Bank surge in ‘catch-up rally’, sending ASX higher

Major banks put on as much a 10pc through the session in a “catch-up rally” but eased at the close to send the market to a 5-point daily dip.

The four major banks are on a tear on Wednesday after optimism from UBS. Picture: AAP Image/Joel Carrett.

• Big four banks surge more than 10pc
• Banks neglected in recovery rally: UBS
• Blackmores to raise $117m
• NAB lifts retail share issue to $1.25bn

That’s all from the Trading Day blog for Wednesday, May 27. The ASX fought back from an early slip as much as 1.2pc thanks to a rally in the major banks, after UBS noted optimism on the sector. By the close, the ASX was down just 5 points. Elsewhere, Blackmores launched a $117m capital raise while NAB upsized its retail offer to $1.25bn from initial expectations of $500m.

Wall Street caught up from a public holiday overnight. The Dow gained 2.2 per cent, the S&P 500 gained 1.2 per cent and the Nasdaq added 0.1 per cent.

Richard Gluyas 8.30pm: Economic blows increasing global risk: APRA

The financial services regulator has painted a bleak picture of the COVID-19 crisis, warning solvency pressures are increasing amid higher credit risks, and that dividends would come under longer-term pressure.

APRA chairman Wayne Byres told an International Banking Federation meeting on Wednesday night that the global economy had taken “some ferocious blows, and the outlook remained “highly uncertain”.

“Banking systems, with the aid of central bank and government support packages, are helping damp rather than amplify the impacts of the economic shutdown,” Mr Byres said.

“But as much as we have all worked to overcome a torrid past few months, we also need to keep in mind that the real battles for the financial sector remain ahead.

“Measures to backstop liquidity have worked well and bought us time, but solvency pressures are mounting as credit risks come to the fore.”

The good news, according to the Australian Prudential Regulation Authority chief, was that the post-financial crisis reforms to the global financial system were playing their role as a shock absorber for the economy.

With the help of central bank and government support packages, banking systems were helping to damp the impact of the economic shutdown rather than amplify it.

“I cannot stress enough how important the continuity of essential financial services has been at a time of heightened anxiety within the community,” Mr Byres said.

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Nick Evans 8.07pm: CEO unscathed in ALS testing scandal

The coal-testing scandal at laboratory company ALS has cost managing director Raj Naran only a portion of his annual bonus, despite an internal investigation finding about half the certificates it provided for export coal samples over the past decade were manually changed without an identifiable reason.

ALS released its annual results on Wednesday, declaring a 6.1c final dividend on a $127.8m net profit, down 16 per cent from the previous year.

The company took a $50m impairment on its South American health and medical research testing business, citing the impact of the coronavirus, and another $40m hit to its industrial division, which has been hurt by its reliance on the oil and gas sector.

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Max Maddison 7.29pm: Freelancer ‘thrives in crisis times’

Freelancing and crowdsourcing marketplace Freelancer.com is set to “thrive” amid a global recession, as the COVID-19 crisis gives the company a “free kick”, says chief executive Matt Barrie.

Speaking at the company’s annual shareholder meeting, Mr Barrie said despite shaky first-quarter results, the Sydney-based company had seen “strong growth” since a low point on March 15, and he expected the company to revel in the downturn.

“You have businesses trying to cut back on costs ... You have a lot of people looking for work, and certainly that’s the case globally right now,” Mr Barrie said.

“The third thing is, and that’s fairly important in Western countries, you have a lot of people with spare time on their hands.”

Mr Barrie said the company was already experiencing all-time highs across a raft of key metrics — including new users and awarded projects — and was well positioned to excel for the remainder of the year.

“I’ve always said you don’t want to be a unicorn, you want to be a cockroach, and this business thrives in this sort of environment,” Mr Barrie said.

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Matthew Denholm 7.02pm: Riding rich wave of antiviral research

As consumers around the virus-stricken world reach for immune-boost supplements, they are contributing to a boom for a ­family-owned Tasmanian business built on a hunch — and seaweed slime.

In 2003, Sydney accountant Paul Garrott wondered whether the wakame seaweed accidentally introduced to Tasmania’s east coast from the bilge water of Japanese woodchip vessels could be a new food business.

The cost of paying divers meant the enterprise proved uneconomic, but Mr Garrott and his ­father, Geoffrey, a Tasmanian-based accountant, had a better idea. “We set about looking for some higher, value-added opportunities and we were aware that this seaweed species contained a compound called fucoidan,” he said.

