ASX rally builds to 1.5pc, trimming weekly loss to 0.6pc
ANZ and Westpac put on more than 3pc to help the ASX to a 1.5pc gain, trimming the market’s weekly loss to 0.6 per cent.
- Supermarket purchase limits extended nationwide
- Cyrus withdraws Virgin bid
- Qantas completes $1.4bn placement
- Further upside for banks: UBS
That’s all from the Trading Day blog for Friday, June 26. A lift in the major banks helped the ASX to rebound by 1.5pc after financials led a Wall Street rebound from the previous day’s rout.
The Dow gained 1.2 per cent while the S&P 500 and Nasdaq both added 1.1 per cent.
Locally, Qantas was the biggest drag on its return to trade after raising $1.4bn from institutional shareholders, while the big four banks gained to follow their US rivals.
Mackenzie Scott 8.40pm: Fears of 30pc fall in property prices
An increase in coronavirus cases in Melbourne could cause residential property prices to fall by up to 30 per cent, as the “worst case” for the housing market plays out.
Data firm SQM Research offered a range of scenarios in April for how the pandemic could affect the property market, with falls of between 5 per cent and 30 per cent.
The situation in the Victorian capital is largely reflecting the worst-case modelling — a second wave of new cases, high unemployment and restrictions remaining in place for a longer period — which managing director Louis Christopher said was worrying.
John Durie 8.30pm: Deloitte’s class act
Deloitte administrator Vaughan Strawbridge has given an apparent master class demonstration in insolvency administration after effectively closing the Virgin sale on Friday in his $1.65bn deal with Bain Capital by way of a sale implementation agreement.
While the creditors vote will follow around August 12 if the deed of company arrangement (DOCA) is not approved then Bain will buy the assets from the corporate vehicle.
Effectively, Bain has taken control of the house, will move the furniture next Wednesday (July 1) and be responsible for the gas and electricity from that day on.
The quick sale was necessary because Strawbridge was left with just $30m in cash when the administrator was called in on April 21.
He emptied a few pockets to get some more cash, but deal certainty was a prime driver in handing the keys to Bain’s Mike Murphy on Friday.
Bain was the preferred creditor because Strawbridge thought it had deeper pockets than Cyrus, which was hopping mad at the way it was treated.
Richard Gluyas 8.08pm: End ideological war on climate
The nation’s top companies have called for a halt to 10 years of “ideological climate wars”, so that Australia can focus on new technologies such as hydrogen, electric vehicles and grid reliability to achieve net zero emissions by 2050.
In its submission to the Morrison government’s Technology Investment Roadmap (TIR) discussion paper, the Business Council of Australia urges the government to assess the full system-wide costs and benefits of priority technologies. This would avoid the risks of trying to pick winners and crowding out better alternatives, like with the government’s Underwriting New Generation Investments program, which the BCA said should be “abolished immediately”.
“Reaching net zero emissions will need to be done in a way that drives the creation of new jobs, creates new opportunities, supports regional economies and protects the most vulnerable,” the lobby group’s CEO, Jennifer Westacott, said in a statement.
Nick Evans 7.45pm: High Court bid to block rail sale
The competition watchdog will take its fight all the way to the High Court in a bid to stop Pacific National’s acquisition of the Acacia Ridge freight rail terminal, in what ACCC chairman Rod Sims says is an important test for Australia’s merger laws.
The Australian Competition & Consumer Commission’s decision to take the matter to Australia’s highest court of appeal will further delay Aurizon’s $205m sale of Acacia Ridge to Pacific National, first proposed in 2017, until a final ruling is made.
Mr Sims told The Weekend Australian that, despite the ACCC twice losing in its bid to block the sale in the Federal Court, he believed the matter was important enough to test the ACCC’s arguments in the High Court.
Jared Lynch 7.17pm: Velocity refund for failed flights
Virgin’s administrator has agreed to refund taxes and charges paid for rewards tickets and flights that never took to the skies after striking a deal with Bain Capital to recapitalise and acquire the airline.
Virgin’s frequent flyer scheme, known as Velocity, temporarily paused some refunds after the airline fell into voluntary administration on April 21 with debts of about $7bn, drawing the ire of some of the airline’s top frequent flyers.
But, as flagged by The Australian this month, Velocity has begun refunding taxes paid on cancelled flights.
“If you booked on or before April 21, 2020, for travel before September 30, 2020, we’ll waive any applicable change or cancellation fees,” Velocity said on its website.
“If you or Virgin Australia cancel your flight before September 30, 2020, we’ll refund your points or cash in full to the original form of payment.”
For passengers who booked on or before April 21 but were scheduled to travel after September 30, Virgin’s standard terms and conditions regarding changes would apply, the company added.
James Kirby 6.48pm: New online investors doing okay
As the sharemarket crash of March recedes in public imagination a new concept is taking hold.
It’s called “the Robinhood generation” which is meant to represent the wave of new investors that have entered the market in recent months looking for bargains. Were they smart investors, or are they set to become cannon fodder in the weeks ahead?
Certainly many institutional investors — who have been standing on the sidelines through the entire recovery — would have you believe that what we have here are lambs for the slaughter, lucky amateurs who were bored in the lockdown and gambled money on speculative stocks.
John Stensholt 6.21pm: Chris Judd: micro-cap investing
Chris Judd remembers the smell of sweat, signifying that plenty of hard work — and worry and stress — had taken place that day.
He’s not talking about his decorated AFL career, the Brownlow medals or grand final he won with West Coast and the scenes in changerooms after big matches were won or lost.
Instead, the champion footballer is explaining the passion that has become his full-time pursuit since retiring at the end of 2015 after 279 stellar games at the top of his sport.
Judd now spends his time obsessing over micro-cap shares, revealing he has a portfolio of 35 stocks, the majority of which have a market capitalisation of $50m or less.
