Global share markets pulled back over the last week on worries about second waves of VODI-19 outbreaks, the economic outlook and tensions with China
10 May 2020 | Shane Oliver, AMP Capital (Image: Maksym Kaharlytskyi)
It’s been another week of negative market sentiment, a number of countries in Europe and Asia are easing their lockdowns but there’s uncertainty due to the incubation period between people becoming infected with COVID-19 and showing symptoms. A nervous fortnight lies ahead, but Australian health authorities have already warned a post lock-down spike is likely.
For the week gone by, US shares fell 2.3%, Eurozone shares fell 4.3%, Japanese shares lost 0.7% and Chinese shares fell 1.3%. Australian shares were hit too with concerns about trade tensions with China and worries about the banks but good gains in materials, telcos and health shares saw the market end up 0.3% for the week.
Bond yields were little changed. Copper prices fell, but the iron ore price rose above $US90/tonne and oil prices rose 20% as oil production fell and demand rose (with US gasoline demand up 46% over the last five weeks). The Australian dollar fell as the US dollar rose in line with risk aversion in most share markets.
The picture is little changed with coronavirus.
New global cases are continuing to trend sideways. Europe is continuing to see a decline in new cases despite occasional clusters. Japan looks to have got its early April breakout under control. New cases look to have peaked in the US and UK. However, various less developed countries are driving a still rising trend in the rest of the world. This includes Brazil, India, Mexico, Iran and Russia.
Australia well placed
Australia is continuing to see a low number of new cases, but still has some problems with clusters. Reflecting this, deaths per million people remain very low in Australia at around 4, which is similar to Korea, Japan, Singapore and China.
This contrasts with the UK and Italy where deaths are around 500 per million people which if the same had occurred in Australia would have meant around 12,500 deaths as opposed to around 98.
Easing lockdowns
The progression to easing lockdowns has continued across Europe, the US and Australia. Japan has also lifted emergency restrictions for 39 of all 47 prefectures covering about 50% of Japanese GDP. The risks are probably greatest of a second wave in the US as some states and cities have moved ahead of themedical checkpoints in the government’s reopening guidelines.
Although many of those states are less densely populated and so less at risk and nearly 80% of US GDP is located in states seeing declines in new coronavirus cases. Australian states have generally moved to implement the Federal Government’s reopening roadmap, albeit with Victoria moving more slowly.
Economic activity weak
In Australia weekly consumer confidence has risen for six weeks in a row, surveys show a pick in consumer spending and traffic flows have picked up – in fact the traffic last Saturday in Sydney seemed to resemble a normal Saturday (even without kids sport!)….which all tells me that there is a bit of pent up demand out there.
China export tensions
How serious is the threat posed by China’s threatened tariffs on Australian barley and the suspension of beef imports from four Australia abattoirs (including one which is owned by a Chinese company)? It’s hard to know. On the Australian side this is seen as tangled up with Australia’s call for an independent inquiry regarding the coronavirus outbreak.
However, China also has trade gripes with Australia with the barley and beef issues having been around for a while and a concern regarding tariffs put on Chinese steel, aluminium and chemical imports which are seen by many as protectionist (eg: 144% on Chinese steel pipes!).
Such issues have flared up before only to flare down again before they spread – remember last year with bans on imports of Australian coal to various Chinese ports. Hopefully the same happens this time around again – because so far, our exports appear to be benefitting from the recovery in the Chinese economy (with iron ore export volumes out of Port Hedland up 11% year on year in April).
Dr Shane Oliver is Head of Investment Strategy and Chief Economist, AMP Capital