Japanese research had linked the compound, found in the seaweed’s protective slime, to potential anti-inflammatory, antiviral and immune-boosting benefits.

About the same time, the Garrotts met a scientist, Helen Fitton, recently arrived in Tasmania from Britain. “We set about developing a unique technology to extract this compound and then we embarked on a commercialisation process and more research and development and it evolved from there,” Mr Garrott said.

“We are now recognised as the global leader in this space in terms of the volume of fucoidan we produce, the research organisations we collaborate with and the bio­activity of the compounds.”

The business, Marinova, with Dr Fitton as chief scientist, now harvests brown seaweeds in Nova Scotia, Patagonia and Tasmania. It exports the extracts to pharmaceutical and nutritional supple­ment companies in 30 countries.

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James Kirby 6.25pm: Banks target of classic rotation

A rebound in bank stocks now underpins an unexpected rally on the ASX, but any “recovery” in the financial sector has to be taken with a generous helping of caution, not to mention context.

For long-term bank shareholders this run-up in bank shares accumulating to around 14 per cent over the week is a measure of compensation rather than a cause for celebration.

First, for bank shareholders the bounce is relative - bank stocks have been “underperforming” since before the crash. In the past two months they have underperformed by nearly 20 per cent.

What is happening is a classic “rotation” - where traders are now looking at the parts of the market where nobody has been willing to go - bank stocks are the obvious target.

Second, the issues facing the banks are deeply challenging as a wave of insolvencies loom in travel, entertainment and retail.

What’s more, around half a million home mortgages have been deferred until later in the year.

ANZ boss Shayne Elliott takes comfort in the fact that half of these deferring borrowers have not suffered a drop in income.

Read that another way and you might ask the question: “How will these home loan borrowers respond if they actually do face a financial turn for the worse?”

Read more

Jared Lynch 5.49pm: Cann Group secures export deal

Medicinal cannabis outfit Cann Group has secured a European export deal and is looking to sell products to South America as it looks to scale up production and meet local legislative constraints on growth.

Cann shares have surged 16 per cent this week to $1.18 after it sealed two new agreements to export medicinal cannabis and dried flower products to the UK and Europe.

The company, which is currently building a factory in Mildura, needs export markets to fuel growth because under current Australian laws it cannot manufacture products speculatively and must show an end market for their use.

“For us the focus remains, and under the legislation, we are obliged to service Australian patients first,” chief executive Peter Crock told The Australian.

“But ... for us to efficiently service the Australian market, setting up at scale is important and that’s why having the export off-take allows us to cater for that supply.

5.07pm: Gold lags as banks lead

The rotation to value stocks served a blow to gold stocks as investors looked ahead to a cyclical recovery.

Newcrest fell 7.2 per cent to $29.56 as Northern Star lost 10.9 per cent to $13.46, Evolution fell 8.5 per cent to $5.61 and Saracen Minerals took a 11.2 per cent hit to $5.

Bell Potter head of institutional sales Richard Coppleson notes a pronounced shift in local sentiment, where “market leaders in 2020 were sold off and used for funding”.

He points out that value traded in the banks was "absolutely massive” adding, “the banks are 17 per cent of the index and many have been waiting for the right time to buy them as they have severely underperformed the market in this rally”.

Here’s the biggest movers at the close:

4.22pm: Financials catching up to ASX

Financials have narrowed their losses against the benchmark ASX200 in a stunning “catch up rally” in Wednesday’s trade.

The sector had been underperforming the benchmark year-to-date, and as highlighted by UBS had been “left out” of the recovery rally.

By the close on Wednesday, financials were down 22.6pc year-to-date, clawing back ground from a 30.7pc loss as of Friday’s close while the broader ASX200 was down by 13.6pc from Friday’s 17.7pc.

ANZ was the best performing as it was tipped as a Buy from UBS. The bank added 8.6pc to $17.94 while Westpac finished up 8pc to $17.61, NAB put on 7.8 per cent to $17.94 and Commonwealth Bank gained 4.9 per cent to $64.30.

4.14pm: Bank lift buoys ASX

A boom in the major banks brought the ASX back from heavy losses but wasn’t enough to save the market from a 5 point dip.

Despite a strong US lead, shares fell by 1.2 per cent at the open only to claw back to gains as much as 1pc as the four major banks outperformed.

By the close, the ASX200 was lower by just 5 points or 0.09 per cent to 5775, with the four majors trimming some of their losses.