They are a collection of gold miners or explorers, which account for 40 per cent of his holdings, small telcos and data centre owners and emerging medical companies exposed to ageing population demographics. Judd also reveals he is a big fan of uranium stocks.
He actively trades, poring over broker notes, tunes into management presentations and analyst discussions, turns up to annual general meetings all while striving for small bits of information to gain whatever investment edge he can.
Judd, 36, tells The Weekend Australian he can definitely see the correlations between small and micro-cap investing and elite sport — the competition, the danger, the hard work and the characters involved.
Ticky Fullerton 5.54pm: Australia at forefront of hi-tech innovation
At an undisclosed location on the outskirts of Melbourne’s CBD, some of the country’s biggest brains are wrestling with fiendish problems. The solutions are important both to Australia’s ongoing commercial success and national security. It’s called STELaRLab, or in a mouthful, the Science, Technology, Engineering Leadership, Research Laboratory.
“We’re a bunch of Aussies who are contributing to the security of the nation, but doing that with a strong partnership with our US allies,” says Dr Tony Lindsay, who runs the lab, after a long and stellar career of his own working in defence research for the Australian federal government.
“I still get out of bed in the morning for the same reasons. And that’s important. And you still apply science and technology to defence of Australia’s national interests. I did that for 30 years in the government, and the ability to do that in exactly the same way but from a quite a different perspective, it’s good.”
STELaRLab actually belongs to US defence giant Lockheed Martin. It is no accident that STELaRLab is Lockheed Martin’s first multi-disciplinary lab outside the US, covering everything from submarines to space. The No 1 client is Australia. “We are Lockheed Martin Australia. We work to the needs and requirements of the Australian Defence organisation,” explains Lindsay. “But in doing that, we have a partner in Lockheed Martin, so I can hopefully solve some challenging gnarly types of problems for the Australian defence organisation wisely, spending tax payer’s dollars wisely, but leveraging the smarts of that other 49,000 scientists and engineers in the organisation.”
From the famous Skunkworks aerospace lab that invented Stealth, to the Advance technology labs in darkest space, Lindsay has privileged access.
Jared Lynch 5.31pm: Fight for naming rights
Wagering minnow Sportsbetting.com.au has countered betting giant Sportsbet’s claim it had infringed its trademark, saying it had registered its domain six years earlier.
In documents filed with the Federal Court on Thursday, Sportsbetting argued that if its brand has been impinged, Sportsbet’s trademark should be struck out in Australia.
The counter claim comes after Sportsbet, owned by Irish group Flutter Entertainment, sued Melbourne-based Sportsbetting for trademark infringement — despite the two outfits operating alongside one another for almost two decades.
4.57pm: UK mall owner goes under
Intu Properties said Friday that discussions with its creditors to avoid breaching a revolving-credit-facility covenant were unsuccessful, and that it is likely to appoint auditors as a result.
The UK shopping-center operator, which previously reported that damage wrought by the coronavirus could cause it to breach covenants, said it was discussing a plan with stakeholders to seek relief before the deadline for repayment of its revolving-credit-facility waiver passes. However, insufficient alignment and agreement has been achieved in discussions with creditors over the terms, said Intu.
The company added it was now considering the position of Intu with a view to protecting stakeholder’s interests, which is likely to involve the appointment of administrators KPMG.
Dow Jones Newswires
4.48pm: Banks lead, Qantas lags
Airlines were squarely in focus as Bain was revealed as the winning bidder for Virgin Australia, while Qantas fell 9.1 per cent to $3.81 as it returned to trade after raising $1.36bn in an institutional placement.
Across the rest of the travel sector, Flight Centre lost 1.2 per cent to $11.32, Webjet lost 0.3 per cent to $3.38 but Corporate Travel edged higher by 0.7 per cent to $9.73, even as Morgans tipped the group as top candidates for earnings disappointment in the upcoming reporting season.
A lift in banks was the key catalyst for the market jump – Westpac added 3.3 per cent to $17.99 and ANZ rose 3 per cent to $18.80. NAB put on 2.7 per cent to $18.40 while Commonwealth Bank gained 2.4 per cent to $69.27.
Here's the biggest movers at the close:
4.17pm: Share rally trims weekly loss
Australian shares closed out the week at a 0.6 per cent loss, even after gaining ground in four of the past five sessions, as the rising second wave of coronavirus infections put expectations of economic recovery on the back foot.
After several days of lacklustre gains this week, the benchmark ASX200 surged by 86 points or 1.49 per cent to close near daily highs at 5904.1, aided by a strong Wall Street lead as regulators did their bit to encourage the restart of activity.
The lift trimmed weekly losses to 0.65 per cent for the week after a heavy blow on Thursday.
Bridget Carter 3.04pm: UBS hires Scott as Equities co-head
DataRoom | UBS has hired Chris Scott as its Co-Head of Equities for Australasia with Steve Boxall.
Mr Scott previously spent 23 years with UBS, commencing in Sydney before transferring to Tokyo and then Hong Kong. Most recently he was Head of APAC Equity Derivative Trading and Co-Head of APAC Equity Derivatives as well as a member of the APAC Equity Management Committee before returning to Sydney in 2016.
More to come.
2.40pm: Share rally picking up speed
Australia’s sharemarket has surged this afternoon as US futures hit intraday highs.
The S&P/ASX 200 went from up 0.5pc to up 1.5pc in the past hour.
Financials are outperforming with the 4 major banks up more than 2pc.
The S&P/ASX 200 was last up 1.52pc at 5906.3.
2.20pm: More travel disappointment to come: Morgans
Travel stocks are the biggest candidates for earnings disappointment in the coming reporting season, according to Morgans.
Analysts at the group say “no investor alive has seen this type of rates outlook nor this scale of monetary and fiscal stimulus”.
