ASX trims gains despite Afterpay, BNPL surge

$0 or $150? Oil players pondering what comes next, while Afterpay soars 11pc to a new record.

The ABS reported a record slide in new home loans for May. Picture: Gaye Gerard/ SundayTelegraph.

• Sezzle cashing in after 70pc daily lift
• Afterpay headed to $101: MS
• US demand drop off to dent Treasury
• Netwealth FUA jump, outlook lifted

Welcome to the Trading Day blog for Thursday, July 9. The ASX gained as much as 1.3pc intraday but faded to a 0.6pc lift at the close, following gains on Wall Street and as gold prices hit their highest level since 2011.

Locally, Treasury Wines warned of a 21pc earnings hit for the full year, pointing the finger at COVID-19, while Morgan Stanley upgraded Afterpay’s target price to $101, sparking an 11pc rally in the stock to new record highs.

9.11pm: Think long term, Chinese instructed

Chinese state media urged investors to think long-term, and authorities highlighted hundreds of operations making illegal loans against shares, showing that Beijing is eager to avoid stocks overshooting.

Mainland stocks have surged to multiyear highs in recent days, with the Shanghai Composite rising 16.5% in eight straight sessions of gains through Thursday. Those increases were partly fueled by optimism among China’s millions of individual investors, who dominate trading.

In another sign of exuberance, shares in a newly listed company, QuantumCTek Co. Ltd., surged roughly 10-fold on their first day of trading in Shanghai on Thursday, giving it a $US4.2 billion market value. The Chinese yuan strengthened to trade below 7 to the dollar.

A front-page editorial Monday in the state-owned China Securities Journal about a “healthy bull market” was viewed as an official endorsement, in a market where investors often take their cues from government action and statements. But on Thursday, the same newspaper urged investors to manage risks, respect the market, and to invest rationally and for the long-term.

“The painful lessons of the abnormal stock market volatility in 2015 are still vivid in our minds, warning us that we must promote a healthy and prosperous stock market in a proper manner,” it said.

Starting in 2014, the Chinese market more than doubled in less than a year, as individual investors borrowed to bet on stocks, with official encouragement. But an epic crash in mid-2015 wiped out most of those gains in slightly more than two months.

In another sign of caution, the securities regulator late on Wednesday listed 258 illegal margin-lending platforms and their operators. These lenders worked through websites, apps, and via the social-media service WeChat, with some offering to lend investors up to 10 times their capital, it said.

Dow Jones Newswires

8.00pm: What next for oil?

Picture: AFP

Oil markets began the 2020s by nosediving below $US0 a barrel for the first time. Investors and analysts are now trying to work out what the rest of the decade holds in store.

Some think the bust will set in motion a boom, predicting that investment in oil-and-gas production will dry up and propel crude prices back above $US100 a barrel.

“That funding pressure is going to be massive. It’s going to be really difficult for some of the producers to produce,” said Trevor Woods, chief investment officer of Ohio-based hedge fund Northern Trace Capital. “We could hit $US150 pretty easily by 2025.” Others say the pandemic will sap fuel demand after the threat of contracting coronavirus has faded, cementing an era of cheap oil.

The debate over the long-term direction of the world’s most important energy source is thorny. Oil markets have dozens of moving parts, making them hard to forecast.

In the long run, most analysts agree prices should gravitate to a level at which energy producers profit from making just enough crude to match demand. Covid-19 has made that calculation more complex. Investors are unsure whether the pandemic will permanently alter transport and consumption patterns, or expedite the move toward cleaner energy sources.

Oil prices staged a quick recovery after turning negative in late April, boosted by a pick-up in China’s economy as well as output cuts by the Organisation of the Petroleum Exporting Countries, Russia and producers in North America. The rally has stalled since new coronavirus cases threatened to hit fuel demand in Southern and Western U.S. states. West Texas Intermediate futures, the benchmark in U.S. oil markets, have traded at around $40 a barrel since late June.

The case for soaring prices rests on asset managers and banks declining to bankroll necessary investments in new and existing oil wells, leading to a shortfall of crude.

Oil companies have already slashed spending plans, seeking to shore up their balance sheets in response to the drop in revenue caused by the pandemic. Exxon Mobil Corp., which last week warned of big losses in its second-quarter earnings, has said it plans to reduce capital spending in 2020 by $US10 billion, or 30%.

European majors are also responding to pressure from investors to reduce their carbon footprint. BP PLC cut its investment plans by 25% to $12 billion and is reviewing whether to develop oil-and-gas fields it hasn’t fully tapped.

All told, investment in upstream oil-and-gas assets is expected to slump 32% this year to $328.4 billion, the International Energy Agency said in May, the biggest decline in at least 10 years.

This belt tightening will have a lasting impact on the world’s ability to produce oil, said Christyan Malek, an analyst at JPMorgan. He estimates that five million barrels a day – or roughly 5% of pre-Covid-19 levels – will be lost, and that an additional $625 billion will need to be invested by 2030 for production to catch up with demand.

Prices will rise higher than they did in the past to incentivise new oil output, according to Mr. Malek. That is partly because investors are telling energy companies to drill for higher-quality crude and cut methane emissions, raising production costs.

“Could we see oil move to $100 over the next two years?” Mr. Malek said. “Absolutely.” Richard Fullarton, chief investment officer of London-based investment fund Matilda Capital Management, said he expects the price of oil to vault above $100 a barrel in the second half of the 2020s.