Banks were clear outperformers but offset somewhat by declines in health stocks and a hit from materials.

Eli Greenblat 4.09pm: DJs, Country Road sales slump

Up-market department store David Jones and its stable of Australian fashion stores under the Country Road Group have won a waiver from its lenders on its debt covenants and been handed a $75m loan from its parent company South African’s Woolworths Holdings.

It comes as the group suffered a 35 per cent collapse in sales through the worst of the coronavirus pandemic.

Sales at Country Road Group, which includes popular retail brands such as Country Road, Mimco and Witchery, slumped by 50 per cent through the worst weeks of the shutdowns.

In a trading update provided to the Johannesburg Stock Exchange, Woolworths Holdings also announced a number of measures to bolster its Australian businesses in the wake of the health and economic crisis triggered by the pandemic, including restructuring its loans, discussions with landlords to lower rents and looking to sell off some of its properties.

Bridget Carter 3.46pm: Virgin offer could be as much as $4bn

DataRoom | A clearer picture could soon emerge as to the price that Virgin Australia’s final bidders are prepared to pay for the airline.

But already, the guessing game has started, with some estimating that offers will likely be in the ballpark of $3.5bn to $4bn.

Bids from four short-listed parties are due on Friday, with the number of contenders in the mix expected to be reduced to two by Monday in a competition overseen by the airline’s voluntary administrator Vaughan Strawbridge.

They have been asked to provide more detailed information about their proposals.

The final bidders are BGH Capital with Australian Super, Bain Capital, supported by the Future Fund, Cyrus Capital Partners and Indigo Partners backed by Oaktree Capital Management.

Read more: Brookfield, InterGlobe still on Virgin sidelines

3.44pm: Afterpay sold off on switch to value

Afterpay shares have dived 8pc to a 2-day low of $44.87 as investors switch from growth to value stocks today.

The extent of the fall is surprising considering Afterpay is widely expected to get MSCI index inclusion on Friday, fuelling automatic buying from passive funds.

Perhaps this time the passive buying will be overwhelmed by profit taking from speculators who were betting on index inclusion?

Afterpay shares rose over 500pc from a low of $8.01 on March 23 to a record high of $50.01.

Admittedly the news has been positive, but Bloomberg’s consensus 12-month price target is just $32.25.

3.25pm: Coke consumption habits concerning: Macq

Australian Coca-Cola consumption habits could be changed for the long term after COVID-19, warns Macquarie, adding margins for the bottler will be under pressure even as the economy recovers.

In a note following Coca-Cola Amatil’s AGM update, Macquarie writes that while volumes are recovering, profitability is challenged as higher margin on-the-go sales continue to underperform.

“Australia grocery volumes were down 10pc in April, despite restaurant and cafe

closures. Consumers were not replicating cafe consumption at home,” they say.

The broker cut its rating on the stock to Neutral, and lowered its target price from $10 to $9.30, adding that “it is hard to see margins returning to their former state and we think profitability will be challenged in the medium term”.

CCL last traded down 0.5pc to $8.78.

Read more: Coca-Cola Amatil boss warns of wages ‘cliff’

Perry Williams 3.18pm: Market undervalued TransGrid holding: Spark

Spark Infrastructure decided against buying an extra 20 per cent stake in NSW electricity operator TransGrid over frustration the market had undervalued its existing holding in the business.

The investment fund was understood to have had Macquarie Capital on standby for a potential $2bn deal to increase its 15 per cent stake in TransGrid.

The Kuwait Investment Authority’s Wren House holds 20 per cent of TransGrid but is selling out of the network business with existing shareholders holding the first option to strike a deal under pre-emption rights.

Read more: Spark forgoes TransGrid buy

Eli Greenblat 3.03pm: Myer lures shoppers back with sale

Myer is hoping a traditional stock take sale will encourage shoppers to newly reopened stores or jump online in the midst of the coronavirus pandemic, and has launched its seasonal sale with discounts of up to 50 per cent.

Tony Sutton, Myer’s executive general manager of stores said the department store was offering a safe shopping environment.

“We’ve loved welcoming our loyal customers back into store today, our team members were ready and waiting to offer the service and brands our customers trust within a safe shopping environment,” Mr Sutton said.

“Tomorrow they have even more to look forward to as we launch our hugely popular Myer Stocktake Sale, with great value and offers across thousands of items.”

Following a mass closure of Myer stores in March the nation’s biggest department store owner has begun reopening stores nationwide.