They say travel stocks including Flight Centre and Webjet, along with AMP, Treasury, Origin and Bingo Industries are the most at risk.
On the upside, Morgans says health insurers could surprise amid lower private hospital claims, though both listed groups Medibank and NIB have noted they will give these benefits back to consumers.
Reliance Worldwide, Accent Group, Adairs and AP Eagers are also among those tipped to surprise – with industry feedback for the listed carmaker suggesting “very strong trading into year-end.
“June is also the biggest month of the year for all auto dealers, and we think consensus estimates are potentially too conservative”.
2.06pm: Scurrah ‘thrilled’ to work with Bain
Virgin boss Paul Scurrah has described the airlines deal with Bain as “a huge milestone”, saying he was “thrilled" to be working with the private equity group.
In a statement to the market, Mr Scurrah said Bain’s investment would cement the airline’s future “as a major Australian carrier, secure thousands of direct and indirect jobs, and ensure we can continue to bring competition to millions of customers for many years to come”.
“Bain Capital has spent many hours over the past weeks speaking to us and getting a deep understanding of our business and working to secure a deal with our administrators. We know they are committed to investing in the airline and we are thrilled to be working with them into the future.”
Read more: Bain signs Virgin deal after shock Cyrus exit
Gerard Cockburn 1.47pm: Freedom shareholders lose out
Shareholders in Freedom Insurance will recoup little of their investment in the embattled insurer as liquidators finalise creditor claims.
In a notice issued to the ASX on Friday, administrators appointed to the company noted they were in the process of completing creditor claims totalling $3.2m, with $89,000 admitted to date.
Administrators Wexted Advisors flagged shareholders would receive an expected return of less than one cent per share, noting shareholders “may wish to use this advice in relation to claiming a loss for taxation purposes”.
“Our conduct to date has been mainly focused on quickly bringing matters to a close, completing pre appointment management accounts, pursuing various insurance recoveries and adjudicating creditor claims,” Wexted said in its update.
Freedom Insurance was hammered during the banking royal commission for multiple breaches of financial misconduct, particularly over its high pressure sales tactics to sell life insurance.
The company was placed into voluntary liquidation on February 21.
Read more: Freedom insurance falls amid takeover scrutiny
1.35pm: Students a key population driver: Evans
Governments need to pull out all the stops to encourage international students to return to Australia, as dwindling migration numbers threaten to crimp the country’s growth, so says Westpac.
Chief economist Bill Evans notes that the global mobility restrictions could prompt a net population loss of 217,500 through migration, if arrivals collapse by 85pc but departures hold at previous levels.
Of those arrivals – he notes that temporary migrants account for 80pc of net migration, 50pc of which are foreign students who help to bolster local growth.
“Australia should not accept the prospect of a collapse in net migration. In particular, severe restrictions on foreign students might permanently divert students to other markets resulting in a permanent loss of a critical driver of population growth,” Mr Evans says.
“Indeed we should not really consider the foreign students as part of the population debate. This is a genuine export sector and any debate around Australia’s net migration intake should be fully mindful of the important export function which a considerable share of net migration makes to the economy.”
Read more: Australia still the first choice for Chinese students
1.02pm: AMP, IOOF lead financial surge
The financial sector is leading the local market higher, with outperformance in IOOF and AMP.
At 1pm, the benchmark ASX200 is higher by 38 points or 0.6 per cent to 5855.4, after hitting highs as much as 5885.1.
The easing of US bank capital rules has been cheered by the local financial sector – with wealth managers taking the lead alongside a lift in the big four banks.
Elsewhere, Qantas is the key drag, down 8.5pc, while Flight Centre falls a further 2.7pc after yesterday’s beating and Woolies rebounds by 0.5pc.
Here's the biggest movers at 1pm:
Eli Greenblat 12.32pm: Supermarket purchase limits extended
Woolworths and Coles have been forced to extend their new purchasing limits on toilet paper and paper towels beyond just Victoria to across the entire country after a spike in coronavirus infections in some Melbourne suburbs this week.
On Wednesday Woolworths acted first to impose buying limits on toilet paper, paper towels and some other groceries such as rice and mince in the wake of a resurgence of panic buying.
Coles quickly followed to bring in its own regulations on purchases, however on Friday following discussions with the Supermarket Taskforce – a government led body that brought together supermarkets to better co-ordinate supplies through the health crisis – the nation’s biggest supermarket chains have decided to push those buying limits beyond Victoria’s borders and to now apply to the whole country.
Read more: Woolworths, Coles reinstate buying limits
12.01pm: Westpac, ANZ jump 3pc in bank lift
The major banks are driving the local market rebound, with Westpac and ANZ shares gaining 3pc.
It comes after US regulators announced an easing of post-GFC capital rules to support the sector through the pandemic, even after the US Federal Reserve announced it would temporarily ban US banks from share buybacks and distributing dividends.
Westpac is up by 3.2pc, ANZ higher by 3pc, NAB by 2.5pc and Commonwealth Bank by 2.4pc.
Macquarie is joining the rally with a 1.5pc gain while Bendigo Bank is up by 4.1pc and Bank of Queensland higher by 2.7pc.
11.42am: Bain to strengthen regional services
Bain Capital has pledged to support Virgin’s regional services as the airline’s new owner, after competitor Cyrus Capital withdrew its bid in a shock move this morning.
In a statement from Bain, Australian managing director Mike Murphy set out his plan for the airline to “return to its core strengths both strategically and operationally”.
“We are determined to see that Australians have access to competitive, viable aviation services for the long-term,” Mr Murphy said.
“Under our ownership we will strengthen Virgin’s regional services and ensure the airline emerges offering exceptional experiences at great value while continuing to service business travellers, as well as those of us travelling for fun or to visit loved ones.”
