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Economics & Markets

Markets get the jitters again as COVID-19 cases spike

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney Australia

This last week has seen share markets rattled again, and it’s likely that the bad news out of Victoria has been a trigger. That is, COVID-19 cases are on the rise again, and the Melbourne metropolitan area as a result has been told to lock down for six weeks.

The likelihood of this lockdown was probably already weighing on investor sentiment in the lead up to premier Dan Andrews’ announcement, given Australia’s efforts to control the virus, and its success relative to global counterparts so far.

This lockdown will likely have an impact on the national economy. Melbourne accounts for ~20% of Australia’s national GDP (and Victoria ~24%), and by my calculations at this point with consideration of its national contribution and the hits to GDP that lockdowns have so far created, there could be a detraction from growth of about 0.7%-1% over the September quarter.

Sources: AMP Capital
Sources: AMP Capital
Sources: AMP Capital
Sources: AMP Capital

Another risk to consider is that, even in states where there isn’t a lockdown, consumers may behave like there is. For example, if people in NSW, particularly those near the Victorian border, start to fear exposure to COVID-19, they may self-isolate, which makes them less likely to spend in local economies. In this sense we will be keeping an eye on activity trackers such as credit card spending, restaurant bookings, and mobility overall.

Outside Australia, rising cases in the US has spooked investors over the past few weeks. This is particularly because there are rising hospitalisation rates in some of the south-western states, which increases the risk of over-capacity.  

Sources: AMP Capital and The Covid Tracking Project
Sources: AMP Capital and The Covid Tracking Project

While the rising cases aren’t good news, so far we aren’t seeing death rates rise as fast as they did when COVID-19 initially broke out. This could be because medical staff and hospitals are better equipped, after some experience with the virus, to treat infected patients.

It’s reasonable to expect that markets will continue to be impacted by rising cases, at home and abroad.  

  • Economics & Markets
  • Multi-Asset
  • Opinion
  • SMSF News
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While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

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