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February 2020 Market Wrap

//February 2020 Market Wrap

XJO Down 576.

Coronavirus Infects the Market

 

The Australian market, started the month with the biggest drop of the year, following Shanghai’s lead which dropped 7.7% around growth concerns related to the corona virus.

However initial fears then subsided with the Australian market finding stability in the commodities sector XJR/XMM, and the renewed confidence returning to the financials Index XFJ. 

The market then proceeded to test new all time highs, with 10 of the next 13 trading days being positive.

A series of strong earnings reports from Wesfarmers WES, Domino’s Pizza DMP and Coca Cola CCL on the 19th helped push the market to achieve consecutive new high’s on the 19th & 20th of the month.

With the market once again at all time highs, profit taking creeped in on Friday the 21st, as international investors began to re asses the true impact and market risk potentially associated with the coronavirus.

As infections began appearing throughout the world, over the weekend of the 22nd/23rd and doubt set in regarding the market’s capacity to maintain present levels, sellers came in to the market hard, locking in profits on Monday the 24th resulting in a 161 point fall.

Propelled by fear, now gripping the International markets, the XJO entered free fall, dropping 537 points over the next 4 trading days, finishing the month on 6441, taking the market back to levels not seen since Aug 27th 2019.

KEY ECONOMIC DATA

  • Aus trade surplus reduced slightly to $5.23 b
  • Aus Dec Building Approvals Beat Market Expectations
  • Aus Jan Unemployment Rate inches up to 5.3%

DOW JONES IND AVG 28,319 - 25,409 :Down 2,910
Coronavirus fear, turns to PANIC.

DJI 12 MONTH CHART

The Dow Jones Industrial Average after falling away in the final half of January was initially buoyed by news regarding the de-escalation of the trade War between China and the US, opening the month with a 4 session rally culminating in a new all time high 29,408 achieved on the 6th upon official confirmation from China to cut existing tariffs.

The positive international news was also supported by a continuation of strong domestic US economic data, coupled with positive earnings news from Home Depot & Macy’s, pushing the market to further new high of 29,568 achieved on the 12th of Feb.

However, warning sounds around the impact of the Coronavirus started to emanate from companies such as Apple, Walmart & Microsoft, causing the market’s to blink, with profit takers coming in on the 18th.

With market levels still with in touching distance of all time highs, and the market digesting the potential full impact upon International supply chains, sellers moved in to lock in profits. Over 7 consecutive falling session’s from the 20th – 28th panic selling not seen in a Decade enveloped the market, resulting in the DOW, falling 3,959 points, to level’s last reached on June 4th 2019 to close the month @ 25,409.

Key Economic Events and Indicators

  • US unemployment inched up to 3.6 %
  • US Retail Sales Beat Market Expectations
  • US Manufacturing Beat Market Expectations
  • US New Home Sales tripled Market Expectations
  • US GDP 2.1%: Unchanged

OIL PRICE UPDATES: Coronavirus fear rout’s Oil Markets

WTI Crude – Dropped $5.75 : $51.01 – $ 45.26

February continued on with the trend that began on January the 6th which saw Oil prices fall by $9.46 in 19 trading sessions.

With Middle East tensions easing, and pre existing concerns regarding world oil demand for 2020, combined with rising US Crude stock piles, pushed Oil prices into bear territory.

Fundamental data continued to push down prices, providing limited reason for buyers to come in to the market.

As the month wore on, the market was shocked by the expanding coronavirus situation which had an immediate impact upon Oil prices, with concerns confirmed when China unexpectedly announced a drop in Oil consumption of 3 mbpd, shocking the market, and precipitating a 4% drop on the 24th.

From there, Oil prices proceeded to fall further, closing the month @ $45.26. Bringing a total 2020 price drop of 24% since January the 6th.

OIL PRICE UPDATES: Coronavirus fear impacts International Oil Markets

WTI Crude – Dropped $9.46 : $61.09 – $ 51.63

January initially started out where December left off, with the first 8 trading days seeing Oil rallying to the highest level since April 2019.

This was due to the assassination of Iran’s top general Soleiman, and the expected response by Iran plunging the middle East into conflict, and potentially impacting Oil supplies.

However, as the month went on, and Iran’s muted response of a few missiles at an empty US base in Iraq, the “Middle East Risk factor ” eased out of the market, and traders began to focus on fundamental production and storage data.

With the advent of the Coronavirus out break in China leading up to CNY, profit takers quickly moved creating a multi session 15% drop in the drop of Oil.

From the 24th on the market effectively continued to move south, as the market digested the potential economic impact that the Coronavirus may have on world Oil demand, with Oil settling the month at $51.63.

Key Oil Price Influences

  • US Achieved consecutive record Oil production -13 mbpd
  • US/ China Trade Deal surprised markets with Oil component
  • Libya Shut down Oil production facilities
  • Both Iran & Iraq experienced domestic rioting aimed at the government