Dow Jones Newswires

Robyn Ironside 6.57pm: Long wait at BNE

Airline passengers arriving into Brisbane prior to Friday’s midday reopening of the Queensland border will be required to remain at the airport until noon.

Only essential travellers or returning residents will be allowed out prior to midday, meaning a 4.5-hour wait for passengers of Qantas flight QF500 from Sydney, and a 3.5-hour wait for Virgin Australia passengers on flight VA909.

Jetstar has pushed back its morning flight out of Sydney, so it arrives at 12.10pm rather than 7.40pm.

Restrictions do not apply to arrivals from intrastate airports.

Brisbane Airport Corporation confirmed passengers of morning flights would be held in “temporary quarantine” in the terminal or at the Brisbane Conference Centre opposite the airport.

Queensland police will be at the airport checking passengers’ credentials as they have since the border closure came into effect on March 25.

Anyone travelling from Victoria will be turned back due to the outbreak of COVID-19 in the state.

On Thursday Premier Annastacia Palaszczuk toughened her stand on arrivals from Victoria, imposing a total ban in the place of two-weeks of self isolation.

6.34pm: Tough times at Uniqlo

Picture: AP

Uniqlo operator Fast Retailing reported plunging profits and lowered its annual profit outlook on Thursday, with the Japanese giant citing the impact of the coronavirus pandemic, which forced lengthy store closures.

The firm now expects annual net profit to August of ¥85bn, down from an earlier projection of ¥100bn announced in April, and nearly a half of what it earned in the previous year.

Annual operating profit is forecast at ¥130bn and sales at ¥1.99 trillion, compared with earlier forecasts for ¥145bn and ¥2.09 trillion respectively.

The revisions were necessary as previous forecasts did not account for the full impact of a state of emergency Japan declared earlier in the pandemic, which forced the firm to shut stores, as well as the slower-than-expected reopening of its branches overseas.

For the nine months to May, Fast Retailing said its net profit plunged 42.9 per cent to ¥90.64bn. Operating profit and sales were also down.

And the company reported impairment losses, linked to the declining value of certain assets, of ¥15.2bn, further driving down its bottom line.

Fast Retailing said it was on track to achieve business targets it set given the tough business climate with cost-cutting, limited discounts and a healthy recovery for operations in Japan and China.

AFP

David Rogers 6.01pm: ASX extends emergency rules

The ASX has extended its temporary emergency capital raising relief for Australian companies in response to the worsening coronavirus pandemic in major overseas markets and Victoria.

Introduced by the regulator on March 31 to help listed companies affected by the COVID-19 pandemic to raise urgently-needed capital, the measures have been extended by four months.

These measures which were due expire on 31 July 2020, include permission to request two consecutive trading halts totalling up to four trading days to consider, plan for and execute a capital raising, and a temporary uplift in the 15 per cent placement capacity in rule 7.1 to 25 per cent, subject to there being a follow-on accelerated pro rata entitlement offer or share purchase plan at the same or a lower price than the placement price.

“The decision was made in light of the high and increasing levels of COVID-19 infections in major overseas markets, recent events in Victoria, and the present uncertainty about the nature and level of government economic stimulus in Australia after September 2020,” the ASX said.

Read more: ASX extends emergency capital raising rules

4.53pm: Treasury trims losses, miners lift

Treasury Wine made back most of its intraday losses, after warning of a 21pc profit slide for the full year, helped by a broader 0.6pc lift in the market.

By the close, the winemaker was lower by 2.9 per cent to $10.95 – after hitting lows of $10.61.

Still, as most sectors gained ground, the stock was one of the worst performing in the top 200.

On the flip side, Afterpay was the best by a significant margin – adding 11pc to new record highs, while Netwealth jumped by 9.2pc after its strong quarterly report.

Here’s the biggest movers at the close:

4.31pm: COVID to speed up Goodman growth

Citi’s Nebhani Suraj has cut Goodman Group to Neutral from Buy after a transfer of coverage and the end of a research restriction.

“Despite a strong EPS growth outlook and our above-consensus earnings, we downgrade Goodman Group to Neutral given current premium pricing limits the upside over the next 12 months,” Mr Suraj said.

“We expect COVID-19 should accelerate Goodman’s development earnings growth. Investment earnings growth should offset slowing growth in management earnings.”

His price target falls 11pc to $16.50. GMG closed down 0.6pc to $15.21.

4.11pm: Share rally fades, Afterpay adds 11pc

The local market faded to the close, giving back half of its intraday gains to close higher by 0.62 per cent.

Early strength was fuelled by offshore gains, as markets looked past rising infection tallies to the prospect of further monetary easing.

Local shares climbed as much as 1.3pc intraday but failed to hit the 6000 mark, fading at the close to finish up 35 points or 0.59 per cent to 5955.5.

On the All Ords, shares added 41 points or 0.67 per cent to 6074.9.

Outperformance in tech stocks was a key market driver – following record highs on the US Nasaq – with Afterpay leading the charge with an 11.4pc gain to $73.50.

Elsewhere, Energy jumped 2.4pc while the Commonwealth Bank dragged financials to flat.

3.52pm: ASX200 shies off 6000

Australia’s share market has shied off a key chart level before the close.

The S&P/ASX 200 was up 0.9pc at 5971 after rising 1.3pc to 5998.8 intraday.

It came as S&P 500 futures slipped 0.1pc after rising 0.2pc intraday, and Dalian iron ore futures trimmed their 2.4pc overnight rise to 0.7pc, although Comex copper futures rose 1.1pc.

