ASX jumps to three week high as Afterpay surges
A late surge on the ASX sent the index to three-week highs, thanks in part to a jump in Afterpay to new records of $68.
- May trade surplus $8bn
- Citi lifts Afterpay target by 137pc
- Kathmandu hails ‘strong’ recovery
- Abacus the new storage king: Macq
Welcome to the Trading Day blog for Thursday, July 2. Australian stocks closed at their best levels of the day, up 1.7pc to three-week highs led by a surge in tech stocks. Afterpay and Xero set new record highs, while the latest international trade figures showed a 6pc slip in imports and 4pc fall in exports.
It comes after a mixed night on Wall Street, where the Dow lost 0.3 per cent but the Nasdaq gained nearly 1 per cent and the S&P 500 added 0.5 per cent.
6.56pm: US cases above 50,000 above a day
New coronavirus cases in the US rose above 50,000, a single-day record, as some states and businesses reversed course on reopenings and hospitals were hit by a surge of patients.
The U.S. accounts for about a quarter of more than 10.6 million coronavirus cases world-wide, according to data compiled by Johns Hopkins University. The nation’s death toll climbed above 128,000.
Cases and hospitalisation are rising sharply in a number of areas. In Texas, 6,533 COVID-19 patients were in hospitals, according to the state’s Department of Health. For most of April and May that number hovered between 1,100 and 1,800. It broke the 2,000 mark on June 8.
Arizona, another hot spot, recorded its highest percentage of occupied ICU beds, at 89%. On Wednesday the state reported nearly 5,000 new cases, for a total of 79,228. More than 10% of its daily tests were positive.
In California, where hospitalisation are up more than 40% from two weeks ago, Gov. Gavin Newsom announced new restrictions, including the mandatory closure of bars, indoor restaurants, movie theatres, zoos and museums in 19 counties where 70% of the state’s population lives.
New York City delayed the start of indoor dining, a central part of its reopening plan. While cases and hospitalisation have been falling in New York, Gov. Andrew Cuomo said rising infections in other states, insufficient compliance with mask and social-distancing protocols and a lack of enforcement by local authorities were factors in the decision.
Some major companies were also re-evaluating their plans.
Dow Jones Newswires
5.32pm: APRA flags new rules for CFSIL, Suncorp
Financial regulator APRA has imposed new licence conditions on Colonial First State Investments and Suncorp.
The new conditions were a result of recommendations made by the Hayne royal commission, made in relation to delays in moving fund members into low-cost MySuper accounts, APRA said.
APRA said while it had not concluded there had been licence breeches in either case, both entities will now be required to document and record how they consider members best interests were being served in relation to such matters.
Both matters were among 12 referred by royal commissioner Kenneth Hayne to APRA for further investigation following his inquiry.
Read more: New rules for Colonial, Suncorp
5.20pm: Europe stocks rebounding
Europe’s main stock markets rebounded at the start of trading on Thursday, with London’s benchmark FTSE 100 index climbing 0.7% to 6,202.03 points.
In the eurozone, Frankfurt’s DAX 30 index jumped 1% to 12,385.79 points and the Paris CAC 40 gained 0.8% to 4,964.68.
The three indices had closed down between 0.2 and 0.4 per cent on Wednesday.
AFP
4.45pm: Tech boost supports ASX lift
Tech outperformance was a key driver for Thursday’s market jump as Afterpay continued its strong run.
Citi more than doubled its target price on the stock, citing growth in e-commerce and the start of in-store operations in the US. Shares hit highs of $68.62 and settled to a gain of 9.5 per cent at $69.16.
The momentum helped rival buy now pay later platform Splitit up 16.3 per cent to $1.43 while Zip added 5.7 per cent to $5.80.
Elsewhere in the tech sector, Xero set new record highs of $92.54 but settled to a gain of 1.1 per cent at $91.80 while Appen added 3.1 per cent to $35.52 and Altium gained 2.8 per cent to $33.21.
Here’s the biggest movers at the close:
4.11pm: Late surge cements 1.7pc jump
Shares finished the session near the best levels of the day, up 98 points or 1.66 per cent to 6032.7.
Financials were a key driver of the afternoon surge – adding 1.9pc, but tech stocks were the best performing – thanks in large part due to a 9.5 per cent jump in Afterpay.
On the All Ords, shares added 101 points or 1.68pc to 6142.3.
4.07pm: US seeks to seize Iranian fuel
US federal prosecutors filed suit late Wednesday to seize four tankers-worth of gasoline Iran is sailing to Venezuela, the latest salvo in the administration’s effort to stifle flows of goods and money helping to keep two of its top foes in power.
