ASX shares update; ANZ suggests the worst is yet to come

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Worst day since May 1, US stems losses, ANZ suggests the worst is yet to come

The ASX 200 (ASX:XJO) delivered its worst day since May 1, falling 3.1% on Friday, following the lead of global markets.

With the US markets heading lower on concerns of technology sector valuations, the local sector fell 5.6% on Friday, followed closely by healthcare, -3.8% and consumer staples, -3.5%, with markets turning the risk off quickly.

Fund managers Platinum Asset Management Ltd (ASX:PTM) and Magellan Financial Group Ltd (ASX:MFG) were among the heaviest falls, down over 6% each, as was the property sector, the likes of Scentre Group (ASX:SCG) falling 4%, with just six companies in the ASX 200 finishing higher.

Friday also saw the release of Australian retail sales, with trade up 3.2% on June and 12% higher than in 2019, with household goods and takeaway food not unexpectedly taking the lions share.

The impacts of Victoria’s lockdown were made clear with every other state seeing retail trade increasing by 3% of more, but our home state down 2%.

The impasse between the Federal Government and the states on border openings continues with some hope for travel within Australia before Christmas.

US unemployment falls to 8.4%, selling abates, working in the shadows

The selloff slowed on Friday, with the S&P 500 falling just 0.8% and the Nasdaq -1.3% after trading as much as 5% lower throughout the session.

A strong employment result once again boosted the ‘value’ sectors including travel and financials, but pressure on the tech sector continued, with PayPal Inc. (NASDAQ:PYPL) falling over 6% and Inc. (NASDAQ:CRM) down another 4%.

Fed Chair Jerome Powell noted the jobs report, “was a good one” with unemployment falling 2 full percentage points to 8.4% as the US economy reopens despite hitting 180 thousand COVID-19 deaths.

Entering the weekend, the Financial Times reported that Japanese investor, Softbank Group Corp. (TYO:9984) may have been behind the giant tech rally after buying some $50 billion worth of stock and options in the lead up to Friday’s falls.

ASX 200 rebalancing and three takeaways from the week

It was a quiet day for the company announcements, with ANZ Banking Group Ltd (ASX:ANZ) CEO Shayne Elliott leading the headlines suggesting the worst is still yet to come for the banks and likely to hit in mid-2021.

The Commonwealth Bank of Australia Ltd’s (ASX:CBA) Matt Comyn suggesting a swathe of property sales may hit the market early in the new year as investors come under stress.

Elsewhere, Zip Co Ltd (ASX:Z1P) was added to the ASX 200 after its strong 2020 performance.

My three takeaways this week naturally focus on Australia’s GDP result and the long-awaited proof of our first recession in nearly three decades.

The first, “don’t bite the hand that feeds you”. Australia’s economy has unwittingly become so reliant on China that the stroke of a pen can create devastation in multiple industries.

Last week it was an investigation into wine subsidies, this week the banning of a grain and beef exporter. 

It will take many years to reduce this reliance and there is better time to start than now.

The second, Australia has been in a per capita recession for some time, the result simply confirmed it.

Our economy, particularly property and construction, is built on immigration, with GDP generally matching population growth of around 1.6% in recent years.

To have any hope of recovering, this needs to return as quickly as possible, or risk the threat of a prolonged slowdown.

Finally, despite the market sell off, this week taught me that earnings growth will be more important than ever as volatility increases and investors flock to ‘value’ stocks.

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