Recession is over

Choppy day for ASX200, recession is over, Pfizer (NYSE:PFE) vaccine approved in UK, soft open ahead
 
It was a mixed day for the ASX200 (ASX:XJO), rallying strongly at the moment, falling 1% during the day but ultimately finishing flat.

The materials sector was one of the few bright spots, with BHP Group (ASX:BHP) and Rio Tinto (ASX:RIO) both heading 2.0% higher despite the background of worsening trade relationship with China.

The news of the day, however, was the release of Australia’s third quarter GDP result.

The recession is officially over with the economy growing 3.3% compared to the June quarter but it is still 3.8% lower than the same time in 2019.

It was the strongest quarter since the 1970’s, but with a 7% fall in the previous quarter this was clearly to be expected.

The result is evidence of the resilience of the Australian economy compared to our global peers, thanks in part to the huge stimulus programs delivered, with the Eurozone growing 12.7% and the UK 15.5% in the quarter, after falling by significantly more in June.

By far the biggest highlight was an 8% bounce in household spending already flagged in the incredible earnings reports from the likes of Kogan (ASX:KGN) and Temple & Webster (ASX:TPW).

The result is positive news after an incredibly difficult year, but a huge challenge lies ahead in 2021.
 
Westpac (ASX:WBC) sells insurance, Afterpay (ASX:APT) delivers a rare feat, Downer EDI (ASX:DOW) asset sales
 
Westpac Banking Corporation (ASX:WBC) finished flat after announcing the sale of its general insurance division for $725 million as the company continues to clean up its underperforming balance sheet.

Afterpay (ASX:APT) is set to achieve an incredibly rare feat, inclusion in both the ASX50 and ASX20 at the same time.

Throughout history most companies have made their way through sharemarket indices slowly, moving from IPO, to small cap, mid cap and then large.

APT on the other hand has broken records, moving into Australia’s largest 20 companies in record time.

Competitor Zip Co (ASX:Z1P) offered a trading update to the market, confirming transactions had increased 44% in November from October with volumes doubling on 2019 levels once again; Z1P stands out as underappreciated compared to APT.

Downer EDI (ASX:DOW) announced the sale of 70% of their laundry and cleaning business to private equity group Adamantem Capital, for $115 million as they seek to focus on core businesses.

I’m expecting this trend to continue, particularly for mid-sized players, as they seek to focus on their most profitable business.

Private equity and larger companies will continue to seek bolt on acquisitions to further protect their positions.
 
Mixed day for overseas markets, vaccine approved for use, weaker US jobs data, Brexit now the focus
 
It was a mixed day for overseas markets, with a rebound in the oil price sending energy stocks higher, boding well for the likes of Origin Energy (ASX:ORG) and Woodside Petroleum (ASX:WPL) in the session ahead.

It wasn’t enough to offset weak US jobs data with the lowest number of jobs created since July, sending the Nasdaq down 0.1% and both the Dow Jones and S&P500 0.2% higher.

Markets appear to be delicately poised, having priced in a portion of the post pandemic recovery but still holding concerns about the short-term implications.

The UK Government approved the use of Pfizer’s (NYSE:PFE) vaccine, which should be a shot in the arm for the economy as it continues to deal with the risk of a no-deal Brexit.

The bond market also saw one of the biggest spikes in yields overnight showing that it does not require the central bank to increase the cash rate for ‘market’ rates to head higher.

If sustained, this could have a significant impact on market valuations.

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.