All things market related

 

Australian Economy

The GDP figures fell 0.3% in the March quarter and GDP per capita fell for the first time since the GFC. Having two negative return quarters in a row means that Australia is in its first recession in 29 years.

Australia’s performance in the March quarter compares very well to that of other nations, with negative growth of 9.8% in China, 5.3% in France, 2.2% in Germany, 2% in the United Kingdom and 1.3% in the United States.

2 major concerns

One of the biggest concerns that remain is the high net debt to GDP ratio, which now is at an exorbitant rate of more than 200%, one of the highest levels in the developed world. This is taking into consideration the fact that Australia entered the crisis in better shape than most developed countries, with the same ratio being around 20%.

Another concern stands around diplomatic relations with China, Australia’s largest trade partner with two-way trade worth $235bn in FY 2019. Commodities have remained one of the strongest sectors in Australia, and one of the asset classes that helped protect the market from being hit hard during the GFC. Tensions have heightened since the independent inquiry called in by Canberra to investigate the origins of the coronavirus, leading to further deterioration in the relationship between China, due to the imposition of import bans on beef and punitive tariffs on barley from Australia.

Government’s initiatives and easing measures:

The new 2020‑25 National Health Reform Agreement provides an estimated $131.4 billion in additional funding to public hospitals over five years from 2020–21. This is in addition to the over $8 billion health investment by the Commonwealth during the COVID-19 response.

Social front: BLM protests

Amidst the Coronavirus breakout, mourners across the U.S have gathered to remember George Floyd, following a private memorial service in Minneapolis for the 46-year-old man whose death in police custody sparked widespread protests against police violence and systemic racism. The ‘Black Lives Matter’ protests have stirred across multiple countries, including Australia. A judge set bail at $750,000 apiece with conditions, or $1 million without, for the three former police officers charged with aiding Floyd’s killing. Conditions of bail include signing an extradition waiver and surrendering firearms and concealed-carry permits.

 

Indexes around the world

The rebound in equity markets extended into May. The impact of the COVID-19 pandemic continued to dominate markets, with an increasing focus on how countries would begin to relax their lockdown measures and how this would impact the economy. Volatility declined throughout the month, and the more moderate market moves compared to April suggest that investors are being watchful of how the situation is developing.

Many states in the US began some level of reopening, though the daily infection rate has only fallen to around 65% of the peak infection rate from mid-April. The S&P 500 climbed to end the month 4.8% higher and is now just 10% below the February peak. The infection rate across the major European economies has fallen significantly, though the infection rate in the UK still remains high in relation to its European peers.

Investors appeared to become somewhat more optimistic about the outlook after initial signs of success in human trials of a vaccine against COVID-19. Growth stocks outperformed value stocks while global government bond markets were broadly flat. European and Japanese stock markets, typically cyclical markets, also ended the month higher. Despite the first steps being taken to exit lockdown and some positive news on a potential vaccine, it’s still too early to say with confidence how the public health outlook will evolve.

 

References:

ABC- Australian Economy GDP recession 

Health Alerts – Easing of Covid-19 restrictions

Washington Post – Black Lives Matter Protests 

JP Morgan Market Insights May