By filing a civil-forfeiture complaint, US prosecutors aim to not only prevent delivery of the Iranian fuel to Venezuela, which began the journey last month, but also deprive Tehran of the revenues from the cargo and deter future shipments.
The action is the latest in a series of moves the US has taken against Iran and its ally Venezuela, as part of a broad operation to pressure the governments in Tehran and Caracas to meet US demands.
Zia Faruqui, US Attorney for the District of Columbia, alleged in the suit that an Iranian businessman affiliated with the Islamic Revolutionary Guard Corps, Iran’s elite military unit designated by the US as a terror group, arranged the fuel deliveries through a network of shell companies to avoid detection and evade US sanctions.
Dow Jones Newswires
3.13pm: Shares pushing higher in final hour
Australia’s share market is surging for a third-day running.
The S&P/ASX 200 rose 1.7pc to a 3-week high of 6034.9, on track for its best day since mid-June.
All sectors were up with IT, Real Estate, Financials and Consumer Discretionary outperforming.
But the break above recent highs near 6005 has occurred on volume 25pc below the 20-day average.
2.58pm: Wearables maker soars 300pc
Motion analytics developer dorsaVi has soared more than fourfold in Thursday’s trade, after inking a deal with insurance giant QBE.
The small cap company, which makes a wearable device to monitor movement for use in occupational safety and clinical applications, said it had signed up as a strategic partner of QBE to provide risk innovation to their clients.
dorsaVi said QBE had pre-allocated $250,000 over an initial 12-month period to enable customers to access its two products and resulting data.
“dorsaVi’s on-body sensors will be used in real time and real work environments to monitor and measure movement and muscle activity, quantify movement risk and guide decision making on appropriate risk mitigating strategies,” the company said.
DVL shares last higher by 323pc to 5.5c.
2.52pm: Pricing a positive for Costa: Citi
Fruit and vegetable grower Costa is set to benefit from a boost in avocado and mushroom prices this season, even amid the uncertain business environment.
Citi analyst Craig Woolford rates the stock at a Buy, with a $3.40 target price noting strong wholesale prices for some of Costa’s key products in June.
Avocado prices, currently in peak season, are up by 51pc from last year, with mushroom pricing up by 40pc – both of which account for 30pc of Costa’s local produce segment.
“While the operating environment is unusual for most businesses, pricing looks encouraging for Costa Group as at June 2020. Domestic mushroom, berries, avocado prices are all higher, while export prices for citrus are encouraging for 2H20e,” he writes, adding that the operating environment is “far more rational” than last year.
CGC shares are trading higher by 7.9pc to $3.14.
2.15pm: Hong Kong leads Asian gains
Asian markets are rising Thursday following a strong lead from Wall Street, with investors cheered by hopes for a vaccine, more positive economic data and further lockdown easing in Europe.
The developments helped offset a worrying spike in infections in the US, which has led to the reimposition of containment measures that could slow recovery in the world’s top economy, and warnings of worse to come.
Hong Kong led the gains on reopening after a one-day break, despite concerns about a new security law imposed on the city by China that observers said was more draconian than feared and could impact its future as an attractive business hub.
And while there are worries about the issue causing further friction between Beijing and the West, markets remain positive for now.
The Hang Seng index is higher by 1.7 per cent, Tokyo has pared an earlier 0.7pc gain to just 0.1pc while Shanghai gains 1.2pc.
Seoul, Taipei, Singapore, Jakarta and Wellington were also well up
AFP
1.37pm: Funtastic CEO quits
Chief executive of toy distributor Funtastic, David Jackson has resigned from the group, as the company completes its broad restructure to focus on key product ranges.
Mr Jackson joined the company in April last year to spearhead its recovery, and the company said it “no longer requires the services of a CEO of David’s experience and gravitas”.
Current CFO Howard Abbey will step up to the role on an interim basis, while the board reviews its strategic options moving forward.
“Under David’s leadership, the business has rationalised product ranges, reduced its cost base and refocused resources into growth categories,” chairman Bernie Brookes said.
Mr Jackson will leave during the first quarter of FY21.
FUN last traded at 2c.
Read more: Funtastic picks CEO to lead recovery
1.14pm: Regis Health lifting on deal speculation
Regis Healthcare shares are up 7.6pc to a 3-week high of $1.55 on volume 64pc above the 20-day average.
Traders point to reports last month that TPG Capital approached the founders and major shareholders, but more recently there’s been talk of a potential need to raise capital in the aged-care sector.
