Strength in numbers keeps ASX on track

Spending on air travel, public transport and hired cars have all stayed well below pre-pandemic levels.

Spending on air travel, public transport and hired cars have all stayed well below pre-pandemic levels.

Australia’s sharemarket remained surprisingly resilient as investors sought potential Covid-19 winners, NSW reported only 19 new cases and a financial support scheme for small business, and analysts said consumer spending should fully recover once the stay-at-home orders now affecting almost half of the nation’s population end.

The benchmark S&P/ASX 200 share index closed down 0.1 per cent at 7301.2 points after hitting a five-day low of 7241.5 points as lockdowns in Perth and Brisbane added to economic jitters after the lockdown of Greater Sydney and state border closures announced over the weekend.

Most sectors lost ground initially, with the banks and iron ore miners falling at least 1 per cent, while property trusts fell sharply along with APA Group and Transurban after trading ex-dividend.

However, banks recovered strongly, with CBA finishing up 0.6 per cent, after Jefferies’ high-profile banks analyst, Brian Johnson, told clients to “we would be inclined to buy the banks on any Covid-19 lockdown dip” as they are stronger than they were when the pandemic first hit last year.

The Information Technology, Health Care, Consumer Staples and Consumer Discretionary sectors led gains with Afterpay up 1 per cent, Sonic Health Care up 1.6 per cent, Metcash up 5.7 per cent, Wesfarmers up 0.7 per cent and Harvey Norman up 2.5 per cent.

“The delta variant’s surge in some parts of the world is raising fears that the virus, along with the containment measures and the onerous impacts they have on the global economy, may be with us longer than previously thought, even perhaps for the foreseeable future,” said IG market analyst Kyle Rodda. “It is a pertinent question, as markets enter a seasonal lull in which investors are weighing up the market outlook as the economic recovery reaches a more mature stage.”

But while longer lockdowns would “clearly damage the economy”, it won’t necessarily stop the Reserve Bank raising rates in 2022, said CBA Senior Fixed Income Strategist, Philip Brown.

“While there will almost definitely be a note of caution struck by the RBA next week, a big part of why we’re expecting the labour market to behave differently in coming years is the border closure.

“This experience might contribute to a slower border opening. It should also help overcome vaccine hesitancy, providing there’s supply.”

Consumer spending in Melbourne has more than fully recovered from the recent lockdown, according to ANZ economists Adelaide Timbrell and Felicity Emmett.

“Melbourne residents seem to have made up for lost time at the shops, with very strong non-food retail spending in Melbourne in the two weeks after lockdown,” they said.

“This signals that physical movement restrictions – and not economic caution – were behind the fall in spending during lockdown.”

While the Sydney lockdown will trigger a substantial fall in spending of 30 to 40 per cent, the Melbourne experience shows that “economic scarring is unlikely” and “spending will recover and perhaps over-perform as soon as the lockdown ends.”

But travel spending is “perhaps the one exception to the lack of lockdown scarring.”

Spending on air travel, public transport and hired cars have all stayed well below pre-pandemic levels, likely due to intermittent state border closures and lockdowns, they said.

Meanwhile, Australian business conditions continued to improve, providing evidence of strong expansion, according to the Australian Chamber-Westpac Survey of Industrial Trends.