Read more: Bain signs Virgin deal after shock Cyrus exit
Nick Evans 11.29am: ACCC takes rail merger to High Court
The competition watchdog has sought leave to take its fight to stop Pacific National’s acquisition of the Acacia Ridge freight rail terminal to the High Court.
The $205m acquisition, from rival hauler Aurizon, has been at the centre of a running dispute between the Australian Competition and Consumer Commission and the two rail companies since it was first announced in 2017, with the national competition watchdog arguing the sale would give Pacific National an effective monopoly on railing freight into northern Queensland.
The ACCC has lost successive legal bids to block the transaction, with the Federal Appeals Court last month upholding a May 2019 decision by Justice Jonathan Beach to allow the sale.
AZJ last traded down 1pc to $4.74.
Read more: Watchdog seeks test of merger laws
11.10am: Bain wins bid for Virgin
Last bidder standing in the Virgin race, Bain Capital, has officially been announced as the new owner of Virgin Australia.
Virgin administrators this morning confirmed they had entered into a sale and implementation deed with Bain, subject to minimal conditions.
The airline said no return to shareholders was anticipated, and “at this stage, it is not possible to determine the estimated return to creditors, however an update will be provided ahead of the second meeting of creditors”.
Read more: ‘Deep pockets, very committed’: Inside Bain’s bid
Joyce Moullakis 10.48am: Westpac win as ASIC appeal dismissed
A Federal Court appeal by the corporate regulator against Westpac’s win in the so-called “wagyu and Shiraz” responsible lending case has been dismissed, handing the bank another legal victory.
But the dismissal of the appeal with costs on Friday, did not come without controversy given a split between the three appeal judges.
Justice John Middleton said his view was to allow the appeal “in part” but the other two judges Jacqueline Gleeson and Michael Lee concluded the appeal should be dismissed.
The Australian Securities and Investments Commission in September lodged an appeal to the so-called “wagyu and Shiraz” decision, in which Federal Court Justice Nye Perram disagreed with a claim by the regulator that Westpac breached responsible lending practices when assessing customer applications.
Read more: ASIC to appeal responsible lending lawsuit against Westpac
Gerard Cockburn 10.35am: Savings rates take fresh hit at Westpac
Westpac has further clipped the wings of savers by slashing savings rates across its deposit accounts.
The country’s second largest bank has carved five basis points from its eSaver and Life products, with both accounts advertising maximum rates of 1 per cent.
Westpac’s eSaver which is its standard savings account now has a five month introductory rate of 1 per cent and an ongoing rate of 0.05 per cent.
Its conditional Life savings product holds a maximum rate of 1 per cent if the account balance increases every month. The base rate for the savings product is 0.4 per cent.
According to RateCity, 30 banks have cut at least one savings rate during the month of June, despite the Reserve Bank not issuing any cash rate move since March.
RateCity research director Sally Tindall said 77 per cent of the country’s banks have a maximum savings rate of less than 1 per cent.
“Banks have been chipping away at savings rates since the emergency cash rate cut in March, on the back of sharper home loan rates and a drop in demand for deposits,” Ms Tindall said.
10.33am: Further upside for banks: UBS
UBS analyst Jonathan Mott has increased his earnings per share forecasts for Australian banks to account for his expectation of lower bad debts and funding costs.
He has kept his Overweight rating on the sector after increasing his FY20 EPS forecast by 12pc and his FY21 by 9pc on average, albeit off a low base.
“While the banks have rerated towards book value – ex-CBA – we see further upside if the recovery continues and investors look to a more normalised ROE (return on equity) and dividends from FY22,” Mr Mott says.
He notes that the Australian economy has been stronger than most anticipated amid reopening, with retail sales being the highlight, but there’s concern around the outlook for the December quarter when $100bn of policy stimulus, worth more than 20pc of 4Q GDP, is due to be removed.
And about 10pc of the mortgage book and 15pc of SME loans will see deferral periods expire from late September. But given the economic overlays recently taken, he says it’s possible the banks’ Credit Impairment Charges may fall sharply in the second-half year ending in September.
Still, provision charges could potentially rise again in FY21 as the “economic scarring” is felt by many households and small-medium businesses.
“In effect, a ‘W’-shaped provisioning and earnings outlook appears most likely,” Mott says.
10.11am: Broad gains as ASX adds 0.9pc
Shares are higher across all sectors at the open, after strong Wall Street trade, even as Qantas falls after completing its $1.4bn placement.
At the open, the benchmark ASX200 is higher by 55 points or 0.9 per cent to 5872.7, helped by easing of capital requirements for US banks overnight.
Local banks are following the positive momentum, the sector up by 1.3pc and the best performing early. Commonwealth Bank is up 1.4pc, while Westpac, NAB and ANZ add between 1.6pc to 1.8pc.
Qantas is the key drag, down 5pc.
Eli Greenblat 9.58am: Woolies VIC online sales spike 40pc
Woolworths is ramping up its online and delivery infrastructure to deal with a 40 per cent spike in online shopping demand across Melbourne following this week’s sharp rise in coronavirus infections in Victoria that has seen the return of some panic shopping at the supermarkets.
As flare ups in hot spots in areas in north and to the west of Melbourne create new coronavirus hot spots, there has been a resurgence in online shopping as many people decide it is probably safer to stay in home isolation than venture to crowded supermarkets and shopping centres.
Woolworths said on Friday it is increasing online delivery and in-store pick up availability in Melbourne in response to a 40 per cent lift in online shopping demand across the city over the last week.
Read more: Coles, Woolies reinstate buying limits in Victoria
9.45am: ASX tipped for strong open
Australia’s share market may rise more than expected as US futures edge higher in early trading, with overnight futures relative to fair value suggesting the S&P/ASX 200 will open up 1.5pc at 5904 points.