Regis withdrew its earnings guidance and deferred its interim dividend on April 1.
REG last up 6.6pc at $1.535.
Read more: Equity raisings could rejuvenate aged-care outfits
1.02pm: ASX hits 6000
Shares have edged past the 6000 level to trade at intraday highs, setting a new three-week high for the benchmark.
At 1pm, the ASX200 is higher by 1.2 per cent or 73 points to 6007.8.
It comes as all sectors turn positive – led by a gains in financials and tech stocks – with Afterpay setting new highs of $66.66.
Elsewhere, the major banks are adding between 1.4pc to 1.9pc, as Qantas puts on 3.5pc.
Here’s the biggest movers at 1pm:
12.51pm: Temple & Webster jumps to new high
Temple & Webster has jumped by 14 per cent to fresh records in morning trade, after raising $40m in an institutional placement for growth opportunities.
The group this morning said the placement had been “significantly oversubscribed” from both existing and new shareholders.
“We are well positioned to take advantage of the structural shift from offline to online for furniture and homewares. In particular, the raise proceeds provide Temple & Webster with the flexibility to make additional investments in its growth strategy, including technology, and the product and service offering,” chairman Stephen Heath said.
Shares were offered at $6.09 apiece, and last traded up 14.1pc to $7.20 after hitting $7.29.
Read more: Temple & Webster raise to expand online retailing
12.24pm: Deferred loans may cost $22bn: GS
The unwind of loan deferrals is the key risk for Australia’s major banks, as they pass the halfway mark of COVID-19 support, according to Goldman Sachs.
At the onset of the downturn, the financial sector offered three month deferrals to customers, with an option to extend for a further three months, with $236bn of loans or 8pc of the total credit market taking up the offer.
Analyst Andrew Lyons estimates a cumulative 25pc/35pc decline in housing/commercial values over the next two to three years, and if all loans in negative equity default, sector losses could amount to $22bn, “roughly equivalent to our 2H20E major bank collective provision forecast.
“Banks’ access to collateral is key here; an issue that will likely be highly politicised, in our view, and dependent on whether the regulator extends the current supportive capital and accounting treatment of loans on repayment deferrals,” he adds.
Of the four majors, he says Westpac is best placed and raises the bank to Buy rating, noting its relatively conservative mortgage LVR profile and lower estimated number of SME loans on deferral.
WBC last traded up 1.9pc to $18.62.
Read more: D-Day looms for banks of deferrals
11.57am: Shares push higher as Afterpay surges
Shares are setting new daily highs at midday as banks recover from early weakness, while tech and real estate outperform.
The benchmark ASX200 is higher by 0.84 per cent to 5986.1, after hitting as much as 5991.9.
Afterpay is a key contributor, hitting new daily highs of $66.66 (ominous for some), a gain of 5.9pc.
11.35am: Dicker tips 25pc interim profit jump
Dicker Data has guided to a 25 per cent jump in half year profits as its software and cloud distribution services have been in demand during the pandemic.
The group, led by namesake David Dicker, said this morning it expected revenue for the half to June 30 to jump by 18.3pc to $1.007bn, helping profits to surge by 25pc to $40m.
It comes after a record revenue month in June, with $224m generated over the period.
DDR shares are up 8.2pc to $7.58.
Read more: Dicker a virus winner as data use surges
11.32am: May trade surplus $8bn
Australia’s May trade balance has come in slightly lower than estimates, with a surplus of $8.025bn, from $9bn expected.
Still, the balance is an increase of $195m on the surplus in April.
Exports fell by 4pc and imports by 6pc.
Australian May merchandise trade data on a page.
— Robert Rennie (@Robert__Rennie) July 2, 2020
I guess to be expected, but data just highlights how dramatic the collapse in imports has been as a key driver of the improvement in Australia's trade position - vs Dec last year, exports down 12%; imports are down 23%! #ausbiz pic.twitter.com/jKLA05gKwK
Bridget Carter 11.27am: Abacus the new storage king: Macq
DataRoom | Abacus Property Group is growing into ‘The King of Storage’ according to Macquarie Group’s equities analysts.
It comes as evidence has emerged this week of a growing focus on storage assets after it lifted its stake in its rival, National Storage REIT, amassing an interest of 8.09 per cent of the company.
The purchase of additional shares occurred on Monday through Macquarie, with the group earlier owning 7.09 per cent.
“We note a strategic advantage in consolidating the self-storage sector for Abacus with its first
rights to acquire the non-Abacus owned self-storage assets under Storage King management,” say Macquarie analysts.
