ASX200 traders cautious as Delta spreads and ahead of EOFY

After fending off the original coronavirus, Australia has entered a “new phase” of the pandemic. A nationwide outbreak of the highly contagious Delta variant first detected in India that has prompted lockdowns in Greater Sydney and Darwin.

Australia

Why is the spread of the Delta Variant causing concern?

While there is insufficient data to determine if the Delta strain is more deadly than earlier strains, the Delta variant is almost twice as likely to cause hospitalization for the infected.

As NSW’s contract tracers are finding, the Delta variant spreads easily and quickly due to mutations that make it better at latching onto cells within bodies.

Prompting further concern, Australia’s vaccine rollout has been very slow compared to other countries. Just 4% of Australians have been fully vaccinated compared to 60% in the UK.

For the 25% of Australians who have received their first vaccine dose, the efficacy rate for Pfizer-BioNTech and AstraZeneca is 30% and 18% respectively. For the 4% of Australians who are fully vaccinated, it rises to 79% for Pfizer and 60% for AstraZeneca.

Impact of lockdowns on the economy and RBA Policy

The outbreak of the Delta variant comes just three months after the end of key financial support programs such as JobKeeper. The state of NSW accounts for around one-third of Australian economic activity and Great Sydney which is at the epicentre of the outbreak, accounts for three-quarters of that.

Supported by evidence from previous short sharp lockdowns that suggests the impact on confidence and activity is relatively short-lived, US investment bank Morgan Stanley estimate the direct economic impact of a two-week lockdown will cost approximately ~A$2bn or 0.1% of annual GDP.

However, if the Greater Sydney lockdown appears set to be extended and other States also go into lockdown, the outbreak has the potential to play a part in the Board's thinking at next week’s live RBA meeting.

What does it mean for the ASX200?

Apart from the outbreak, traders also have end-of-financial-year flows to contend with that often brings with it volatility as fund managers rebalance portfolios.

In light of all of this, the ASX200 has been strangely subdued today currently trading flat on the day at 7306.4, seemingly unsure which way to turn. Technically, the preference is to buy weakness caused by uncertainty towards uptrend support coming in 7100/7000 area.

ASX200 traders cautious as Delta spreads and ahead of EOFY

Source Tradingview. The figures stated areas of the 28th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free

More from ASX

Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.