It’s been another positive week for Australia in the fight against coronavirus, with more restrictions on businesses and social movements being eased, sporting codes preparing to recommence their seasons, and even talk about a resumption of international travel between Australia and New Zealand.
Despite this, financial markets have begun the month on a volatile note, with the ASX recording a 5% fall on Friday 1st May. After such a big rally in April (the ASX was up almost 10% for the month), a pullback of this nature was to be expected, with many respected commentators stating that they think equity markets will re-test the lows seen in late March in the months ahead.
This would make sense to us, as whilst things do look like they are getting better in the fight against coronavirus, they’re almost certainly getting worse in the economy. The latest data from the Australian Bureau of Statistics (seen in the chart below) suggests the number of jobs, and total wages paid in Australia dropped by 7.5% and 8.2% respectively in the month to mid-April.
Changes in employee jobs and total wages indexed to the week ending 14 March 2020
Given this backdrop, it is impossible to see how aggregate demand in the economy can hold up, with even the Federal Treasurer stating that the economy is bleeding to the tune of $4 billion a week whilst we remain in quasi-lockdown, with economic output likely to drop 10% this quarter.
For as long as this continues, companies are almost certain to see a massive hit to their sales figures, and to their profits, which can’t help but weight on share prices going forward.