IG Markets: Notes on Australian markets today

Stocks in Asia have shaken off Wall Street’s negative lead, and managed to put in a small rally today.

Kyle Rodda, Market Analyst, Australia

The day's key takeaways:

- Markets sobering up as evidence of coronavirus impact becomes unavoidably apparent

- Traders itching to buy-the-dip in stocks, with coronavirus a secondary factor for equities

- ASX200 adds another 0.3 per cent, helped by what’s been a (so-far) solid earnings season

The run down:

The markets are having to stomach some harsh realities about the economic consequences of the coronavirus, at present. Apple’s press-release yesterday, highlighting the expected impacts of the virus on its top-line, was the headline grabbing evidence. But last night’s poor German economic sentiment survey reading backs up the notion that the impacts of disease’s outbreak will be meaningful in the short-term. Markets and policymakers alike will continue to try and “look-though” this exogenous event, and search for signs that the underlying economic cycle remains in place. But this will be done while hedging and/or preparing for the damage the disease is bound to inflict on the global economy in the immediate future. All-in-all, the prevailing view in the market is that the storm will pass, and the clean-up effort ought to provide the basis of a “V” shaped recovery. But for the time being, traders are betting that the launch in growth sensitive assets will stay grounded, with safe-havens naturally where money is being parked in the interim.

It feels necessary to provide a disclaimer here: this dynamic isn’t categorically showing up in stocks, like it is in other (truer) growth proxy assets. Stocks did drop overnight, and they are dipping today in Asian trade, however the moves are quite modest. And in fact, despite a generally bearish tone to trade on Wall Street last night, elicited by concerns regarding the fundamentals of some tech-firms, the NASDAQ managed to briefly graze intraday record highs. Rightly or wrongly, and whether it can all last, aside, stock markets aren’t being driven by the same factors – that is, the coronavirus outbreak – by which wider financial markets are finding themselves driven. It’s still all liquidity and relative yield, even in the face of profit downgrades, rich valuations, and shaky short-term fundamentals. As always, a correction in stock prices seems imminent, at least intuitively. However, this has long been the case. It still seems likely the market treats yesterday’s sell-off as another buy-the-dip opportunity.

For the ASX200, the benchmark has spent the session meandering along, to be trading just shy of 0.3% higher this afternoon. Bucking Wall Street’s negative lead, the ASX200 has been pushed higher by some solid corporate results today – contributing to what’s been a reasonably solid reporting season for the ASX, so far. FMG shares climbed after that company posted record revenues, and a robust dividend of 0.76 cents per share. Wesfarmers shares also lifted after the company reported better than expected operating income, and came despite the company revealing its identified further cases of wage underpayments within the business. Bank shares have been the major drag on the market. CBA share’s fell after they went ex-dividend. Westpac is also trading lower after it warned of a potential cost blow-out from the company’s evolving AML scandal. As far as the macro data goes: wage growth data came bang-on expectations today, with rates markets and the AUD trading relatively steady post that release.

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