The Morning Report

Updated Friday 30th October 2020

GLOBAL MARKET WRAP

The S&P 500 rose 39pts overnight to close 1.2% higher at 3,310, rebounding from yesterday’s sharp fall on the back of promising economic data. The Energy sector was the strongest performer (+3.2%). The US 10-year treasury yield rose 5bps to 0.82%, while the USD Index rose 0.6% to 93.94 this morning.

Coronavirus update – The latest data from the World Health Organisation (WHO) showed the number of confirmed coronavirus cases was 44,351,506 rising by 479,417 yesterday. India becomes the second country to pass 8 million COVID-19 cases, fast approaching the US who have recorded 8.8 million. Concerns continue to mount as India approaches its major Hindu festival season which is likely to increase the speed of the spread of the virus.

US: GDP growth was 33.1% in Q3, the biggest expansion ever recorded, beating expectations of 30.9%, and rebounding strongly from the 31.4% contraction in the previous quarter. Household demand led the recovery with personal consumption expenditures growing by 40.7%, ahead of the 38.9% expected increase. Jobless claims for the week 24 October came in at 751,000, below the expected 775,000 and down from the revised 791,000 in the week prior, whilst pending new home sales surprisingly fell 2.2%, missing expectations of 3.5% rise in September, following 8.8% growth in August.

Personal incomes are expected to gain 0.4% in September, a slight recovery from the 2.7% fall in August due to special unemployment benefits ending, whilst personal consumption expenditures are expected to gain 1.0%, as they did in August. Consumer sentiment is also released and expected to remain at the preliminary forecast of 81.2 in October, up from the 80.4 in the month prior and well below the 101 level recorded in February before the onset of the coronavirus pandemic.

Eurozone: The ECB kept interest rates on hold overnight at 0.0%, as expected, with policymakers waiting on a fresh round of economic projections in December to review its monetary policy. The economic sentiment index was flat in October at 90.9, beating expectations of a fall to 89.6.

GDP for 3Q20 is due out overnight and expected to gain 9.4%, rebounding strongly from the 12.1% contraction in the previous quarter, whilst the unemployment rate is set to increase slightly from 8.1% in August to 8.3% in September.

LOCAL MARKET WRAP

The ASX 200 fell 97pts yesterday to close 1.6% lower at 5,960, with the Energy sector the weakest performer (-2.9%). The SPI Futures Index is trading 36pts higher this morning at 5,972. The 10-year treasury yield rose 3bps to 0.82% and the AUDUSD fell 0.2% to 0.7029 this morning.

Coronavirus update – The total number of cases rose by 14 yesterday to 27,569, with 3 cases in Victoria, and the number of active cases at 200. In an interview hosted by the University of Melbourne, America’s top infectious diseases expert, Dr Anthony Fauci, has praised Melbourne’s response to the coronavirus, stating that he “wished” the US could adopt the same mentality. Dr Fauci applauded the balance between mandatory mask-wearing and lockdown measures and highlighted the stark contrast in situations between Australia and the US.

REA Group Limited (REA) yesterday announced that it had entered into a binding agreement to increase its interest in Elara Technologies Pte. Ltd. (Elara). REA currently hold a 13.5% interest in the Indian digital real estate business and the agreement will move REA to a controlling interest in the company with a shareholding of between 47.2% and 61.1%, and 5 of the 9 board seats. The total consideration for the transaction is expected to be between US$50-$70 million, with US$34.5 million payable from existing cash reserves and the remaining in newly issued REA shares. REA shares fell 1.2% to close at $122.86.

Australia and New Zealand Banking Group Limited (ANZ) released its FY20 earnings yesterday, reporting a 42% fall in Cash Profit to $3.76 billion as it made $2.73 billion in provisioning charges during the year for the expected fallout from COVID-19. The Retail & Commercial division was the hardest hit, with FY20 cash profit down 26%, impacted by provisions and falling commercial margins. Underlying NIM contracted 10bps to 157bps in the 2H, impacted by rates net of repricing. ANZ’s CET1 ratio was pleasingly strong at 11.4%, an increase of 58bps on 1H20 and in line with Sep’19 despite absorbing 76bps of credit impacts. ANZ declared a final dividend of 35cps, reflecting a payout ratio of 49%. ANZ shares fell 2.4% to close at $18.70.

PPI data is released today following a 1.2% fall in the previous quarter as a result of the coronavirus pandemic, marking the first decline in PPI since 1Q16.

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