Virus outbreak puts fear back into markets

The Australian dollar dipped and shares tumbled after Victoria ­announced a statewide lockdown from midnight on Friday, in response to another outbreak of the­ coronavirus from a quarantine hotel in Melbourne.

The Australian dollar dipped and shares tumbled after Victoria ­announced a statewide lockdown from midnight on Friday, in response to another outbreak of the­ coronavirus from a quarantine hotel in Melbourne.

After hitting a three-week high of US77.72c on Thursday amid buoyant global markets, the dollar dipped to an intraday low of US77.35c after Victorian Premier Daniel Andrews announced the snap lockdown as a “circuit breaker” in a bid to contain an outbreak of the virulent UK strain of the virus.

The sharemarket copped a bigger hit, with the benchmark S&P/ASX 200 index falling to a six-day low of 6802.4 following the announcement. It eventually closed down 43.4 points, or 0.6 per cent, at 6806.7 points.

Airlines and other travel-­related stocks were among the worst off, with Qantas down 4.8 per cent to $4.55 a share, its lowest close in the past two weeks. Flight Centre fell 2.7 per cent, Corporate Travel lost 2.5 per cent and Sydney Airport declined 2.1 per cent.

The lockdown announcement also hit gaming stocks as Tabcorp fell 1.7 per cent and Crown Resorts lost 1.7 per cent.

Toll roads operator Transurban lost 1.6 per cent, and AP ­Eagers dived 6.4 per cent — after surging 450 per cent from a low in March 2020.

Shopping mall owners and gaming companies were also ­affected, with Vicinity Centres down 1.9 per cent and Tabcorp off 1.8 per cent.

Banks weren’t spared from the sell-off, with Bendigo & Adelaide Bank down 1.9 per cent, Westpac down 0.7 per cent, National Australia Bank off 0.5 per cent and ANZ and CBA down 0.2 per cent. The sector’s losses came after a 70 per cent rise in the S&P/ASX 200 Banks index since March.

But offshore markets remained buoyant, with the S&P 500 and the Nasdaq hitting fresh record highs on Thursday amid improving trends regarding coronavirus case numbers in hospitalisations in the US since the start of the year, and with investors encouraged by the political momentum to implement the $US1.9bn ($2.5bn) of additional fiscal stimulus proposed by President Joe Biden.

“The snap five-day hard lockdown in Victoria may cause a few bumps in the recovery, but as we have seen lately — with snap lockdowns in South Australia, NSW, Queensland and Western Australia — their economic impact has been relatively minor and short-lived as they have been well timed and brief and Australians have adapted to them in ways that are less economically disruptive,” AMP Capital’s head of investment strategy and chief economist, Shane Oliver, said.

“So, providing any new lockdown in Victoria is brief, then the economic impact is likely to be minor, albeit it’s very tough for those directly impacted.”

Dr Oliver said there was growing confidence about vaccines, with production concerns declining with seven vaccines globally and the realisation that while the current vaccines may not be as ­effective in preventing infection from the new mutations they appear highly effective in preventing severe cases and the need for hospitalisation and deaths.

“If the latter remains the case, then the new mutations won’t be a barrier to reopening once sufficient people have been vaccinated,” he said.

“Rough estimates suggest herd immunity can be reached in developed countries by the ­December quarter, with the US around mid-year, and in the first half of next year in most emerging countries.”

The sell-off in the Australian market came amid quiet trading in offshore markets on Friday, with much of the region — including China, Hong Kong, South Korea, Indonesia, Vietnam, the Philippines and Taiwan — closed for lunar new year holidays. The US sharemarket will be closed on Monday for President’s Day, leaving the Australian market focused on the virus and corporate earnings reports.

“Though there’s no great alarm in the markets right now about the long-term economic impacts, the speed of the decision to send Victoria into stage 4 restrictions caught market participants a little off guard, with the S&P/ASX 200 share index dropping today on each bit of news that made it clearer a lockdown was coming,” said IG market analyst Kyle Rodda.

He said that although it was a “major setback” and “another indictment” of Victoria’s management of hotel quarantine”, the playbook of lockdowns was well known and there was hope that this new lockdown, like those in Queensland and WA recently, would be short and sharp.

But Mr Rodda noted that it was still likely to be a “source of lingering uncertainty” for Australian financial markets next week, for two reasons.

“First, the Victorian government has stated its serious concern that the highly virulent UK strain of the virus could already be widespread in the community,” he said.

“Second, the most prominent hotspot in this outbreak is a cafe at Melbourne Airport, at which an infected person spent hours recently, raising the potential that infections have spread right across the country.”

It comes ahead of a big week for corporate earnings, with 66 of the top 200 companies, including Rio Tinto, Fortescue, Woodside, Santos, Wesfarmers, Goodman and QBE, due to report.