That follows a 1.1pc rise in the S&P 500 after regulators voted to reduce the amount of cash that banks must set aside as collateral to cover potential losses on swap trades.
They also removed limits on banks’ investment in vehicles such as venture-capital funds and credit funds which were part of a broader set of regulations known as the Volcker rule.
US Financials subsequently led gains on Wall Street with the KBW Bank index rising 3.4pc. The Energy sector also outperformed as WTI crude rose 1.9pc. WTI is up a further 1.2pc this morning.
After the US close, the Fed released its US banks stress test report and while the industry has performed well a separate review of the effects of the coronavirus on the economy and financial system saw risks that led the Fed to conclude that the biggest US banks can’t increase dividends from Q2 levels or resume buybacks at least through the third quarter amid uncertainty over the pandemic.
In after-hours trading, Wells Fargo shares fell 3.5pc, Goldman Sachs fell 3.4pc, JP Morgan fell 1.9pc, PNC Financial fell 1.6pc and BofA lost 2.3pc. But the S&P 500 has risen 0.3pc, suggesting the S&P/ASX 200 could rise more than expected.
Meanwhile the coronavirus pandemic worsened in Texas, Arizona and Florida.
Tax-loss selling may be a factor in the Australian market before financial year-end.
9.41am: Retail Food Group sets FY20 outlook
Owner of Gloria Jeans and Donut King, Retail Food Group, has set out earnings guidance of $35m for the full year, as it said trade at its stores was still well below pre-pandemic levels.
The Group said 7 of its local outlets would be permanently closed as a result of the blow from coronavirus, with a further 10 still temporarily closed.
At its first half results in March the group had tipped earnings in the range of $42m to $46m.
Chairman Peter George noted that recent trade data showed a weighted average decline among all brands of 13.8pc compared to last year.
“RFG expects trading conditions to remain challenging in the foreseeable term and therefore anticipates a continuation of those measures implemented by the Group in response to the pandemic to support franchisees,” he said.
Offering some relief is the company's wholesale coffee restructure, set to deliver $6m in annualised cost savings.
Net debt for the full year is expected at $25m.
9.38am: US Senate passes Hong Kong bill
The US Senate passed by unanimous consent a bipartisan bill that would put sanctions on Chinese officials who erode Hong Kong’s limited autonomy from Beijing, as well as the banks and firms that do business with them.
Because it sets mandatory sanctions, the legislation has drawn objections from Trump administration officials concerned it could hobble their ability to conduct diplomacy with China and give Congress too much power over foreign relations, according to congressional, administration and industry officials.
Still, they say, the bill’s fine print provides the White House with some flexibility in how those sanctions are levied, assuaging some administration concerns.
WSJ
Max Maddison 9.22am: JobKeeper time frame still in the works
The end goal is to “phase out” businesses that are reliant on JobKeeper, says Finance Minister Mathias Cormann, but reiterates that the time frames are still being worked on.
Mr Cormann wouldn’t be drawn on the proposals currently being considered by the federal government, but said he recognised many sectors would continue to struggle after the September deadline.
“We need to be very careful about how we calibrate the phasing out of support for businesses,” Mr Cormann told Sky News.
“The end goal has to be that individual businesses pay for their employees wages.”
Follow the latest developments at our coronavirus live blog
9.17am: What’s on the broker radar?
- Alumina raised to Hold – Morningstar
- Crown Resorts raised to Buy – Morningstar
- Freedom Foods cut to Neutral – Citi
- Mayne Pharma raised to Buy – Bell Potter
- Orocobre cut to Neutral – Credit Suisse
- Qantas cut to Neutral – Citi
- Qantas target price cut 16pc to $4.60 – UBS
- Sydney Airport raised to Buy – Morningstar
- Woodside raised to Overweight – JP Morgan
8.59am: Qantas completes $1.4bn placement
Qantas has completed its $1.360bn institutional placement, as part of its restructure plan, after laying off 6000 staff yesterday.
The airline said today it had received high levels of interest from existing and new investors, with demand in excess of its offer size.
It said 94pc of the placement shares were allocated to existing shareholders.
“The fact that there was significant demand for this offer shows clear support for our recovery plan and confidence in the fundamentals of this business,” chief Alan Joyce said.
“The plan involves some difficult decisions but we are extremely well positioned to get through this crisis and start growing again on the other side.”
Read more: Qantas raising won’t be aviation’s last
8.50am: Spirit to acquire VPD Group
Spirit Telecom has announced what it describes as “its most transformational transaction to date", to acquire voice, data and cloud services provider VPD Group.
The deal will see Spirit create a new wholesale business to focus on its range of products via channel partners across Australia.
Spirit said the gross purchase price was $14m on a 4x earnings multiple, paid in a combination of $7m in cash and $5.8m in Spirit shares.
“This is a game changer for Spirit and through the acquisition of VPD Group, Spirit will build and strengthen its cloud, security, data and managed IT services capabilities while providing entry into expanded geographies in QLD and NSW for verticals such as Mining, Industrials and Aged Care,” managing director Sol Lukatsky said.
8.04am: Cyrus withdraws Virgin bid
One of the two final bidders for Virgin Australia, US hedge fund Cyrus Capital, has withdrawn its offer, opening the way for Bain Capital to be named as the preferred bidder as early as today.
Cyrus blamed a “lack of engagement by the administrator” for its decision, which it said followed thousands of hours of detailed due diligence, business planning and stakeholder engagement.
Cyrus and Bain Capital had been named the two final bidders by administrator Deloitte, with a decision expected within days.
Both bidders had indicated they were looking to operate a smaller, single-branded domestic and short-haul international airline that had growth potential.
Cyrus said it believed its business plan had best positioned Virgin Australia to return to strength.