China remains strong, with the Shanghai Composite up 1.4pc to a 2.5-year high of 3452.4 but it still looks as though a bounce in volatility could push the S&P500 a bit lower.

Combined with unease about the 6-week lockdown of Melbourne, that may cause a renewed dip in the S&P/ASX 200. The apex of the recent bullish pennant should hold at 5815.

3.30pm: Virgin bondholders make proposal

Virgin Australia bondholders have proposed a debt-to-equity conversion worth 69 cents in the dollar, as well as funding for the airline, according to their court filing today.

3.08pm: Treasury outlook still unclear: Citi

Citi’s Craig Woolford says that while it was good to get some clarity from Treasury Wine about its earnings position and improvement in Asia, the fundamental size of this business and path for recovery in its commercial portfolio remains unclear.

“Moreover, one share price catalyst, the potential Penfolds demerger, remains a preferred option, but not a focus near term,” he says.

Treasury Wines’ FY20 EBITS guidance of $530m to $540m was 7pc below his forecast and FY21 guidance was withdrawn.

Mr Woolford notes that the outlook for FY21 has deteriorated, with a poor FY20 vintage offsetting US cost savings and while commentary on China was encouraging around stabilisation, the deterioration in US earnings makes it “challenging to see a meaningful rebound in FY21”.

He has a Neutral rating and $10.60 price target.

TWE last down 2pc at $11.00 after falling 6pc to a 2-week low of $10.61.

Read more: Treasury warns of 21pc earnings dive

2.58pm: Macquarie’s picks for dependable dividends

As the global economic slowdown causes high levels of dividend uncertainty, avoiding ‘yield traps’ will be critical for successful income investing, says Macquarie.

“In this environment, stocks with dependable dividends are more likely to see outperformance into their ex-date than those with less dependable dividends,” equity strategist Matt Brooks says.

Yet the traditional sources of yield for Australian investors are also shifting, with an increased representation of Materials and Industrials stocks and decreased representation of Financials and Consumer Discretionary stocks.

Macquarie’s dividend cut prediction model aims to determine which dividends are more dependable, by forecasting the probability of a company cutting its dividend in the near term.

Companies cutting their dividends are likely to have poor price momentum, low growth in dividends per share, low quality metrics such as return on assets or return on equity, high volatility measured by the standard deviation of returns, and higher measured dividend yields.

Mr Brooks finds that higher-yielding stocks with a lower probability of a dividend cut this reporting season include Fortescue Metals, Spark Infrastructure and Aurizon Holdings.

Those with a higher probability of dividend cut include Bendigo Bank, Nine Entertainment and Origin Energy.

David Swan 2.22pm: Telstra now carbon neutral

Telstra chief executive Andy Penn says his telco is now carbon neutral in all of its operations, well ahead of schedule.

Speaking in a keynote address to the trans-Tasman Business Circle, Mr Penn said Telstra had on Thursday received formal certification from Climate Active that the telco is now fully carbon neutral.

“Climate change is a perfect example of where business should take meaningful action because the business sector is a material contributor to greenhouse emissions. This period of COVID has provided a chance to experience our world as a quieter environment and under clearer skies. If ever there was encouragement for bolder and more significant action on climate it is now,” Mr Penn said.

Follow the latest tech updates at our live tech blog The Download

1.55pm: Sezzle cashing in after 70pc daily lift

Buy now, pay later provider Sezzle has been halted in afternoon trade, pending detail of a capital raising – just as its shares rallied by 43pc to new highs.

The Afterpay rival earlier this week reported strong second quarter results, noting a shift in shopping patterns to online as a result of coronavirus restrictions.

Shares in the group were halted in afternoon trade, pending “a material capital raising”.

Earlier today the stock hit record highs of $8.25 – a 68pc intraday lift.

SZL last traded at $6.95 after joining the bourse just 11 months ago at $1.22 apiece.

Read more: Sezzle thrives in the pandemic

1.44pm: Media Super, Cbus mull merger

Super funds Media Super and Cbus are have inked a due diligence deal, with potential to create a merged $60bn fund of 800,000 members.

The two parties will kick the tyres on a joint arrangement to be in operation in 2021.

Cbus, a fund for construction and building unions, manages $54bn in retirement savings, while Media Super oversees just under $6bn.

“By increasing our size, we can provide access to a greater range of investment opportunities and provide a better deal through cost savings, potentially reducing the investment fees,” Media Super chair Gerard Noonan said.

“Cbus has a strong offering with 30pc of its investments internalised and ownership of its market-leading developer, Cbus Property.

“We believe that the merger will also continue to build on our leading responsible investment approach and have a much stronger voice with the companies with which we engage.”

It comes after First State and VicSuper earlier this year merged to create a $120bn fund.

Read more: Super fund mergers set to increase: APRA

Ben Wilmot 1.34pm: Melbourne closures dent Scentre outlook: CS

Credit Suisse has cut its earnings guidance on local Westfield owner the Scentre Group but says there is still good value in the stock.

Scentre’s earnings guidance remains withdrawn and it has not provided any updates on rent collection or any rent relief granted in the wake of the coronavirus crisis, although it had said 92 per cent of Australian stores were open ahead of the Melbourne flare up.

The group has about 15 per cent of its portfolio in Victoria and Credit Suisse said the state’s six-week lockdown had prompted it to lower estimates spanning fiscal 2020 to fiscal 2022 Funds From Operations per share by 7.1 per cent, 9.6 per cent and 12.1 per cent respectively.

