Market Recap-13th April

Markets returning to normalcy

The Australian share market has mounted an impressive comeback, lifting by 3.5% despite a two-day losing streak. At the epicentre of market increases are the banks, which accounted for a third of total gains. This follows the Australian Prudential Regulation Authority (APRA) advising banks to take a regulatory approach to COVID-19 support.

This includes changes to the reporting obligations of many authorised deposit-taking institutions (which include most big banks), as a means to provide ‘breathing space’ amongst very uncertain times. Many banks have announced support packages to borrowers (mainly small business owners and mortgage payments) which allow them to defer repayments for up to a period of 6 months. The introduction of new reporting standards allows banks to provide much needed support for customers while being able to still provide data in a more pragmatic timeframe.

Another signal that may affect the markets relatively soon are talks of cutting oil supply among major oil producing nations. Extreme cost cuts have the potential to influence the market in major ways, due to the fact that it is highly correlated with both consumer expenditure as well as the production output of firms. However, it must be noted that signals like these have a smaller impact while volatility is as high as it has been over the past couple of months. Despite this, a 3.5% increase can still be observed from the graph below.

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ASX 200 on the rise

Health Insurance Sector Saved: 

With elective surgery being temporarily shutdown in order to combat the Coronavirus, the private health insurance sector has been offered a lifeline. Specifically, insurance firms have experienced exodus from their policies in the last 4 months.  With these surgeries being the main expenditure for insurance firms, they have received a ‘windfall’ due to heavy cost cutting without premium reduction (still calculated based on usual demand levels). Grattan Institute health program director Stephen Duckket echoes this notion even further, stating that ‘private health insurers are doing very well as revenue continues with costs falling through the floor’. To provide a clearer picture of the impact that this cash ‘injection’ could have on insurers, Macquarie estimates that even if claims were to fall by 20%, there would still be a net profit of $1.18b. This is contrary to estimates which highlight a $335m net profit based on claims growing in the previous fiscal year.

Although this may not be sustainable in the long run for private health insurance firms, it could also be a potential factor in their sudden increase in the ASX share market. Despite major losses in the past month, it has experienced an upwards change of 4.5%, potentially as a result of this unforeseen windfall.

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Health Insurance companies have experienced positive change in share prices since this unexpected cash injection

Unemployment worsens:

While the markets may be enjoying their biggest weekly successes since 2011, unemployment has continued to surge in a number of different industries. With over 800,000 businesses already applying for the ‘Job-Keeper’ program, Treasurer Josh Frydenberg expects there to be an “uptick in unemployment”. He further expects the jobless rate to rise to over 10%, up from the 5.1% first recorded in February.  In America, 6.6 million more people have applied for unemployment insurance according to figures released by the US Labour department. This has brought the total to over 16.8 million people, with no signs of slowing any time soon.