MYR last traded down 4.7pc to 30.5c.

Read more: Myer, DJs working on rent deal

Myer hopes to lure shoppers back in its stocktake sale. Picture: Robert Cianflone/Getty Images.

Bridget Carter 1.58pm: Brookfield not giving up on Virgin bid

DataRoom | Brookfield Asset Management may still have some interest in making a bid for Virgin Australia despite being knocked out of the first round of the contest, but it is understood that the India-based InterGlobe has also not given up hope in getting back in the race after it too was excluded.

Both InterGlobe, a major shareholder of the budget Indian carrier IndiGo, and Brookfield were knocked out in the first round of competition.

The US-based Indigo Partners with the same name is partnering with Oaktree Capital Management for its bid, and is one of the parties that made it through to the second round.

Brookfield owns most of Oaktree, so they may all come together.

However, despite being excluded from the shortlist, any other group can propose a Deed of Company Arrangement to the creditors at any time.

Should creditors vote in favour of such a proposal, that offer could succeed.

Read more: Brookfield continues push for Virgin

1.26pm: Credit fears fade for alt financials: Shaw

As banks go on tear in morning trade, Shaw and Partners is adding to the financial fever, tipping alternative financials as one of the cheapest exposures to the ‘opening up’ thematic.

Analyst Jonathon Higgins writes that while many traders were cautious of credit profiles through the coronavirus downturn, those fears seem to be largely unfounded.

“Reviewing the disclosures of 13+ alt financials, collectors and fin-tech businesses finds diverse disclosure, but broadly no uptick in experienced bad and doubtful debts and arrears. While provisions have begun to be passed through (particularly across the majors) in preparation for higher unemployment and lower asset prices, stimulus measures and a ‘Team Australia’ approach alongside competitive product value propositions put credit performance as strong,” Mr Higgins writes.

He says transaction values for buy now, pay later (BNPL) majors Afterpay and Zip are up substantially while refinancing activity is driving loan growth and “a number of businesses are flagging acquisition opportunities as smaller or lesser funded peers enter difficulty”.

The sector, excluding the recent surge in BNPL, is down 44pc during COVID-19 but Shaw says there’s room for positive updates in the current climate.

Mr Higgins likes Eclipx, Credit Corp, Zip, Afterpay, FlexiGroup and ResiMac in the sector.

1.18pm: Worse to come for construction: NAB

The 1pc drop in total construction work done last quarter was slightly better than the 1.5pc fall predicted, but will likely fall sharply in the quarter to come, according to NAB.

Markets economist Kaixin Owyong writes that while private sector construction fell by 1.6pc, non-residential construction edged higher by 0.4pc, suggesting “activity was not as badly affected by coronavirus restrictions in March as some had feared”.

Still, she notes that there is worse to come: “Construction should fall sharply in Q2 before eventually recovering in response to low interest rates”.

“The recovery is likely to take time given record job losses and with the closure of Australia’s border putting a stop to migration.”

NAB forecasts a small 0.2pc fall in GDP for the first quarter, to be released on June 3.

Read more: Construction work falls 1pc

1.02pm: Financials in favour as gold falls

Australian shares are firmly in positive territory at lunch, as the benchmark reverses an early 1.1pc loss thanks to a surge in the major banks.

At 1pm, the benchmark ASX200 is trading at its best levels of the day, up 19 points or 0.34 per cent to 5799.4.

The lift is solely driven by outperformance in the major banks – ANZ is up by 9.5pc as UBS tips it as the best pick in the financial sector while Westpac lifts by 9.2pc, NAB adds 8.9pc and Commonwealth Bank gains 5.1pc.

The $20bn foray into banks and the surge in other value stocks is being funded by a sell-off in high flying growth and defensive stocks, with CSL down 5.7pc, Evolution down 8.8pc and Afterpay down 5pc.

Iron ore miners are also suffering from the switch to value, with Fortescue down 4.6pc, even though some of the iron ore miners like BHP and Rio Tinto arguably still offer good value.

Here’s the biggest movers at 1pm:

12.29pm: China industrial profit recovering

China’s industrial companies reported improved profitability in April from the month prior, as the nation’s factory output led the economy recovery.

Nonetheless, Beijing cautioned on the industrial sector’s outlook amid weakening demand and falling prices of factory goods.

