Investment markets and key developments over the past week- Extracts
Most major share markets fell over the last week as concerns about ‚Äúsecond waves‚ÄĚ of coronavirus cases, uncertainty about the growth outlook and geopolitical risks continue to rattle investors.¬†The weak global lead and concerns about rising cases in Victoria also contributed to a fall in Australian shares with sharp falls in energy, industrial, IT and property shares. Bond yields were little changed although they fell in Europe. Oil prices fell, the copper price rose but iron ore was flat and the $A rose slightly as the $US fell.
Finally, while Australia‚Äôs new case numbers remain relatively low they have continued to pick due mainly to various family related clusters in Victoria, raising concerns about a second wave in Australia.
This all begs the question as to whether we will see a reversal of the reopening that has occurred since April.¬†I suspect that the hurdle to return to the severe ‚Äústay at home‚ÄĚ lockdown is now immense: there is now significant shutdown fatigue and authorities may conclude that the economic cost of doing so is just too high. And don‚Äôt forget that the aim of curve flattening was to reduce the number of cases such that the medical system can cope and that has been more than achieved in Australia, NZ, much of Europe and much of the US but it‚Äôs now clear that in the absence of a vaccine its very hard to completely eliminate the virus. So we may just have to learn to live with it and manage outbreaks (as Korea, China and others have done over the last few months) with only partial and targeted lockdowns, travel restrictions (like those between Australian states and between some US states) and rigorous testing, tracking and quarantining and a renewed emphasis on social distancing such as limits on gatherings and possibly making masks compulsory while in public. Of course, if medical systems are overwhelmed then it‚Äôs a different story and a return to more severe lockdowns may become inevitable. Either way shares are in for a bit more volatility but if it‚Äôs the former then the pullback in shares seen over the last few weeks will remain just a correction with the rising trend likely to resume in the next few months as economic recovery continues.