National Storage has attracted attention from various parties offering to buy the National Storage REIT business, and some believe that Abacus most likely wants a seat at the table.
Ben Wilmot 11.12am: Upside risk for Charter Hall: Macq
The Charter Hall machine has stepped up a gear with the company behaving more like a private firm in boom times than a property landlord facing a pandemic.
The company is in exclusive due diligence on a 49 per cent stake in Ampol petrol station portfolio, with an expected end value of $1bn and a $210m Qube asset in Minto, NSW.
The David Harrison-led company is also in the pack for a Telstra data centre in Melbourne that is on the block for $400m.
With $1.6bn of additional assets potentially on the horizon Macquarie Equities said there was “clear upside risk” to its assets under management forecast over this financial year, and deal-related transaction fees could also surge.
Macquarie had previously cut its asset under management growth assumption for Charter Hall but said given likely progress made on the acquisition front there was upside risk to its earnings assumptions over the course of fiscal 2021.
With a strong balance sheet – zero debt at the headstock – Charter Hall also had the ability to co-invest or warehouse opportunities on the balance sheet, Macquarie said as it retained its outperform rating.
Read more: Charter Hall seen offering ‘knockout’ Ampol price
10.36am: Citi lifts Afterpay target by 137pc
It’s not every day that a major company has its price target raised 137 per cent by a major broker.
But that’s exactly what’s happened on Afterpay today, helping drive its share price up 5.7pc to a record high of $65.80.
Citi’s Siraj Ahmed still has a Neutral rating due to his caution about the outlook for consumer discretionary spending and bad debts when fiscal stimulus measures end but he has boosted his 12-month target to $64.25 a share from $27.10 previously.
The lift reflects a 70pc rise in his FY22 EBITDA estimate, a 40pc rise in peer multiples, and rollover of the broker’s relative valuation to reflect the opportunity from new markets and new avenues of monetisation.
There remains a massive divergence between Afterpay’s share price and Bloomberg’s consensus price target of $42.59. However, the massive price target boost from Citi is highly unusual.
Investors should be wary of an eventual pullback after the bears finally capitulate en masse.
Afterpay was the hottest stock in the ASX200 last quarter with a 231 per cent rise.
APT last up 4.4pc at $64.96.
Ben Wilmot 10.26am: HomeCo aged care move ‘off strategy’
Retail property HomeCo said on Thursday it had raised $140m to fund the acquisition of three neighbourhood shopping centres from Woolworths and had separately bought an aged care home.
Another $20m of equity will be issued to the aged care vendors, that include HomeCo executive chairman David Di Pilla, and a share purchase plan will raise up to $30m.
The aged care deal was dubbed “off strategy” by JPMorgan, which noted it involved a sale and lease back from Aurrum Aged Care, linked to the company’s management and the major shareholder of HomeCo.
“We are surprised at the move into aged care, an industry with good long-term fundamentals but with operators struggling from costs rising faster than revenues and a Royal Commission report still pending,” JPMorgan said.
The broker said the new assets provide good income security and the funding strengthens the balance sheet but noted shares were issued at a 10 per cent discount to asset backing.
“In our view it has supportive valuation metrics, the key is backing management to extract value from its assets and from future transactions, balanced with the risk of other potential related party deals,” JPMorgan said, as it kept its neutral recommendation.
HomeCo is looking to potentially spin part of its assets out into a “Daily Needs REIT” and other into a “Health and Wellness REIT”.
Any spin out proceeds could fund development opportunities and acquisitions but HomeCo would be reliant on its cost of capital as it sought more assets.
HomeCo shares last traded up 2.33pc to $3.07.
Read more: HomeCo raising eyes aged-care pivot
10.12am: Tech records support ASX
A jump in tech and energy stocks is leading the market higher in early trade, following a strong lead from Wall Street.
The benchmark ASX200 is up by 32 points or 0.54 per cent to 5966.4 in early trade.
Tech shares are adding 2.6pc as Afterpay jumps 4.60 to a new record high of $65.80, Xero jumps $1.9pc to a new record of $92.54 and REA adds 1.8pc.
Energy is rebounding from yesterday’s weakness with a 1pc lift, while materials slips lower.
10.10am: US regulators complete Boeing 737 MAX tests
Air safety regulators successfully completed three days of flight tests on the Boeing 737 MAX, a key step in recertifying the plane, US officials said Wednesday.
While the flight tests in Seattle are “an important milestone … a number of key tasks remain, including evaluating the data gathered during these flights,” the Federal Aviation Administration said.
“We will lift the grounding order only after FAA safety experts are satisfied that the aircraft meets certification standards.”