Credit Suisse lowered its target price from $3.34 to $3.02.

“While post COVID-19 major retail groups (that in some cases have hundreds of stores across Australia) will no doubt look to reduce their store footprint and focus more on their online platform, we also think they will still want a core physical store platform in good quality, well located malls such as Scentre’s,” Credit Suisse said.

Shorter term catalysts for a share price rerate are not clear given uncertainty over rents and cash flows — with some investors possibly of the view that Scentre may look to or need to raise equity.

“That said, we see Scentre as an undervalued asset play and retain our Outperform rating,” Credit Suisse said.

Follow the latest coronavirus updates at our live blog

1.26pm: Watch for defensive rotation: UBS

UBS Australia quantitative analyst Pieter Stoltz tells clients to “stay overweight cyclical equities for now, but watch sign posts for defensive rotation”.

He notes that the economy is performing better than feared, and earnings forecasts are rising along with economic forecasts, thanks to record fiscal stimulus but that won’t stop a “fiscal cliff” caused by the removal of $100bn of stimulus in the September quarter.

Of the 32pc rise in the ASX200 from its March trough, Mr Stoltz estimates fiscal stimulus has contributed 30pc and any lessening of those measures will impact half the sharemarket, and “highly impact” 37pc.

“We think if consumers will save more in Q4 and further stimulus does not meet market expectations, equities may fall,” Mr Stoltz warns.

The outlook depends how many of the 3.5 million people on JobKeeper find another job by September; as well as consumers’ willingness to spend without stimulus, versus the government’s willingness to stimulate if spending disappoints.

“Equities are likely to be supported by further positive data releases in the third quarter,” Mr Stoltz says. “We expect cyclicals to outperform until September on the back of a rebound in the consumer, which could see strong retail sales for July and August.”

But he sees “large volatility” in the economic data after the potential fiscal cliff in September and “downside risk for equities” in Q4.

“Cyclicals, particularly Discretionary Retail, are likely to come under pressure without JobKeeper supporting consumption.”

Adeshola Ore 1.16pm: Morrison suspends HK extradition ties

Australia has torn up its extradition agreement with Hong Kong as Beijing’s crackdown on national security intensifies.

Mr Morrison said the national security law constituted a “fundamental change of circumstances”.

“We have formally notified Hong Kong and advised Chinese authorities,” he told reporters at a press conference.

It comes after Beijing’s controversial national security law, which silences criticism of China, was imposed on the region last week.

The new law criminalises acts of “subversion and secession”, “terrorism” and “collusion” with foreign forces with the threat of potential life imprisonment. The law triggered a fresh wave of protests in Hong Kong.

1.01pm: Afterpay, Netwealth lead ASX higher

Afterpay is leading the local benchmark higher in lunch trade, as it sets a new record high of $73.65.

It comes after Morgan Stanley raised its rating on the stock to Overweight, and target price to $101 – now the most bullish of all the brokers.

APT is higher by 11.6pc to $73.61 at lunch, with Netwealth not far behind – up 5.9pc to $9.83.

The broader market is higher by 53 points or 0.89 per cent to 5973.1 – making up ground after yesterday’s afternoon sell-off ahead of the Melbourne lockdown.

Here’s the biggest movers at 1pm:

12.33pm: Mortgage Choice cheers refinancing data

Competition in the mortgage market has seen a record number of consumers refinancing, according to the latest data from the ABS.

Over the past month, at least 19 lenders have slashed rates on variable home loans, with the lowest variable rate now 2.17 per cent.

ABS chief economist Bruce Hockman said refinancing between banks was “by far the highest on record as borrowers responded to reduced interest rates and refinancing offers”.

Mortgage Choice shares have cheered the news, up 4.3pc, while non-bank lender ResiMac is flat at $1.09. Australian Finance Group is higher by 0.3pc to $1.65.

Meanwhile, the big four banks are all up by between 0.3pc to 1.3pc.

Read more: Melbourne property faces repeat blow

12.15pm: Hong Kong, China join lift

Hong Kong stocks started Thursday morning with healthy gains following another record-breaking performance on Wall Street.

The Hang Seng index rose 0.85 per cent, or 221.95 points, to 26,351.13. The benchmark Shanghai Composite Index ticked 0.04 points up to 3403.48, while the Shenzhen Composite Index on China’s second exchange inched down 0.17 points to 2,198.45.

AFP

David Ross 11.34am: New loans slide, refinancing booms

New home loans fell sharply in May, down 11.6pc, the largest fall in the history of the data, but refinancing is booming, according to the ABS.

As auctions and home inspections were put off in line with COVID-19 restrictions, the latest data from the national statistics bureau notes the value of home loans fell to $16bn, driven by a drop-off in Victoria and NSW.

Economists surveyed by Bloomberg had expected a fall of 5.5 per cent for May. This compares to a fall of 4.8 per cent in April.

New loan commitments for owner occupiers fell 10.2pc, while investor housing fell 15.6pc.

“While reduced transactions in the housing market stifled new loan activity in May, the value of existing owner occupier loans refinanced with a different bank was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers,” ABS chief economist Bruce Hockman said.

The value of new loan commitments for fixed term personal finance rose 14.5 per cent in May, seasonally adjusted, following a 24.8 per cent fall in April.