China’s industrial profits declined 4.3pc from a year earlier in April, improving from a 34.9pc drop in March, said the National Bureau of Statistics Wednesday. In the first four months this year, China’s industrial profits tumbled 27.4pc.

The statistics bureau said 80pc of industrial firms reported improved profitability and more than half of them posted profit growth.

The rebound in profits was led by auto, equipment and electronic companies in April, the bureau said. Automakers’ profits rose 29.5pc in April, compared with an 80.4pc decline in March.

The data comes as the PBoC set the yuan fixing to 7.1092 per USD, near September 2019 lows, when the US and China were trading blows in their trade war.

Dow Jones Newswires

Aiya... onshore and offshore yuan both now at at 9-month lows pic.twitter.com/r6VJWGWjs9

— David Ingles (@DavidInglesTV) May 27, 2020

12.19pm: Value to lead S&P 500: MS

Morgan Stanley’s highly-regarded chief US equity strategist Mike Wilson continues to back a cyclical recovery in the US economy, recommending exposure via a “barbell” of high-quality stocks and low-quality cyclical stocks.

“It’s always difficult to trust the cycle at the trough,” he said as the S&P 500 hit a 3-month high above 3000 on Tuesday. “However, price action suggests it’s not different this time. In fact, the cheapest stocks have never been cheaper and this argues for leaning even harder into the wind.”

First, he notes that the US money supply has surged 22pc in 3 months since the official restart of QE in the US, an amount “multiple times bigger than in 2008”.

With QE and fiscal stimulus programs set to continue for the foreseeable future, he expects the growth in money supply to continue, and a good chance of that increase in money supply providing a tailwind to inflation from 2021.

Second, he says the majority of investors that he speaks to “remain sceptical of the rally and unwilling to embrace a more aggressive early cycle positioning”.

Third, the valuation spread between the cheapest 10 per cent of top 100 stocks versus the median stock – based on price to book, price to cashflow and earnings yield – is at the widest spread of the last 30 years, which includes three recession, the bursting of the Tech Bubble and the Great Financial Crisis.

He notes that the widest spreads occur in recessions (like now) and the spread narrows as quickly as it widens as the economy recovers. “We see no reason why it won’t be the same this time around,” Mr Wilson says.

Read more: Value stocks back in vogue

Stock Market up BIG, DOW crosses 25,000. S&P 500 over 3000. States should open up ASAP. The Transition to Greatness has started, ahead of schedule. There will be ups and downs, but next year will be one of the best ever!

— Donald J. Trump (@realDonaldTrump) May 26, 2020

11.57am: Majors banks add more than 8pc

The major banks are single-handedly supporting the benchmark ASX200 today, helping the index to push into the green in morning trade.

It is worth noting that the big four were already up around 6pc yesterday – and are now adding further gains as much as 8pc.

ANZ is leading the charge, up 8.5pc to $17.93 while Westpac is up 7.8pc to $17.57 and NAB is higher by 7.5pc to $17.89 after upsizing its share purchase plan to $1.25bn.

Commonwealth Bank is trailing its peers with gains of 4.5 per cent to $64 and even Macquarie is getting in on the action, adding 3.2pc to $112.22.

The momentum pushed the ASX into positive territory for the day at 5790.7 but the gains didn't hold, with the index last down 0.1pc. Considering early falls of 1.1pc, the benchmark has made up a lot of ground.

David Ross 11.40am: March construction drops by 1pc

The value for construction work done fell across Australia by 1.0 per cent to $49.48bn in the March quarter, figures released by the Australian Bureau of Statistics show.

The latest figures coincide with the hit to the economy from the coronavirus pandemic as businesses and activity ground to a halt from the lockdown.

Market economists had forecast at 1.5 per cent seasonally adjusted fall in construction work done, according to Bloomberg estimates. This compares with a 3 per cent fall during the December quarter.

Driving the fall was building work – including major office projects and apartments – which fell 1.0 per cent to $28.92bn in seasonally adjusted terms during the March quarter, the ABS figures show.

The estimate for engineering work done – which takes into account major infrastructure and mining projects – fell 1.1 per cent to $20.55bn in the March quarter.

Some soft Q1 construction data, and interesting that the public engineering aspect has flatlined through the year given all the talk of infrastructure investment from government. These numbers a prelude to a materially weaker Q2 #ausbiz pic.twitter.com/AIgxqP1rWU

— Alex Joiner (@IFM_Economist) May 27, 2020

11.30am: Bank boost pares ASX losses

After diving 1.1pc to 5713 in early trading, the S&P/ASX 200 has pared all of its intraday fall to be almost flat at 5774.