The MAX has been grounded worldwide since March 13, 2019, following an Ethiopian Airlines crash that killed 157 people. That catastrophe came just a few months after a Lion Air MAX crash that killed 189 people.
Besides evaluating data from the test flights, regulators still must develop pilot training protocols for the MAX that will be subject to public comment and a final review by a technical advisory board.
AFP
9.37am: Shares set to break 3-week high
Australia’s share market is likely to surge on overnight developments, but could fade on profit taking before US non-farm payrolls data and the Independence Day long weekend.
Futures relative to fair value suggest an early rise of 1.2pc at 6005, potentially setting a 3-week high above the June 19 peak at 6006 points.
A bullish pennant pattern on the daily chart targets 6372 after the index closed above resistance from the pattern yesterday at 5893.
It’s a bit early to expect a large breakout from this pattern since the S&P 500 only saw a marginal break above similar resistance near 3110. AUD/USD is also yet to convincingly break from a similar pattern, with resistance near 0.6920.
Assuming no big rise in US futures before the US jobs data – for which estimates span a very wide range of 8.5m jobs – profit taking may push the ASX200 back near Wednesday’s close of 5953.9 later today.
Investors have been stung previously by putting too much faith in preliminary results from experimental vaccines like the one from Pfizer and BioNtech that boosted Wall Street overnight.
The near-term focus could easily shift back to the pullback on reopenings in California and New York and the lack of any immediate further response in terms of US fiscal or monetary stimulus.
If the S&P 500 falters tonight it could see one more dip back to the low 3000s but looks to be heading for 3400 while it remains above the June low 2966.
Overall the ASX200 may be leading a broader “risk-on” move in global markets and dips below 5900 should continue to be bought while the June trough holds at 5720.
[CHART] Dow movers in overnight trade; Pfizer (+3.2%) led the gains after a study of its coronavirus vaccine
— CommSec (@CommSec) July 1, 2020
candidate showed the drug was safe and prompted patients to produce antibodies. #ausbiz Bloomberg pic.twitter.com/zWmINdqDFQ
Lisa Allen 9.29am: Webjet raises $163m in debt
Online travel group Webjet last night revealed plans for a $163m convertible notes issue on the Singapore stock exchange in a bid to pay down debt and provide ‘firepower’ for potential mergers and acquisitions.
The raising is the second time Webjet has sought additional funding coming on the back of the $335m it raised three month’s ago on April 1 in a bid to deal with the COVID-19 led slump in its domestic and international tourism business.
“As of May 3 we had in excess of $300m of liquidity,” Webjet managing director John Guscic told The Australian last night, speaking from Tunisia, where he is in a quarantine.
“In relation to our announcement today the capital raising on April 1 was to ensure our survival until the end of 2021, and all the assumptions we made then are still valid, we have capital to the end of 2021,” he said.
“This new convertible note we have launched provides an extension of that liquidity to give us the ability to survive well into 2022 and provides us with some firepower to fund future acquisitions,” he said.
“The pricing won’t be determined until Thursday morning, but this issue comes as the share price has more than doubled from the original capital raise on April 1.”
The net proceeds from the offering, after deduction of commissions, fees and other administrative expenses, are to be used to repay $50m of Webjet’s existing term debt while extending remaining term debt maturity into late 2022, Webjet told the ASX last night.
8.46am: What’s on the broker radar?
- Abacus started at Outperform – Macquarie
- Afterpay target price raised 137pc to $64.25 – Citi
- BHP cut to Hold – Deutsche
- Magellan Financials raised to Neutral – Credit Suisse
- Magellan Financial cut to Sell – Morningstar
- Newcrest cut to Sell – Morningstar
- Orora raised to Buy – Morningstar
- Paladin reinstated Buy – Shaw and Partners
- Rio Tinto raised to Buy – Deutsche
- Saracen Minerals cut to Neutral – JP Morgan
- Star Entertainment cut to Neutral – Credit Suisse
- Suncorp cut to Underperform – Credit Suisse
- Suncorp cut to Hold – Morgans
8.00am: Kathmandu hails ‘strong’ recovery
Adventure wear retailer Kathmandu says it has posted a strong recovery in sales following coronavirus shutdowns but warns of continuing uncertainty.
Kathmandu, in an update, said Kathmandu same store sales for the six weeks to June 28 were up 12.5 per cent, while Rip Curl sales jumped 21 per cent.
It said based on current COVID-19 conditions globally, full year adjusted EBITDA is expected to be above $NZ70m.
Kathmandu said while it was pleased with the “strong” recovery in sales, it remained cautious about consumer demand. It said factors like government support and pent-up demand were underpinning current sales.