April #auction restrictions hit #aushousing lending in May (-11.6% m/m). The pandemic’s effect on housing lending will linger, as borrowing capacity weakens, investor returns compress and low population growth hit construction demand. @Adelaide__T @felicity_emmett #ausecon pic.twitter.com/znnYVPLUfY

— ANZ_Research (@ANZ_Research) July 9, 2020

10.51am: Recce tapped for local COVID-19 trials

Local drug developer Recce Pharma has been tapped by the CSIRO to provide compounds in its trials for a COVID-19 treatment.

The biotech this morning said its Recce 327 and new 529 compounds had been selected for the government’s COVID-19 antiviral screening program, as a top priority candidates for a potential treatment for the virus.

Both compounds will be tested first in-vitro, then in a model of human lungs followed by in ferrets at CSIRO’s Australian Centre for Disease Preparedness.

“We are very pleased to have been selected by the CSIRO, one of the largest and most diverse scientific research organisations in the world, to investigate the efficacy of two of our promising compounds against SARS-CoV-2,” chairman Dr John Prendegast said.

“The compounds’ unique, universal mechanisms of action indicate potential to attack a broad range of viruses and as well, overcome the threat of viruses’ typical hyper-mutation into new and deadly pathogens.”

RCE shares are higher by 67.7pc to $1.14, after hitting record highs of $1.25.

10.35am: NZ utilities hit by Rio wind down

Listed stocks with exposure to New Zealand utilities are taking a hit in early trade, as Rio Tinto flagged its intention to wind-down and eventually close its NZ aluminium smelter,

The heavyweight miner said it would close its NZ smelter by August next year after a review found it wasn’t economically viable.

As a result, a number of local companies will lose key electricity contracts.

Contact Energy is lower by 12pc to $5.60, Meridian Energy by 10.2pc to $4.40, Mercury by 5.3pc to $4.33 and Genesis Energy by 6.1pc to $2.75.

On the Wellington exchange, the weight of the energy drag is pulling the market’s top 50 stocks down by 1.6pc early.

Rio Tinto, meanwhile, is higher by 2.5pc to $97.94.

Read more: Rio Tinto to close ‘uneconomic’ NZ smelter

10.23am: Afterpay headed to $101: MS

Not wanting to be left out of the massive upgrade cycle in Afterpay, Morgan Stanley’s Andrew Stadnik has upgraded the buy-now-pay later favourite to Overweight from Equalweight.

Mr Stadnik also boosted his 12-month price target by an incredible 180pc to a market-beating $101 a share.

This follows almost-as-massive price target upgrades by Citi, RBC, UBS and Bell Potter in recent days.

Contrarian investors would be wary of a pullback after such a massive upgrade cycle. Perhaps Afterpay will flourish but its share price had already risen 677 per cent before this upgrade cycle began last Thursday.

“We upgrade to Overweight, given Afterpay is demonstrating better-than-expected credit quality control, while accelerating sales growth and diversifying away from the fashion category,” Mr Stadnik says.

“While valuation seems challenging, we think it is warranted by the global Buy Now Pay Later platform that Afterpay is building out,”

APT last up 2.7pc to $67.77.

Read more: Afterpay successfully raises $650m

10.15am: Shares rebound as Treasury slips

Shares have jumped as much as 0.8pc at the open, rebounding from yesterday’s weakness as tech and miners outperform.

The benchmark ASX200 hit as much as 5969.6 and last traded up 36 points or 0.61 per cent to 5956.6.

Tech shares are following the strong US lead, helped by a 1.9pc lift in Afterpay after Morgan Stanley raised its price target by 180pc to $101, while gold miners cheer further strength in the gold price, led by a 2.4pc jump in Newcrest.

Treasury Wines is losing 3.4pc to $10.90 after warning of a 21pc hit to earnings, blaming COVID-19.

9.42am: ASX headed back toward 6000

The ASX 200 should rise toward the 6000 pivot point today, but it will probably fail to break that level barring further gains on Wall Street or another big rise in China’s share market.

After China’s Shanghai Composite rose 1.7pc to a 2.5-year high of 3403.4, the US S&P 500 rose 0.8pc amid a 2.8pc rise in the NYFANG index of tech stocks and gains in the consumer discretionary, financials, communications and utilities sectors.

The VIX index fell from 29.4pc to 28.08pc, but this volatility index bears watching after bouncing off its 200-day moving average at 26pc this week.

Technology and Materials stocks should outperform, with Morgan Stanley upgrading Afterpay to Overweight, spot iron ore up 4pc to $US103.30 a tonne, and the Australian dollar gold price hitting a 5-week high.

But the ASX 200 and the Financials, Real Estate and Consumer Discretionary sectors in particular are vulnerable to concern about the economic and earnings impact of Melbourne’s six-week lockdown and the risk of spread to NSW.

The S&P/ASX 200 fell 1.5pc to 5920.3 on Wednesday, its biggest fall in two weeks, as Melbourne prepared to enter lockdown and coronavirus spread to the ACT.

David Ross 9.03am: Minority of deferrals to be distressed: CBA

Commonwealth Bank CEO Matt Comyn speaking on ABC Radio National said there were difficult decisions ahead for the bank’s customers who could not resume paying their loans.

CBA had roughly 260,000 customers flag their intention to take up the bank’s home and business loan deferral offer in response to the economic crisis brought on by the COVID-19 outbreak.

Around 120,000 mortgage loans and 60,000 business loans were ultimately deferred.

Mr Comyn said he expected only a minority of bank customers who had received a loan deferral to be unable to resume payment by the September cut-off.

“We expect it will be in the minority and expect it will be case-by-case,” he said. “It will be a tailored approach to determine what’s in their best interests.”

