Weekly Update – 1 June 2020

June 7, 2020 / by Altitude Wealth Management / News

The virus

The table below shows the latest figures for new cases per week and the changes between the latest readings and a week and a month ago, for a number of countries. The figures show improvements in a number of countries over the past week. The higher figures for France last week look like a data reporting issue. Brazil has now overtaken the US for number of new cases per week.

The economics

Latest data include:

  • US jobless claims rose another 2.1 million, bringing the total since the start of the crisis to 40.7 million;
  • The Fed’s US Weekly Economic Index suggests the economy may be troughing around -10% in year on year terms, which is broadly consistent with the NY Fed’s latest Nowcast of -36% annualised growth in Q2. The Fed is not yet issuing Nowcasts for Q3;
  • Production in the US energy sector seems to be stabilising with the steadier oil price; nevertheless the number of operating rigs is still 60% below the levels seen at the start of March;
  • Consumer confidence in the US stabilised in May, but the majority of consumers surveyed remain worried about their future income, which may hold back consumer spending;
  • Australian capex spending fell -1.6% in Q1 to its lowest level since 2008; at the same time, plans for future investment spending were cut back to -15% for 2020/21;
  • The National Cabinet structure is set to continue, replacing COAG, in an attempt to improve Federal-State planning and decision-making. Phil Lowe said regulation must be wound back to help the economy recover;
  • In China, the pace of recovery seems to be stalling as export demand waits for recovery in the rest of the world. Some commentators are questioning whether a V shaped recovery in China will be possible because of this;
  • China’s increasingly heavy-handed approach to Hong Kong has reignited the war of words with the US which has decertified Hong Kong’s autonomy under U.S. law. This could have implications for the trade relationship between Hong Kong and the US.

The markets

Sources: Thomson Reuters, Bloomberg

Markets had a good week, rallying on a mix of improving infection figures and further easing of restrictions. The forward P/E ratio for the Australian equity market rose 17% in May to the highest level recorded in the history of the series. The equivalent P/E in the US was 22, also 17% higher in the month, and surpassed only during the Tech bubble. Markets noted the developments in Hong Kong, but for now are taking them in their stride.

The bottom line

One might think the markets had already priced a good deal of better news about the virus and recovery, but contrary to the old adage of buy the rumour, sell the fact, markets are still going up. They seem to believe the end of the virus and its problems are in sight, but this still feels like more hope than reality. Combined with ever more stretched P/E ratios in key markets, there seems plenty of scope for markets to be disappointed.

 

 

 

Quilla Consulting Pty Ltd (Quilla) holds AFSL 511401. This document provides general advice only and not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting or making any investment decision, you should consider your personal financial situation or needs, consult a professional adviser, and consider any applicable disclosure documents.

Information in this document is based on sources believed to be reliable, but Quilla does not guarantee its accuracy. All opinions expressed are honestly held as at the applicable date. Neither the information, nor any opinion expressed, constitutes an offer, or invitation, to buy or sell any financial products. Quilla does not accept any liability to any person or institution who relies on this document and the information it contains and shall not be liable for any loss or damage caused to any person in respect of this document and the information it contains.

This report contains information that is confidential and proprietary to Quilla. You must not use this document, nor the information in it, for any purpose other than that for which Quilla agreed to provide it to you. You must not copy, modify, sell, distribute, adapt, publish, frame, reproduce or otherwise use any of the information in this document without the prior written consent of Quilla.

LOADING