7.50am: Apple closes 30 more US stores
Apple is re-closing another 30 US retail stores in response to the increasing number of COVID-19 cases around the country, bringing the number of shuttered stores to 77.
The additional store closures include the remaining two open stores in Florida, 15 stores in southern California, and 10 more in Texas, including locations in Austin, Dallas/Ft. Worth, El Paso, and San Antonio. Apple also shut some locations in Alabama, Georgia, Idaho, Louisiana, Mississippi, Nevada, and Oklahoma.
The company has 271 US retail stores. At least for now, locations in northern California, where Apple is based, remain open.
“Due to current COVID-19 conditions in some of the communities we serve, we are temporarily closing stores in these areas,” Apple said in a statement. “We take this step with an abundance of caution as we closely monitor the situation and we look forward to having our teams and customers back as soon as possible.”
Dow Jones
6.50am: Woolworths fined for spamming
Woolworths has paid a record $1 million fine for breaches of spam laws, after it sent marketing messages to customers after they had unsubscribed from the emails.
The infringement notice is the largest ever issued by the Australian Communications and Media Authority, which found five million breaches by the supermarket giant.
ACMA said Woolworths sent marketing emails to consumers even after they had unsubscribed from previous messages. The emails were sent between October 2018 and July 2019.
ACMA Chair Nerida O’Loughlin said the investigation found Woolworths’ systems, processes and practices were inadequate to comply with spam rules.
“The spam rules have been in place for seventeen years and Woolworths is a large and sophisticated organisation. The scale and prolonged nature of the noncompliance is inexcusable,” Ms O’Loughlin said.
“Woolworths failed to act even after the ACMA had warned it of potential compliance issues after receiving consumer complaints.”
6.20am: ASX to open higher
Australian stocks are set for a positive start, after Wall Street was mostly higher, following encouraging jobs and manufacturing data.
After closing 0.6 per cent higher yesterday, Australian shares are tipped to open firmly higher. Shortly before 6am (AEST) the SPI futures index was up 43 points, or 0.7 per cent.
Earlier, the Nasdaq surged nearly 1 per cent to a fresh record, while the Dow retreated 0.3 per cent as the US contends with a resurgent coronavirus, and the broadbased S&P 500 gained 0.5 per cent.
6.10am: US stocks mostly edge up
US stocks mostly rose in the first session of July after data showed the labour market continued to improve last month, and as tech giants led a Nasdaq surge.
The S&P 500 climbed 0.5 per cent, after rising 20 per cent over the past three months for its best quarterly performance since 1998. The rally was fuelled by the Federal Reserve’s aggressive support for financial markets and signs of an early recovery in economic activity.
The technology-heavy Nasdaq Composite added 0.95 per cent, setting a new record, while the Dow Jones Industrial Average lost 0.3 per cent.
After closing 0.6 per cent higher yesterday, Australian shares are tipped to open firmly in positive territory. Shortly before 6am (AEST) the SPI futures index was up 48 points.
US stocks got a boost after the ADP National Employment Report showed the non-farm private sector created 2.4 million jobs in June, with 70 per cent of new jobs in the leisure, hospitality, trade and construction industries.
“The first half was surprise after surprise,” said Lindsey Bell, the chief investment strategist at Ally Invest. “Now we’re starting to get surprises to the upside. I think the second half will be all about making sure that the recovery continues at a solid clip.”
In another piece of encouraging economic data, the Institute for Supply Management’s June manufacturing index rose to 52.6 from 43.1 in May. That was better than consensus expectations. Numbers above 50 indicate expansion.
That followed similar results in the overseas surveys. Factories in Asia and Europe continued their return to normality in June as restrictions designed to contain the coronavirus were lifted, according to surveys of purchasing managers. Manufacturing sectors returned to growth in a number of countries, including France, the UK, Malaysia, Vietnam, Australia and Ireland.
Whenever stocks have the kind of quarter they just had, the following quarter tends to be a strong one as well, said Frank Cappelleri, the executive director of Instinet. The last seven times the S&P 500 rose 15 per cent in a quarter, it rose an average of 9.5 per cent in the next quarter, he said.
In the afternoon, the release of the Federal Reserve’s minutes of its June meeting showed officials expect to keep interest rates near zero at least through 2022. Central bank officials at the meeting also reviewed how to design more support for the economy.
Stocks rose in Europe after markets in much of Asia also closed higher. The Stoxx Europe 600 added 0.2 per cent. The gauge climbed almost 13 per cent in the second quarter, after having seen 23 per cent of its value wiped out in the first three months of the year.
