Deloitte predicts $143 billion budget black hole as wave of optimism hits ASX
The Australian share market has enjoyed gains across the board today closing at its highest level this month, as Treasurer Josh Frydenberg stares down the barrel of a $143 billion budget black hole.
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The Australian share market has closed at its highest level this month, with gains across the board as optimism rose that the coronavirus lockdowns would soon be over.
The S&P/ASX200 benchmark index finished Monday up 70.1 points, or 1.3 per cent, at 5,461.2 points, while the All Ordinaries index gained 71.1 points or 1.3 per cent, to 5,559.1.
“It’s a pretty good day today,” said CMC Markets chief market strategist Michael McCarthy.
It came despite more dismal economic news, with unemployment in the United States reaching 14.7 per cent, but there was a sense that the worst was over as Australia eased its coronavirus lockdowns.
“There seems to be a bit of optimism creeping back into the market,” Mr McCarthy said.
Energy stocks led gains, rising 2.0 per cent as the price of Brent crude rose back over $US30 a barrel, with Woodside, Santos, Oil Search and Beach Energy all up between 1.7 and 2.3 per cent.
Cochlear gained 5.1 per cent to $191 after announcing that hearing implant surgeries were restarting in some major developed markets, including the US, Germany and Australia.
In the consumer discretionary sector, outdoor retailer Kathmandu gained 15.4 per cent, car dealership chain AP Eagers gained 10.8 per cent and Noni B owner Mosaic Brands soared 31.9 per cent as they began reopening stores. Scentre Group rose 3.6 per cent after announcing 57 per cent of shops at its Westfield malls were open while fellow retail property group Vicinity Centres gained 4.6 per cent.
Afterpay closed up 5.7 per cent to $42.17, an all-time high and nearly five times its lows of late March, after Suncorp chief executive Lee Hatton reportedly resigned to take a job with the buy now, pay later company. Rivals ZIP gained 6.4 per cent, Flexigroup rose 5.6 per cent, Openpay gained 10.5 per cent and Sezzle rose 2.7 per cent.
In the banking sector, Macquarie rose 6.0 per cent to $111.54 after announcing it would try to raise $400 million through capital notes.
The big banks were mostly up, with CBA gaining 0.9 per cent to $60.14, Westpac up 0.8 per cent to $15.63 and ANZ advancing 0.5 per cent to $15.81. NAB dipped 0.6 per cent to $15.98.
Pendal Group gained 5.2 per cent to $6.05 after announcing half-year net profit was down 21 per cent to $54.8 million.
Suncorp rose 4.2 per cent to $9.28 despite outlining a pre-tax net loss of $205 million in its investment portfolio for the March quarter on account of volatility due to the coronavirus crisis.
In the heavyweight mining sector, BHP gained 0.5 per cent to $31.55, Rio Tinto gained 1.2 per cent to $83.99 and Fortescue Metals rose 0.6 per cent to $12.11. One Australian dollar was buying 65.40 US cents, up from 65.23 US cents at Friday’s close.
$143BN BUDGET BLACK HOLE FEARS
Josh Frydenberg’s first budget was a triumphant “back in black” performance but his second is predicted to show a $143 billion black hole in the nation’s finances.
The treasurer will deliver a statement on the outlook for the Australian budget on Tuesday, the start of a three-day sitting of parliament, and the day he was supposed to be delivering his 2020/21 budget.
That has been put back to October because of the coronavirus pandemic. Deloitte Access Economics economist Chris Richardson expects the budget will be in a deficit of $143.1 billion for 2019/20.
That’s in stark contrast to the government’s predicted surplus of $5 billion at the time of mid-year budget review in December.
Big deficits are also forecast for at least the next three years. At the same time, Mr Richardson also forecasts the economy contracting by six per cent on a year-average basis in 2020/21 with the unemployment rate set to rise to 8.5 per cent in that year and not returning to five per cent until 2024.
Treasury has already predicted the unemployment rate will spike to 10 per cent in the June quarter due to the crisis while economic activity is expected to slump.
And the Reserve Bank said under its best-case scenario, unemployment would still be above six per cent by the end of 2022.
The government has spent hundreds of billions of dollars to help shield the nation from the worst of the pandemic.
But Mr Richardson warns rapid budget repair would be “misguided”. “The budgetary damage isn’t structural, but the damage to our economy and our jobs would be if we start raising taxes and cutting spending,” he says. Federal Labor described Mr Richardson’s Budget Monitor as a “sobering assessment”.
Finance spokeswoman Katy Gallagher noted the Monitor warns against the Morrison government’s short-sighted “snap back” strategy and highlights ongoing support will be critical to the recovery.
“There’s a whole range of areas where I think we should all roll up our sleeves and have a look at how we can build a better Australia rather than snap back into something that didn’t work for some people,” she told ABC radio on Monday.
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Opposition Leader Anthony Albanese will lay out some of this party’s suggestions for how that should happen in a speech to caucus on Monday morning. He wants to see manufacturing revived, more social and affordable housing and a focus on rights for workers and more stable jobs.
Funds managers Atlas Advisors Australia suggest the economic hit by an anticipated 85 per cent slump in overseas visitors, students and workers could be offset by rejigging visa programs designed to attract business investors. Its boss, Guy Hedley, points out the small number of places in the business innovation and investment program have already been exhausted for the year, meaning Australia has shut its doors to overseas investors until July at the earliest.