But he accepted the suggestion that it was inevitable that some would be unable to resume debt payments.

“We’ve demonstrated a lot of flexibility. That can’t continue indefinitely,” he added

Read more: Market starts to worry about bad loans

Samantha Bailey 8.52am: US shutdowns hurt Treasury earnings

Treasury Wine Estates has flagged a 21 per cent hit to full-year earnings due to the impact of COVID-19, in large part thanks to a decline in US demand as bars and restaurants have been closed for several months.

In a business update on Thursday morning, the winemaker said it expects to report earnings before interest and taxes to be between $530m and $540m for the 2020 financial year when it unveils its statutory accounts in August.

Treasury, which makes brands such as Penfolds, Wolf Blass and Beringer, told the market US earnings had sunk by 37pc, while Asia was down by 14pc and local earnings were lower by 16pc.

The group said its plans to spin-off Penfolds were progressing, with work done to date “validating the expectation that value will be created through a separate focus for both Penfolds and TWE’s other brands”.

In February, the company said that as a result of the COVID-19 outbreak, it no longer expected to achieve its full year guidance of earnings growth of between 5 and 10 per cent and further today said it would not give guidance for FY21.

8.41am: Netwealth FUA jump, forecasts lifts

Super and wealth management firm Netwealth has posted a 35 per cent jump in its funds under administration for the full year, even after taking a $900,000 hit from the recent market volatility.

In a quarterly business update this morning, Netwealth said it had funds under administration of $31.5bn as at June 30, a $8.2bn increase for FY20 thanks to record fund inflows of $9.1bn.

It said March quarter flows had been markedly lower as a result of COVID-19 disruption, but gradually improved through June to the same levels as last year.

Accordingly, Netwealth said it expected performance for the full year to slightly exceed the previous guidance of $120m in revenue and earnings of $62m, with new pricing flowing through to all accounts by December 31.

“The uncertainties currently prevailing around the world as a result of COVID-19 make it challenging to predict the future but Netwealth remains positive given its strong cash flows, no debt and growing market share,” it said.

8.39am: What’s on the broker radar?

• Afterpay raised to Overweight, price target raised 180pc to $101 – Morgan Stanley
• Alumina cut to Neutral, price target cut 11pc to $1.60 – Citi
• Metlifecare raised to Buy – UBS
• Pacific Smiles raised to Buy – Bell Potter
• Saracen Minerals cut to Underperform – Macquarie
• Saracen Minerals cut to Neutral – UBS
• Select Harvests cut to Hold – Bell Potter
• Telstra raised to Buy – HSBC
• West African Resources raised to Neutral – Macquarie

8.05am: Worley takes full ownership of TW Power Services

Worley Ltd. has increased its stake in TW Power Services to 100 per cent, after acquiring Ferrovial’s 50 per cent shareholding for a cash consideration of $20 million.

Worley said the acquisition will contribute to its global power business and expand its established operations and maintenance expertise, adding that it will be accretive to its earnings from the first year.

“As well as enhancing our global operations and maintenance capability, this acquisition accelerates our role supporting our customers through their energy transition, helping them prepare for a low-carbon future and the digitalisation of industry,” said Worley chief executive Chris Ashton.

TWPS is an O&M business providing services to support critical power infrastructure across Australia, New Zealand and South East Asia.

Dow Jones Newswires

8.00am: Twitter interest in subscription service

Twitter said it was developing a subscription service that could give the social-media company a new revenue source at a time when it is under pressure to boost earnings.

The San Francisco company said in a job posting for a senior software engineer that it was “building a subscription platform” under a team codenamed Gryphon and seeking someone to lead payment and subscription client work. Gryphon appears to be software that would be accessible to Twitter’s internal teams looking to add subscription options to their products, according to the job description. “This is a first for Twitter!,” the company said in the posting.

Twitter chief executive Jack Dorsey is under pressure to boost results after a battle with Elliott Management Corp. The activist investor sought to remove the part-time chief executive, who splits his time with financial technology company Square Inc. The sides agreed to a truce with Twitter pledging to seek stronger revenue growth.

Dow Jones

7.00am: Airbus deliveries slump

Airbus said January-June plane deliveries slumped by half to 196 aircraft compared with the first six months of 2019, highlighting the impact of the coronavirus crisis.

For the second consecutive month there were no new orders in June, the plane maker added, though it did record 36 deliveries, up from 24 in May and 14 in April.

In the first half of 2019, Airbus made 389 deliveries – a closely-tracked variable because clients pay most of the cost when they receive the planes.

The COVID-19 pandemic has hammered the aviation sector with border closures preventing deliveries and a slump in traffic leaving most carriers strapped for cash.

AFP

6.25am: Rio Tinto to close NZ smelter

Rio Tinto said it plans to close New Zealand’s only aluminium smelter after a review found it wasn’t economically viable.

The smelter in New Zealand’s South Island is the largest consumer of electricity in the country and its closure would be a blow for Meridian Energy, which supplies its power.

Rio Tinto said it will start planning for the wind down of operations and eventual closure of the smelter.

Read more

Dow Jones Newswires

6.20am: ASX poised for positive open

The ASX is set to open higher after solid gains on Wall Street, where investors looked past rising US-China tensions and sought out companies thought to be insulated from rising US virus infections.

At 6am (AEST) the SPI futures index was up 47 points, or 0.8 per cent.

Local stocks yesterday closed down 1.5 per cent, led by the banks.