Dow Jones Newswires
5.55am: Fed concern about downturn
Federal Reserve officials last month expressed concerns about the severity of the economic downturn triggered by the coronavirus pandemic, saying the drop in economic activity in the spring would likely be the steepest in the post-World War II period.
The minutes of the June 9-10 discussions, which were made public Wednesday, show officials grappling with economic disruptions that had already occurred and noting the crisis was “not falling equally on all Americans.”
The minutes say that Fed officials discussed how the sharp rise in joblessness had been especially severe for lower-wage workers, women, African Americans, and Hispanics.
The Fed’s policymaking committee voted 10-0 at the June meeting to keep central bank’s benchmark interest rate at a record low near zero and officials expected that it would remain at that ultra-low level through 2022.
The minutes of the June discussions show that officials had received a briefing from the Fed staff on possible ways to enhance the Fed’s commitment to keeping rates low for an extended period. Those included the use of forward guidance in the policy statement and purchases of long-term bonds, both items the central bank is currently employing.
AP
5.50am: Oil prices rise
Oil prices rose, continuing a recent rebound after data showed US crude stockpiles fell more than anticipated last week.
U.S. crude futures for August delivery added 1.4pc to $US39.82 a barrel. Prices are near their highest level since early March, buoyed by recovering fuel demand and supply cuts by the Organisation of the Petroleum Exporting Countries and allies including Russia.
Sliding US crude output is also supporting the rally. On Tuesday, prices closed out their best quarter since 1990.
Wednesday’s data showed inventories fell 7.2 million barrels last week, a much bigger drop than the 100,000-barrel decline expected by traders and analysts surveyed by The Wall Street Journal.
Still, stockpiles remain elevated after surging earlier in the year, and many analysts are concerned about a recent rise in coronavirus cases in key fuel-consuming states such as Texas, Florida and California. Recent data have indicated that the global economic recovery and rebound in oil consumption could be slowing down, a concerning development for bullish crude investors counting on surging demand.
At the same time, strong compliance from OPEC producers with recent supply cuts and indications that the cartel could act carefully in bringing back output continue to keep crude in its current trading range.
“Although there is still the danger of demand outages in view of increased new cases of COVID-19, OPEC+ seems to have the market under control at the moment,” Commerzbank analysts said in a note.
Brent crude futures for September delivery, the global gauge of oil prices, advanced 1.8pc to $US42.03 a barrel on the Intercontinental Exchange Wednesday.
Dow Jones
5.45am: US car sales fall
Major automakers reported sharp drops in second-quarter U.S. vehicle sales, as sweet discounts and financing deals weren’t enough to offset factory and dealership closures from the COVID-19 pandemic.
General Motors reported a 34pc drop in second-quarter sales compared with a year earlier, with demand picking up in May and June. Toyota Motor Corp.’s sales fell by about one-third, while Fiat Chrysler cars NV reported a 39pc decline.
Overall, second-quarter U.S. vehicle sales are projected to have fallen by about one-third, analysts estimate, after car plants and some dealerships closed for extended periods this spring. Most major car companies reported second-quarter sales results Wednesday.
Still, the drop wasn’t as steep as feared, and sales have improved steadily since late March. Heavy sales promotions and federal stimulus checks that went out to millions of Americans this spring spurred car demand despite spiking unemployment and stay-home orders across many states, dealers and analysts say.
Now, the industry’s sales rebound faces a tough summer test, as automakers reign in discounts and the effect of the federal stimulus fades.
AFP
5.40am: Markets hit a wall as job cuts bite
Stock markets consolidated their quarterly gains as worrying corporate news and uncertainty about the coronavirus fallout kept a lid on investor exuberance.
Equities emerged from the second quarter with impressive gains with the S&P 500, the broadest of the three major US indices, surging 20 per cent for the quarter, the biggest such gain since 1998.
“With a whimper” is how European and US markets started the third quarter on Wednesday, said Fawad Razaqzada at ThinkMarkets, “as profit-taking hit indices in this first half of the day” and markets faced more uncertainty about, among other things, a possible new coronavirus wave.
Even before the quarterly earnings season gives detailed information about the business damage done by lockdowns, multinationals have announced many thousands of job cuts.
European aircraft maker Airbus late Tuesday said it planned to axe about 15,000 jobs worldwide, 11 per cent of its workforce, in response to the “gravest crisis” the industry has ever seen.
SSP, the British owner of food outlets in railway stations and airports worldwide, said Wednesday it was eyeing 5,000 UK job cuts.