“I am disappointed that it has become necessary to withdraw our offer,” commented Stephen Freidheim, founder and chief investment Officer of Cyrus Capital. “Cyrus firmly believes that the Australian aviation industry has a bright future and would be willing to reinstate our offer if the administrators agree to re-engage in good faith, productive discussions with a view to concluding a transaction that will benefit all key stakeholders – employees, customers, Velocity members and bondholders.”
Read more: Virgin Australia shock as Cyrus dumps bid
7.45am: Oil rises
Oil prices rose about 2 per cent in a volatile session overnight, buoyed by signs of a marginal improvement in the US economy and a tepid rise in fuel demand, but price gains were limited by rising cases of COVID-19 in some US states.
Brent crude rose 74 US cents, or 1.8 per cent, to settle at $US41.05 a barrel. US West Texas Intermediate (WTI) crude ended the session up 71 US cents, or 1.9 per cent, at $US38.72.
Reuters
7.43am: ASX to open higher
Gains are likely at the start the trading day on the share market after US regulators eased restrictions on banks’ complex trading and investment portfolios, helping investor enthusiasm.
At 7am (AEST) the Australian SPI 200 futures contract was up 70.0 points, or 1.21 per cent, to 5,835.0.
In the US, Wall Street’s main indexes closed higher after bank stocks soared ahead of annual stress test results, which offset investor jitters over alarming increases in new coronavirus cases.
The virus’ impact was still evident on the market however. Stocks wobbled late in the session after Apple said it would close 14 stores in Florida again due to rising COVID-19 cases after re-closures in Houston, Arizona, South Carolina, and North Carolina.
The Australian share market on Thursday suffered its worst loss in two weeks after a rise in coronavirus cases in the US and Victoria.
The benchmark S&P/ASX200 benchmark index finished down 148 points, or 2.48 per cent, to 5,817.7, while the broader All Ordinaries index closed down 153.6 points, or 2.53 per cent, at 5,928.
The Australian dollar was buying US68.87 cents at 7am (AEST), up from US68.65 cents at the close of trade on Thursday.
AAP
7.30am: Adelaide Casino to reopen
SkyCity Entertainment Group Limited says it expects to fully re-open its Adelaide casino on June 29 as part of South Australia’s staged return from coronavirus lockdowns.
SkyCity had earlier reopened its New Zealand casinos.
It says Adelaide Casino’s reopening will be staged, with reduced operating hours, based on expected customer demand.
Rules include initially allowing access to “active” members, capacity of around 2200 people, including staff, and configuring pokies and gaming tables to allow physical distancing.
Measures will also aid contact tracing and hygiene protocols will be enhanced.
SkyCity also says the casino expansion remains on-budget and on time for an October 2020 completion.
The company also said a $NZ180m equity raising announced on June 17 had been successfully completed.
7.27am: Online sales buoy Nike
Nike said a 75pc rise in digital sales cushioned an overall decline in its latest quarter, noting that most of its physical stores have reopened after coronavirus closures.
Sales for the period ended March 31 fell 38pc from a year earlier to $US6.31 billion, missing analysts’ estimates by roughly $US1 billion. Shares of Nike fell 1.6pc in after-hours trading.
Nike said roughly 85pc of its stores were open in North America, as the company contends with an uneven pace of reopenings as states ease lockdowns. Roughly 90pc of stores were open in its Europe, Middle East and Asia segment and roughly 65pc of stores were open in the Asia, Pacific and Latin America regions.
“As physical retail reopens, Nike’s strong digital trends continue,” said Chief Financial Officer Matt Friend in prepared remarks, citing the brand’s strength and the investments its made in online shopping.
Dow Jones
6.50am: US banks ordered to suspend buybacks
Shares of the US’s biggest banks retreated in after-hours action after the Federal Reserve
ordered 34 major institutions to suspend share buybacks in the third quarter and limit dividend payments to shareholders.
The decision is the first such move since the global financial crisis 12 years ago, and limits how banks can spend their capital amid the coronavirus pandemic that’s caused a sharp economic downturn.
Shares of JP Morgan Chase & Co. were trading 1.5pc lower in thin trading in post-market action, those for American Express were off 1.1pc, Bank of America shares were trading 2.6pc lower in the after-hours, shares for Goldman Sachs were down 2pc, while Morgan Stanley shares were down 2.1pc and those for Citigroup were off 1.9pc.
To be sure, all of those mega banks enjoyed a powerful updraft in the regular session, with Wells finishing the day up 4.8pc after the Federal Deposit Insurance Commission and Office of the Comptroller of the Currency said they are planning to loosen the restrictions imposed by the Volcker rule and allow banks to more easily make large investments into venture capital and similar funds. They will also be able avoid setting aside cash for derivatives trades between different affiliates of the same firm, potentially freeing up billions of dollars in capital for the industry, according to the Wall Street Journal.
AFP, Dow Jones
6.40am: US banks get stress test warning
The Federal Reserve said the largest US banks are likely strong enough to survive the coronavirus crisis but warned a prolonged economic downturn could saddle them with hundreds of billions of dollars in losses on soured loans.
In a worst-case scenario, in which unemployment remains high and the economy doesn’t bounce back for a few quarters, the 33 largest US banks could be hit with as much as $US700 billion in loan losses, the Fed said its annual stress test. That would erode the capital buffers meant to keep them on stable financial footing, the central bank said.
As a result, the Fed ordered the banks to cap shareholder dividend payouts to preserve capital. Banks, which will announce their dividend plans for next quarter as soon as Monday, won’t be able to make payouts that are greater than their average quarterly profit from the four most recent quarters.
Banks also will be barred from buying back shares for the third quarter. Most of the largest banks had previously agreed to halt buybacks during the second quarter. Buybacks comprise the bulk of the capital distributions of U.S. banks.
The stress tests, the Fed’s annual exercise designed to gauge the health of the nation’s banking system, was expanded this year to study the effect of the coronavirus downturn. The central bank didn’t break out the results for individual banks.