The Australian dollar rose to US69.80c, from US69.38c at yesterday’s close.

6.10am: US stocks post solid gains

US stocks advanced, while mainland Chinese shares extended a winning streak for a seventh consecutive day.

The S&P 500 advanced 0.8 per cent as of the close in New York. The Nasdaq Composite added 1.4 per cent to hit a new record. The Dow Jones Industrial Average was up 0.7 per cent.

US stocks have traded in a narrow range for the past month, after zipping higher for much of the second quarter. Investors have been weighing stimulus efforts by central banks and governments against signs that the rebound in U.S. economic growth has lost speed. Meanwhile, there’s been a jump in coronavirus cases in parts of the country, and tensions have risen between China and the West.

“I would characterise the stock market as relatively immune to the [health] crisis,” said Gregory Perdon, co-chief investment officer at Arbuthnot Latham & Co, a UK private bank. It is difficult for stock prices to go down when stimulus measures by the Federal Reserve and European Central Bank have pinned down bond yields, he added.

The S&P 500 snapped a five-session streak of wins yesterday as the US reported 60,000 new coronavirus cases, a single-day record, according to data compiled by Johns Hopkins University.

There are signs investors are also turning cautious in other parts of the market. Gold prices have risen to the highest level since September 2011 and are continuing to advance.

“There’s definitely never been more unknown unknowns out there. We’ll have to see whether the economy can stay open and people can get back to work,” said Nancy Davis, portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund.

Chinese shares resumed their recent spurt, pushing the Shanghai Composite Index up 1.7 per cent. The index has advanced 8 per cent this week as individual investors bet that a recovering economy will boost profits. The streak has revived memories of an earlier rally in Chinese stocks in 2015, which ended in a crash.

International stock markets were mixed. Japan’s Nikkei 225 Index was down 0.8 per cent. The Stoxx Europe 600 fell 0.7 per cent.

Global oil prices rose, with Brent up by 0.5 per cent to $US43.29 a barrel. The US Nymex price gained 0.7 per cent to $US40.90 a barrel.

Dow Jones Newswires

5.58am: Brooks Brothers goes bankrupt

Brooks Brothers, the 200-year-old company that dressed nearly every US president, filed for bankruptcy protection, the latest major clothing seller to be toppled by the coronavirus pandemic.

Founded in New York in 1818, Brooks Brothers survived two world wars, the Great Depression and even managed to stay afloat as dress standards eased in the office.

But the pandemic pushed it into Chapter 11 bankruptcy protection with so many stores closed and, with millions working from home, a crisp suit pushed to the very bottom of shopping lists.

Brooks Brothers will permanently close more than a quarter of its 200 stores.

AP

5.55am: GM racketeering lawsuit dismissed

A federal judge dismissed a General Motors Co. lawsuit accusing Fiat Chrysler Automobiles NV of bribing union officials to gain an advantage on its labour costs, in an unusual legal standoff between rival automotive giants.

GM in November filed a civil-racketeering lawsuit against Fiat Chrysler, claiming the Italian-American automaker intentionally hurt GM by paying off United Auto Workers leaders to win more-favourable contract terms for union-represented factory workers.

On Wednesday, U.S. District Judge Paul Borman said GM failed to show it was the primary victim of any alleged racketeering activity that Fiat Chrysler officials may have engaged in.

Instead, the alleged primary victims were rank-and-file UAW workers, who would have received lower pay from any attempt by Fiat Chrysler to lower labour costs, the judge concluded. “GM suffered only indirect competitive harm,” he said.

GM said it plans to continue pursuing the case and believes there is evidence to show that Fiat Chrysler employees engaged in racketeering that harmed GM. “The district court’s opinion is contrary to well-settled RICO case law and would let wrongdoers off the hook for the massive harm caused by their criminal conspiracy,” the company said.

Dow Jones

5.50am: US hits 3m coronavirus cases

The US surpassed 3 million confirmed COVID-19 cases less than a month after crossing the 2 million mark, as the virus spread rapidly in the nation’s three most populous states.

Climbing case counts in California, Texas and Florida drove the U.S. to a new single-day record of infections, with 60,000 new cases reported, according to data from Johns Hopkins University.

After the coronavirus was first reported in the U.S. in January, the first million reported cases developed over roughly three months, as testing centred around those who had fallen ill and essential workers. The second million cases were reported over a period of about six weeks.

“We have never gotten out of the first wave,” said Dr. Anthony Fauci, the nation’s top-infectious disease expert, in an interview set to air Wednesday on The Journal podcast. “So I wish we would stop talking about waves and just look at the reality of where we are right now.”

Dow Jones

5.45am: United could lay off 36,000

United Airlines said it could lay off as many as 36,000 workers on October 1 as the US carrier fights for survival amid the coronavirus crisis.

The big US airline emphasised that it must cut costs due a severe drop in demand for air travel, but although it will notify frontline employees of the potential job cuts, it does not expect everyone who receives the notice to be furloughed.

“The reality is that United simply cannot continue at our current payroll level past October 1 in an environment where travel demand is so depressed,” according to a memo released by the company.

The level of job cuts would account for close to 38 per cent of United’s total headcount as of the end of March.

United does not expect travel to normalise “until there is a widely available treatment or vaccine” for COVID-19, the memo said.

United Airlines planes at San Francisco International Airport. AFP

AFP

5.40am: Stocks stall on virus spikes

Europe’s stock markets slipped for a second straight session, with concerns about fresh spikes in coronavirus infections helping haven investment gold above $US1800 an ounce for the first time since 2011.