Improving economic data did little to reassure investors.
European stock markets were all modestly lower at the close, with London down 0.2 per cent, Frankfurt shedding 0.4 per cent and Paris down 0.2 per cent.
Earlier, Tokyo closed lower after a closely watched Bank of Japan survey showed that confidence among the country’s biggest manufacturers had hit its lowest level since 2009, during the global financial crisis.
But Shanghai gained, with investors taking heart from the easing of reimposed lockdowns in China.
Oil prices jumped as investors cheered news that Saudi exports had tumbled in June, indicating it was sticking to a massive output agreement with other major producers including Russia.
AFP
5.36am: Tesla tops car companies
US electric car maker Tesla has become the world’s most valuable auto company by market value, surpassing Japan’s Toyota after earlier overtaking conventional Detroit giants.
Tesla’s value reached $US207.2 billion, according to Bloomberg, compared with Toyota’s value of $US201.9 billion.
AFP
5.35am: GM car sales plunge
General Motors reported a steep decline in second-quarter car sales due to coronavirus shutdowns, but said demand picked up in the latter part of the period as lockdowns were lifted.
Sales plunged 34 per cent from the year-ago period to 492,484 vehicles, GM said.
The auto giant halted manufacturing for nearly two months at the height of the virus outbreak, but has returned to normal operating levels at most plants, the company said.
AFP
5.32am: US manufacturing continues recovery
US manufacturers continued to recover in June from the sharp downturn caused by the coronavirus crisis, though the sector remained weak overall, according to an industry survey.
The Institute for Supply Management’s (ISM) manufacturing index jumped to 52.6 per cent from 43.1 per cent in May, beating the consensus but in line with other economic indicators showing the easing of lockdowns implemented to stop the coronavirus was boosting the economy.
“June signifies manufacturing entering an expected expansion cycle after the disruption caused by the coronavirus (COVID-19) pandemic,” the index’s chair Timothy R. Fiore said in a statement.
“The manufacturing sector is reversing the heavy contraction of April, with the (overall index) increasing month-over-month at a rate not seen since August 1980, with several other indexes also posting gains not seen in modern times.” Any reading above 50 per cent indicates expansion, and the total was supported by new orders which surged to 56.4 per cent, up 24.6 percentage points from May.
Employment increased 10 points to 42.1 per cent, while production was at 57.3 per cent after gaining 24.1 points from the prior month.
AFP
5.30am: Tourism faces $US1.2 trillion hit
The coronavirus crisis could cost global tourism and related sectors from $US1.2 to $US3.3 trillion in lost revenue, the United Nations said.
Lockdown restrictions to control the spread of COVID-19 have hammered the tourism sector particularly hard, the UN Conference on Trade and Development said in a report.
The world tourism industry is expected to lose at least $US1.2 trillion in the best-case scenario, UNCTAD calculated.
AFP
5.27am: US private hiring rebounds
Industries hit hard by the coronavirus pandemic showed signs of life in June, hiring 2.4 million workers, payroll services firm ADP said.
With three million hires in May, that means more than five million people are back at work of the 20 million who lost their jobs in March and April.
A significant portion of the hirings were accounted for by small businesses of less than 50 workers, which added 937,000 jobs in the month, the data showed, while 961,000 were in leisure and hospitality – a sector almost entirely shut down by the efforts to contain COVID-19.
AFP
5.25am: Virgin Atlantic close to rescue deal
Virgin Atlantic is “close” to securing a deal to recapitalise the struggling British airline as the coronavirus pandemic slashes demand for air travel, a source told AFP.
The carrier, part owned by tycoon Richard Branson, is making “very good progress” in talks with private investors and is “close” to agreement, the source said.
Media reported that Virgin Atlantic is trying to secure a rescue deal worth up to £1.0 billion ($US1.2 billion) to ensure its survival.
The news comes two months after Virgin Atlantic announced plans to axe more than 3,000 jobs, or one third of its staff, as COVID-19 continues to ground a large number of passenger jets.
AFP
5.20am: Pensana Rare Earths to trade in London
Pensana Rare Earths said its entire share capital will be admitted for trading in London in early July.
The Australia-listed company said all 188.3 million of its issued share capital will be listed on the London Stock Exchange’s Main Market and will begin trading on July 6.
Dow Jones Newswires
ASX 200 rises on banks; Arcadium top gainer
Rio Tinto's takeover approach lifts Arcadium Lithium appeal. West African Resources drops on Burkina Faso mining concerns. Qantas may avoid second strike after proxy backing.
Miners drag on ASX 200; Woodside, Mesoblast up
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.