We’re aware you may be concerned about the impact COVID-19 is having on the Australian and overseas sharemarkets. Here is a summary of what we know as at 20 July 2020.
The sharemarket recovery that began in late March slowed during June.
There were signs of a ‘second wave’ of COVID-19 infections, with increasing numbers of cases in the US, India and Brazil.
In the US, states that had previously been less impacted saw cases of COVID-19 surge, particularly Texas, Arizona, Florida and California. Some states responded by postponing or winding back their re-opening plans.
Economic data, however, was surprisingly positive. Unemployment reduced from 13% to 11%, and there were strong rises in pending home sales and car sales. Additionally, the US Federal Reserve extended small business lending support and began a corporate bond-buying program. However, Federal Reserve Chair Jerome Powell reminded markets that the recovery path remains “extraordinarily uncertain”.
Tensions between the US and China continued over the origin of the virus. China also passed a controversial new security law for Hong Kong which makes it easier to punish protesters and at the same time reduces Hong Kong’s autonomy.
In Australia, initial market enthusiasm suffered late in the month as cases in Victoria began to rise significantly. March quarter GDP data released in June was marginally negative due to the impact of the virus shutdowns that were implemented in late March. The May unemployment figure rose to 7.1%, but retail sales rebounded in June and the property market remained resilient.
The Australian sharemarket (S&P/ASX 300 Index) rose 2.4% in June, with Consumer Discretionary (5.0%) and Financials (4.3%) the strongest sectors. Large caps (2.7%) strongly outperformed small caps (-2.2%) over the month.
The MSCI World Index ex-Australia (hedged into AUD) rose 2.3% over the month. In developed markets, Hong Kong (11.0%) and New Zealand (8.2%) outperformed the broader market, while Greece (-3.7%) and the Norway (-2.2%) underperformed. On an unhedged basis, the World Index fell 1.1%, reflecting the rise in the AUD over the month. The MSCI Emerging Markets Index (unhedged) (3.5%) outperformed developed markets (hedged and unhedged), supported by China’s recovery.
The Australian Dollar finished higher against most of the major developed market currencies over the month (except against the New Zealand Dollar). The US 10-year treasury yield ended the month flat at 0.65%, the Australian 10-year yield at 0.87% (down from 0.88%) and the UK 10-year gilt at 0.15% (down from 0.18%).
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