Dow Jones
6.10am: Banks lead Wall Street rises
US stocks climbed, led by shares of banks, which rose on a regulator’s decision to ease some post-financial crisis requirements.
The Dow Jones Industrial Average gained 298 points, or 1.2pc, in a volatile session of trading that saw the index swing in and out of the red. The S&P 500 and Nasdaq Composite mirrored the moves and were both up about 1.1pc at the close.
After falls yesterday, the ASX is set for a solid rise at the open. At about 6am (AEST), the SPI futures index was up 74 points, or 1.3 per cent.
The lack of clear direction earlier during Thursday’s Wall Street session underscored the cloudy outlook facing investors. On one hand, they are trying to factor in the possibility of renewed lockdowns in several states that have seen a pick-up in new coronavirus cases. On the other, some economic figures from earlier this month suggested the US economy was beginning to recover from the pandemic’s economic fallout.
“The trajectory of coronavirus cases is on everyone’s mind,” Jason Brady, chief executive of Thornburg Investment Management, of his recent conversations with clients. “If we get another lockdown, investors are wondering what that would look like, causing some to think about either de-risking again or de-risking more.”
That appeared to be playing out Thursday following Wednesday’s coronavirus-induced market losses, which were its biggest in nearly two weeks, Mr Brady added.
Still, some investors were making opportunistic plays beyond the impact of the coronavirus.
Shares of banks moved solidly higher after the Federal Deposit Insurance Corp. voted to reduce the amount of cash that banks must set aside as collateral to cover potential losses on swap trades. Other regulators signalled they plan to sign off on the changes, pushing the KBW Nasdaq Bank Index of the biggest banks in the U.S. up 2.1pc in recent trading.
Shares of several banks rose to the top of the S&P 500’s leaderboard. Amerprise Financial added 5pc, while Wells Fargo and Goldman Sachs gained 3,5pc and 3.3pc, respectively. JPMorgan advanced 2.7pc.
Gains across the energy sector also buoyed major indexes as US crude oil prices rose 2.2pc.
Stocks sensitive to another coronavirus-related lockdown began their slide after the Labor Department reporting another 1.5 million jobless claims last week. Although jobless claims are considered a lagging indicator, there is some concern among analysts and investors that another round of statewide shutdowns could push those numbers higher.
Apple on Wednesday said it would shut more stores in the Houston area following a sharp rise in cases. Walt Disney agreed to postpone the reopening of its California amusement park after workers urged the company to reconsider resuming operations in both Florida and California, where new cases touched fresh highs this week.
In Europe, stocks erased earlier losses, rising 0.7pc. In Asia, South Korea’s Kospi Composite lost 2.3pc and Japan’s Nikkei 225 benchmark dropped 1.2pc. Markets in Shanghai and Hong Kong were closed for a public holiday.
Dow Jones Newswires
6.00am: Fed eases Volcker rules
The Federal Reserve and four other bank regulatory agencies announced on Thursday that they have finalised a rule that will ease restrictions curtailing the ability of banks to make investments in such areas as hedge funds.
The announcement of the easing of regulations know as the “Volcker Rule” gave an immediate boost to bank stocks because the rule change could free up billions of dollars in capital in the banking industry.
The Volcker Rule was part of the overhaul of banking regulation approved in the Dodd-Frank Act passed by Congress in 2010 in an effort to curtail excesses that had led to the 2008 financial crisis, the country’s worst banking crisis since the 1930s.
However, President Donald Trump had campaigned in 2016 on rolling back what he saw as over-regulation of the banks that had weighed on the economy by preventing the banks from making loans to qualified borrowers.
AP
5.55am: Shareholders back Lufthansa rescue
Lufthansa shareholders approved a 9 billion-euro ($US11 billion) rescue package that will see the German government take a 20pc stake after management told them the alternative was a bankruptcy filing that would wipe out their holdings.
Shareholders gave the necessary majority of more than two-thirds by voting 98.04pc to 1.96pc at an extraordinary shareholder meeting held online with just the one agenda item.
With 80pc of Lufthansa’s planes grounded, “we have run out of money,” Chairman Karl-Ludwig Kley told participants. “We are living from the reserves we set aside” in good years. “Without support, a bankruptcy looms in the next few days.”
The package will see the government take a 20pc stake through its economic stabilisation fund and get two seats on the board. Kley said the idea was for the government to dispose of the stake as soon as possible once the airline is stabilised.
The government could raise it stake to block any outside takeover. The airline will also embark on an extensive restructuring to lower its costs because it is expected to take years before business returns to normal.
AP
5.50am: European stocks recover
European stocks made modest gains, one day after a brutal sell-off, but US indices struggled on continued worries about a resurgence of coronavirus and mounting job losses in the US.
Oil also recovered some of Wednesday’s five per cent tumble on increasing infections stoking demand worries, just as the latest data showed a big jump in US stockpiles for a third week.
Asia extended losses after heavy overnight falls on Wall Street, amid holiday closures in Hong Kong and Shanghai.
There were hefty losses in New York and across Europe on Wednesday on heightened fears of a second wave of the deadly COVID-19 outbreak.
“Stock markets have edged up today after Wednesday’s falls, but there is still a lingering sense of caution over the signs of rising infection rates in the US,” said Chris Beauchamp, chief market analyst at online trading firm IG.
European markets held onto their gains until the close. London gained 0.4 per cent, Frankfurt rose 0.7 per cent and Paris closed up 1.0 per cent.
AFP
5.46am: Unilever to drop terms like ‘whitening’
Consumer products giant Unilever said it is aiming for a “more inclusive vision of beauty” in its skin care products and will remove words such as “fair,” “whitening” and “lightening” from its products, a move that comes amid intense global debate about race sparked by the Black Lives Matter movement.
