IG Markets: Notes on Australian markets today

The day's key takeaways

Kyle Rodda, Market Analyst, Australia

The day's key takeaways:

- Market sentiment undermined as Chinese government changes COVID-19 reporting classification

-The important question for market participants: is the rate of new cases slowing-down, or not?

- ASX200 tests record highs, before the flip in sentiment; AGL and Telstra the big market movers

The run down:

Market participants have been forced to curb their enthusiasm, after it was reported that, owing to a change in classification methodology, the number of cases of COVID-19 – the virus formerly known as coronavirus – yesterday rocketed to 14,840, with the death toll increasing by 242. The news dashed hopes, at least for now, that the rate of increase in the number of cases of the disease is slowing, and that the outbreak is beginning to be contained. Having showed signs of quite a positive day’s trade, risk assets in Asian markets have generally fallen today. Asian stock indices are lower, along with US stock futures, as traders rotate back into government bonds. In FX, the Japanese Yen has proven the big G10 currency winner, while the AUD and NZD have been the currency market’s laggard. And commodities have lost some of their upward price momentum. Oil, in particular, has retraced part of its overnight rally. Gold prices, naturally, have edge higher.

Today’s COVID-19 developments begs the simple question: what’s going on here? The Hubei government’s explanation is that it is now including “clinical diagnoses” of the virus in official figures. This essentially means that those who have shown symptoms or signs of the disease, but have not tested positive for their disease through pathological methods of diagnosis, will now be included in the official data. Apparently, a part of this is for very practical reasons. Healthcare responders in Hubei, because of resource restraints and some questions about diagnostic accuracy, are finding it increasingly difficult to administer testing. For market participants, this isn’t of primary concern. The matter is now one of working out whether using the new methodology, the reasonable assumption can be made that the rate of increase in cases is still slowing down. If that proves so, then perhaps the market will move pass this little hiccup quite quickly. If not, then maybe another short-term bout of “risk-off” is upon us.

The day’s developments had a big impact on the ASX200, and derailed slightly what’s been rather strong upside momentum for the Australian stock market this week. The benchmark index was pushing to new record highs before the latest COVID-19 virus news broke, with traders abandoning that endeavour after risk-appetite performed another backflip. The market is still in the green this afternoon, to be trading-up by around 0.2 per cent higher, it must be said, with the ASX200 tangling now with psychological support/resistance around 7100. The markets short-term uptrend is also holding, for the time being. As far as the movers and shakers go, the telecommunications sector dipped today, dragged lower by Telstra shares, after that company disappointed in its half-year results. On the other side of the equation, the utilities sector was the market’s outperformer on a relative basis, driven by a big 4 per cent rally in AGL shares, after its earnings report delivered a better than expected results this morning.

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