The eurozone’s key indices were down by a per cent or more at the close, with London doing a little better, falling 0.6 per cent. Frankfurt lost 1 per cent and Paris sank 1.2 per cent.

Equity markets were in “a struggle for any meaningful direction”, said Craig Erlam, an analyst with OANDA.

“The rally has clearly lost momentum as the grand reopening runs into the kind of challenges we all feared,” he said.

A string of positive indicators, from China to the US in recent weeks – as well as hopes for a vaccine and the easing of lockdowns around the world – had fuelled a global stock markets rally that had lifted equities out of their March depths.

But while hopes that the world economy will recover remained intact, the ongoing spread of coronavirus has seen indices run out of steam over the past two days.

That helped gold climb to $US1804.31 an ounce on the London Bullion Market, the highest level in 8.5 years, as recent dollar weakness also made the metal priced in the US unit attractive to investors.

“It is little surprise that the original safe haven is continuing its rally,” said Carlo Alberto De Casa, chief analyst at ActivTrades.

“Investors are still buying stocks but it seems they want to be covered in case of any market correction.” With gold seen as a good store of value, Markets.com analyst Neil Wilson said the metal was also winning support thanks to fears of high inflation caused by central bank stimulus to prop up the global economy.

“The gold bull thesis rests not only on the requirement for safe assets given the economic uncertainty, but also longer term on fears of a surge in inflation caused by the massive increase in the money supply,” he said in a client note.

Adding to market unease were ongoing tensions between China, the US and several other nations over Beijing’s imposition of a security law in Hong Kong.

AFP

5.35am: Boohoo shares hit by ‘sweatshop’ claims

Shares in British clothing group Boohoo plunged further, as investors turned their backs on the company after accusations of worker exploitation during the coronavirus outbreak.

Shares fell almost 15 per cent, meaning the retailer’s value has fallen more than 40 per cent since the start of the week.

“The turnaround is quite spectacular,” said Russ Mold, an analyst at brokers AJ Bell. “A few weeks ago, everyone saluted Boohoo for having managed to develop during the pandemic.” Boohoo had been seen as a success story with its ownership of high-profile brands including Pretty Little Thing and Nasty Gal.

In June, it agreed to buy the online businesses of Oasis and Warehouse. But its image has taken a battering in the last few weeks following the government’s decision to impose a local lockdown in Leicester because of concerns about a spike in virus cases.

Leicester, in central England, was the first UK city to face localised restrictions and fingers were pointed at its textile factories, which operated normally at the height of the pandemic.

Labour Behind the Label, which campaigns for the rights of textile workers, claimed that some worked at full capacity throughout the crisis, despite difficulties enforcing social distancing.

The report alleged that textile workers – many of them from minority ethnic groups – were pressured into working, and in one case when a staff member had tested positive for the virus.

It said allegations of abuse about clothing companies in the city’s sweatshops had existed for years, but had been pushed to the fore by coronavirus.

The online fashion portal Boohoo. Picture: AFP

AFP

5.30am: UK unveils fresh stimulus

The UK government unveiled a package worth £30 billion ($US37 billion) to save jobs, help the young into work and kickstart the British economy ravaged by the coronavirus pandemic.

Delivering a mini-budget to parliament, finance minister Rishi Sunak’s announced measures including bonuses to companies retaining staff and taking on apprentices, investment in ‘green’ jobs and even allowing the whole country to enjoy discounted meals in restaurants.

“People need to know that although hardship lies ahead, no-one will be left without hope,” said Chancellor of the Exchequer Sunak.

Noting that “people are anxious about losing their jobs, about unemployment rising”, Sunak said: “We’re not just going to accept this.” But he insisted that the government’s furlough scheme already in operation to protect millions of private-sector jobs had to end in October.

AFP

5.25am: Nespresso expands

Nespresso announced it is investing 160 million Swiss francs ($US170 million) in expanding its production plant in Romont, western Switzerland, citing increasing demand for its coffee products.

One of Swiss food giant Nestle’s flagship brands, Nespresso – which makes home coffee machines, capsules and accessories – said the expansion would create 300 new direct jobs over the next 10 years.

“Despite the challenging times we have all been living in, this strategic long term investment reconfirms Nespresso’s continuous business success,” Nestle chief executive Guillaume Le Cunff said in a statement.

AFP

5.20am: AirAsia’s future in doubt

The future of top regional budget carrier AirAsia is in “significant doubt” after the collapse in travel demand caused by coronavirus, its auditor warned, sending the airline’s share price tumbling nearly 18 per cent.

The aviation industry is facing its biggest-ever crisis due to the pandemic, with airlines worldwide going out of business or laying off huge numbers of staff to stay afloat.

AirAsia, led by colourful chief executive Tony Fernandes, pioneered low-cost air travel across Asia in the early 2000s at a time of growing demand from a fast-emerging middle class.

But on Monday the debt-laden Malaysian airline reported a record quarterly loss of 803 million ringgit ($US187 million) for the first three months of the year, after being forced to ground its fleet due to the virus.

Auditor Ernst & Young said Tuesday that global travel restrictions had dented AirAsia’s financial performance, with liabilities exceeding assets by 1.84 billion ringgit.

It noted the “existence of material uncertainties that may cast significant doubt on … the company’s ability to continue as a going concern”, in an unqualified audit opinion statement to the Kuala Lumpur stock exchange.

AirAsia’s CEO Tony Fernandes. Picture: Britta Campion

AFP