As part of the shift, Unilever will in coming months change the name of its “Fair & Lovely” product that is used for skin-lightening and sold in Asia, the company said.
“We are fully committed to having a global portfolio of skin care brands that is inclusive and cares for all skin tones, celebrating greater diversity of beauty,” Sunny Jain, the head of Unilever’s Beauty & Personal Care. “We recognise that the use of the words ‘fair’, ‘white’ and ‘light’ suggest a singular ideal of beauty that we don’t think is right, and we want to address this.”
A statement from Hindustan Unilever Limited said the change would involve dropping the word “Fair.” It said a new name was awaiting regulatory approval. Unilever said that its Fair & Lovely range “has never been, and is not, a skin bleaching product.” The global consumer company said its advertising for Fair & Lovely products has been changing since 2014.
AP
5.45am: Macy’s cuts corporate headcount
Macy’s said it’s laying off 3,900 corporate staffers, roughly 3pc of its overall workforce, as the pandemic takes a financial toll on the iconic department store chain.
The company said in a release that the headcount reduction will save the company $US630 million per year.
Like many of its non-essential peers, Macy’s was forced to close its physical stores to curb the spread of the coronavirus, evaporating sales. The New York- based company also furloughed a majority of its workers. Since early May, Macy’s has been gradually reopening its stores, which had been closed since March 18. Macy’s CEO Jeff Gennette has said that customers are coming back, but it needs to cut costs to readjust its business to a new climate.
AP
5.40am: US jobless claims show virus damage
The number of laid-off workers seeking US unemployment benefits dipped only slightly last week, and the economy shrank in the first three months of the year – evidence of the ongoing economic damage being inflicted by the viral pandemic.
The economy, which contracted 5pc in the January-March quarter, is widely expected to shrink at a roughly 30pc annual rate in the current April-June quarter. That would be the worst quarterly contraction, by far, since record- keeping began in 1948.
The government reported Thursday that the number of laid-off workers who applied for unemployment benefits declined slightly to 1.48 million last week. It was the 12th straight drop. Still, applications for jobless aid have declined just 5pc in the past two weeks, a much slower rate of improvement than in April and May.
What’s more, an additional 700,000 people applied for jobless benefits last week under a new program for self-employed and gig workers that made them eligible for aid for the first time.
AP
5.37am: US factory orders surge
Orders to American factories for big-ticket goods rebounded last month from a disastrous April and March as the U.S. economy began to slowly reopen.
The Commerce Department said that orders for manufactured goods meant to last at least three years shot up 15.8pc in May after plunging 18.1pc in April and 16.7pc in March. Economists expected a rebound, but the May increase was stronger than expected.
AP
5.35am: US may pay to help avoid Huawei
The United States is willing to help other countries finance purchases of next-generation telecom technology from Western providers so they can avoid Chinese tech giant Huawei, which Washington sees as a security threat, an American official said.
Washington is lobbying European and other allies to exclude Huawei Technologies Ltd. as they upgrade to 5G networks. Australia, Japan and some others have imposed restrictions on Chinese technology, but Huawei’s lower-cost equipment is popular with developing countries and is making inroads into Europe. Giving Huawei even a small 5G role would allow Beijing to expand its “surveillance state” by eavesdropping on phone and other network-based systems, said Keith Krach, a U.S. undersecretary of state for Economic Growth, Energy, and the Environment.
“There’s lots of financing tools and those kinds of things that I think many countries like us are willing to help provide, because we recognise this danger,” Krach said on a conference call with reporters.
Huawei, China’s first global tech brand, is the biggest maker of network equipment and the No. 2 smartphone brand.
AP
5.30am: Wirecard files for insolvency
Stricken payments provider Wirecard said Thursday it is filing for insolvency, days after the high-profile German company admitted that 1.9 billion euros ($US2.1 billion) were missing from its accounts.
The latest twist in a case that is fast becoming one of Germany’s biggest financial scandals comes shortly after ex-CEO Markus Braun was detained before being freed on bail.
He stands accused of market manipulation and falsifying the company’s accounts.
“The management board of Wirecard AG has decided today to file an application for the opening of insolvency proceedings for Wirecard AG with the competent district court of Munich due to impending insolvency and over-indebtedness,” the company said in a statement.
AFP
5.25am: Worse US GDP fall to come
The US economy shrank at a 5.0pc rate in the first quarter with a much worse decline expected in the current three-month economic period because of the coronavirus pandemic.
The Commerce Department reported Thursday that the decline in the gross domestic product, the total output of goods and services, in the January-March quarter was unchanged from the estimate made a month ago.
That was the sharpest quarterly decline since an 8.4pc fall in the fourth quarter of 2008 during the depths of the financial crisis.
The first quarter decline reflected just two weeks of the shutdowns that began in many parts of the country in mid-March.
Economists are forecasting a much bigger GDP drop of around 30pc for the current April-June period.
AP
5.20am: ECB defends bonds purchase scheme
The European Central Bank has defended its huge bond purchase stimulus program as justified when weighed against the risks, minutes showed, after a German court ruling required it to justify the scheme.
The Asset Purchase Program (APP) is a “proportionate” measure helping to deliver its price stability target, “with sufficient safeguards having been built into the design of these programs to limit potential adverse side effects,” the bank said during its last monetary policy setting meeting.
The statement is an indirect riposte to the German Constitutional Court, which in its May ruling threatened to block the country’s Bundesbank central bank from participating in the stimulus unless the ECB can show its government debt purchases are not “disproportionate” within three months.
AFP
ASX 200 rises on banks; Arcadium top gainer
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US President Joe Biden triggers oil price jump. Mesoblast top gainer. Sinopec wants price review on APLNG deal. Platinum grants Regal access for higher offer. Ratings upgrade for Cochlear. Optimism underpinning latest Bendigo Bank, UBS forecasts.