Extended JobKeeper stimulus boosts stocks by $48bn

Banks also surged across the board on the prospect of less lending losses ending up on their balance sheets. Picture: Jeremy Piper

Extended fiscal stimulus in the form of JobKeeper has helped deliver a $48bn windfall for the sharemarket as risks of a damaging recession recede.

Marking its best day in the past five weeks, Australia’s S&P/ASX 200 share index surged 2.6 per cent to 6156.3 points — its highest close since early March – as generous extensions of wage subsidies and unemployment benefits by the federal government raised hopes of avoiding a financial cliff in September.

While strong global markets continued to drive the information technology and healthcare sectors, the shares of companies exposed to Australia’s economic slowdown were some of the best performers, after the $21bn fiscal stimulus exceeded expectations.

Among stocks exposed to the domestic economy and companies that have taken advantage of the JobKeeper wage subsidy scheme, Star Entertainment surged 6.4 per cent and auto retailer AP Eagers rallied 8.9 per cent, retailer Premier Investments jumped 5.1 per cent, Qantas soared 4.7 per cent, Tabcorp jumped 4.5 per cent and Crown Resorts rose 3.7 per cent.

Premier Investments chairman Solomon Lew said the additional measures were a “shot in the arm for the Australian workforce and broader economy” and would “aggressively incentivise businesses to retain their people and keep them connected to the organisation”.

Banks also surged across the board on the prospect of less lending losses ending up on their balance sheets.

CBA rose 3.4 per cent, ANZ and Westpac were up more than 2.5 per cent and Bendigo & Adelaide Bank, which is skewed to small and mid-sized business customers, climbed 5.2 per cent.

The additional fiscal stimulus — including a six-month extension of the JobKeeper program and a three-month extension of the JobSeeker program at reduced rates — added to positive offshore leads, making the local bourse by far the best-performing sharemarket in the Asia-Pacific region.

UBS Australia chief economist George Tharenou said the additional stimulus, worth more than 1 per cent of annual economic growth, “reduces the downside risk for growth and employment”.

But he cautioned that while the extension would lessen what would otherwise have been a $100bn “policy cliff” in the December quarter, “it is still very large at around $84bn, or 17 per cent of quarterly GDP”.

Similarly, Westpac chief economist Bill Evans warned that “without doubt, the economy will have to adjust to a very large reduction in government support in the December quarter, placing extraordinary reliance on a sustained opening up of the economy during that time”.

Job market ‘turns a corner’

The extension of the JobKeeper scheme, which is designed to help businesses cover their wages bills to retain staff, came as Reserve Bank governor Philip Lowe on Tuesday said the job market had “turned the corner” – even if younger people were still bearing the brunt of the recession.

But he used his annual address to the Anika Foundation to warn that professional service firms and builders faced significant lay-offs and reduced workflow as their work pipeline “dried up”.

“If it is not replaced soon, hours worked in these businesses will decline further, just at the same time that other parts of the economy are coming back to life,” he said, pointing to the rebound in jobs in the retail, hospitality and arts sectors.

The unemployment rate rose to 7.4 per cent in June, a 21-year high, mainly as a result of more people looking for work given total employment rose 210,000.

Australian Venue Co chief executive Paul Waterson said the JobKeeper program had been “invaluable in keeping us connected and engaged with our 4000-strong team”.

“We are seeing strong recovery of trade in states that have limited restrictions and we are confident that when the restrictions are eventually lifted in the remaining states our pubs will continue to be a significant employer of a predominantly younger workforce,” Mr Waterson told The Australian.

“The extension of JobKeeper allows us to continue to weather the storms of the Victorian shutdown as well as the significant, but necessary, operating restrictions in place in NSW.”

Retail bolstered

Among retail landlords bolstered by the extension of government support, shares in Westfield owner Scentre rose 3.3 per cent and Chadstone Shopping Centre co-owner Vicinity Centres rose 1.8 per cent.

Peter Davidson, head of listed property at Pendal, said retail sales have been bolstered by government support, mortgage forbearance from the banks, spending of superannuation drawdowns and the redirection of tourism to the domestic market.

“Looking further out, we still face a fiscal cliff when JobKeeper rolls off completely and the mortgage holiday will inevitably come to an end,” he cautioned.

“Many of the headwinds in retail are still very strong and the queue of new potential retail tenants is very short. After all, where are G Star Raw, Holister and Seafolly now?”

APN Property CEO, real estate securities, Pete Morrissey said the stimulus no doubt helped retailers but was really only short-term, with significant rental reversions as leases rolled over.

“Some tenants have been protected from bankruptcy, so how they will fare in coming months as stimulus rolls remains to be seen,” he said.

APN saw “real value” on offer but also much uncertainty, with COVID-19 cases growing and impacts of Victorian and possibly NSW shutdowns to be considered, he added.

Meanwhile, the Australian share surge was also helped by favourable global developments included encouraging results from COVID-19 vaccine trials, agreement on a €750bn ($1.22 trillion) EU Recovery Fund including €390bn of grants to pandemic-hit countries, and US talks on another US fiscal stimulus worth at least $US1 trillion ($1.43 trillion).

Elsewhere, Euro-Stoxx 50 futures surged 1.4 per cent in early European trading, while S&P 500 futures rose 0.6 per cent after the US benchmark struck a five-month high of 3251.8 points on Monday and the Nasdaq composite surged 2.5 per cent to a record high of 10,767.1 points.

China’s Shanghai Composite rose 0.2 per cent on Tuesday, the Nikkei 225 gained 0.7 per cent, and South Korea’s KOSPI rose 1.4 per cent. The Hang Seng index rose 2.1 per cent and Taiwan’s TAIEX rose 1.8 per cent.

The Australian dollar rose 0.5 per cent to US70.53c, on track for its best daily New York close in 12 months.

An RBA review of alternative monetary policies found they involved “very difficult trade-offs”.

Additional reporting: Eli Greenblat