offices, stores, factories and other businesses.

Despite the gloomy unemployment figures of the US, a wave of positivity is still alive in the global equity markets.

As an instance, led by impressive performances in the technology and industrial sectors, the major equity indices of the US closed higher last week, with Dow Jones Industrial Average, Nasdaq Composite and S&P 500 indices closing with gains of 1.91 per cent, 1.58 per cent and 1.69 per cent, respectively on 8th May 2020.

Moreover, the Australian benchmark index S&P/ASX 200 also ended the trading session 1.44 per cent higher on 11th May 2020, at 5468.6 points.

Countries Plan to Re-Open the Economies

Investors’ sentiments are seen largely skewed to the positive side amid hopes of re-opening of several economies across the world. Below are the examples of some of the countries contemplating restarting the economies soon:

United States: The world’s largest economy is pondering easing social distancing measures by allowing some businesses to recommence operations. Mr Donald Trump’s administration is closely monitoring the situation and working with states to slowly reopen the economy and bring it back to pre-COVID-19 economic levels. The re-commencement is being considered in the wake of soaring unemployment levels, that may result in a massive economic downturn.

United Kingdom: The UK PM, Mr Borris Johnson recently unveiled his conditional plan to restore the economy, enabling people to spend more time outdoors in England. In his recent speech, he encouraged citizens working from home to go back to work from 11th May 2020 but dodge using public transport for the same.

Besides, Mr Johnson also announced that citizens will be permitted to take an unlimited amount of outdoor exercise from 13th May 2020. He also notified that schools and shops might be able to re-open in June 2020 in England in case of adequate conditions, and some hospitality places could possibly be open by July.

Australia: Lately, the Australian PM also disclosed its three-phase plan to re-open the nation from the coronavirus lockdown by July 2020. However, the PM has left the decision to move from one stage to the another on individual states and territories.

Below table summarises few important restrictions to be eased in the PM’s three-phase plan:

Although countries are targeting a faster return to the normal economic activity via easing social-distancing restrictions over the coming months, experts see grey clouds on the horizon in the form of a disastrous second wave of coronavirus infections in case the restrictions are removed so quickly.

Australian Stocks Rebound Amid Ease of Lockdown Restrictions

As several state governments eased social distancing restrictions in Australia, the share market rebounded strongly on 11th May 2020, with every sector experiencing gains. All the industry sectors ended the trading session in green, led by REIT, Industrials and Energy sectors.

What’s worth noting is that the hard-hit travel and retail stocks revived considerably on hopes of re-opening of the economy.

Travel company Webjet Limited (ASX:WEB) zoomed by ~19.5 per cent on the ASX, becoming the top gainer of S&P/ASX 200 on 11th May 2020. Moreover, other travel stocks including Sydney Airport (ASX:SYD), Qantas Airways Limited (ASX:QAN) and Flight Centre Travel Group Limited (ASX:FLT) also observed gains of ~3.7 per cent, ~3.8 per cent and ~4.3 per cent, respectively.

The retail stocks like Mosaic Brands Ltd (ASX:MOZ) and Myer Holdings Limited (ASX:MYR) also witnessed solid returns of ~32 per cent and ~9 per cent, respectively.

Stocks Grabbing Attention

Some stocks trading on the S&P/ASX 200 grabbed considerable attention in the wake of their significant announcements, including Keytone Dairy Corporation Ltd (ASX:KTD), Scentre Group (ASX:SCG) and ELMO Software Limited (ASX:ELO).

Keytone Dairy Corporation Ltd: Keytone announced receiving binding commitments for a placement raising $12.5 million, which involves the issue of ~40.3 million shares at $0.31 per share. The Company intends to use the raised funds for speeding up its growth initiatives, including

  • marketing and sale of its higher margin proprietary products;
  • provision of funding to implement a pipeline of strategic acquisition opportunities;
  • working capital; and
  • capital expenditure towards the AusConfec bar line.

Scentre Group: Shopping centre player, Scentre Group released its March 2020 quarterly operational update, highlighting its reactions to the coronavirus pandemic. The Company notified that about 57 per cent of the retailers are now open and trading and substantially more number of retailers are expected to reopen over the coming weeks.

Besides, the Company mentioned that it implemented a large number of initiatives targeting over 25 per cent decline in its operating expenses during the period. Considering the impact of COVID-19, the Company has suspended its 2020 outlook guidance.

ELMO Software Limited: Software player ELMO declared that it is seeking to raise about $70 million from the fully underwritten placement activity, which involves issue of ~10 million new shares at an offer price of $7 per share. The Company intends to use the funds raised to fund acquisition opportunities and accelerate growth initiatives.

Please note that besides these stocks, there were several other stocks that drew considerable attention in the equity market on 11th May 2020.

The recent gains observed in the global equity markets, including the Australian share market indicates that investors have probably shrugged off the weak US unemployment figures of April and are hopeful of economic recovery. In other words, expectation of a potential turnaround in the coming months amid ease of restrictions is possibly driving gains in the equity markets.