It comes as S&P 500 futures bounce from -0.3pc to +0.3pc and banks reacted to a “more optimistic” outlook from UBS.

CBA is up 3.5pc and the three other major banks up an amazing 7.3pc-7.9pc after surging about 6pc yesterday.

11.25am: UBS upgrades GDP forecasts

UBS chief economist George Tharenou has upgraded his forecasts for the Australian consumer and GDP forecasts because of a “less-bad” jobs market and faster reopening of the economy.

This feeds into the other big call by UBS view today that, in the event of a V-shaped economic recovery, the market may factor in a shorter credit cycle, fuelling a “risk-on” rerating of banks.

Mr Tharenou has upgraded his forecast for Q2 consumption to -7pc from -9pc and GDP to -8.5pc from -10pc. His 2020 GDP forecast is now -5.1pc from -6.1pc, albeit 2021 GDP goes to 4.6pc from 5.2pc.

In his view the material downward revision of the JobKeeper wage subsidy means that, while households still face a Q4 “cliff”, there’s now more room for a further policy response.

“The JobKeeper revision doesn’t remove the still very likely large negative q/q for household cash flow in Q4,” Mr Tharenou says.

“However, there seems a rising chance of new direct policy support for housing, such as a First Home Owners Grant; albeit we already assumed this would be required and forthcoming to drive our expected rebound of dwelling commencements from just 130,000 in 2020 (from 120,000) to 170,000 in 2021, and limit the decline in home prices to less than 10 per cent.”

11.04am: Gold miners take hit

Gold miners are leading losses on the local market, after global risk appetite dented gold prices overnight.

The price of the precious metal fell by 1 per cent as major economies further eased coronavirus restrictions, fuelling hopes of a recovery and bolstering risk appetite.

On the local market, Northern Star is leading the decline with a 7.1pc slip while Saracen trades off by 7pc and Evolution by 6.2pc.

St Barbara too is lower by 5.31 – with the top five worst performers all gold names.

Patrick Commins 10.55am: Weather search activity beats COVID-19

Australians are “ready to return to normal”, with Google search data showing we are now more interested in the weather than coronavirus.

ANZ analysis of “alternative data” to gauge the mood in the population shows a flagging interest in the pandemic, alongside increasing mobility around the nation as social distancing restrictions ease.

“The internet searching behaviour of Australians suggests to us that the fear of and interest in COVID-19 has subsided considerably,” ANZ economist Hayden Dimes said.

“As this search intensity has returned to normal, we think people are worrying less; and Australia’s success in containing the pandemic is likely to be part of this.”

So far, the easing of some restrictions by states has not led to a resurgence of new cases.

Australia getting back to normal: internet searches for #coronavirus have dropped, and people are now more interested in weather. #foottraffic #restaurants #domestictravel #reopening @DimesHayden @DavidPlank12 #ausecon #ausretail pic.twitter.com/0IuFUGE8gK

— ANZ_Research (@ANZ_Research) May 27, 2020

Ben Wilmot 10.32am: Westfield malls best set for recovery: MS

The mall industry may be wrestling with tenants unable to pay rents and demands for new turnover linked rents from major chains but those that have put work into redevelopments are best positioned.

That is the view of Morgan Stanley, who says that because Westfield owner Scentre Group has been a more active redeveloper of its assets in the last seven years, its malls would naturally have better ambience, and so be at an advantage over the rival Vicinity Centres in a post-COVID-19 world as retailers re-evaluate networks.

While it’s not too late to beautify more assets, returns are perhaps less certain on incremental spending post-COVID-19, the analyst said as the broker maintained its Overweight rating on Scentre and underweight on Vicinity Centres.

Malls that have had recent spending may find it easier to attract and retain tenants as retailers rethink their store networks.

With redevelopments harder to stack up in a less certain post-COVID-19 world, Morgan Stanley prefers the portfolio that has the least to do in terms of lifting ambience and said that was Scentre over Vicinity.

SCG was last trading flat at $2.45 while VCX trades up 2.7pc to $1.74.

Morgan Stanley says mall owners who have invested in redevelopments, like Scentre Group, will do better post-COVID-19. Picture: Rob Leeson.

10.28am: Banks left out of recovery rally: UBS

UBS analyst Jon Mott says he is “more optimistic” on banks in the near term, even as he tips medium term challenges to remain for the sector.

He notes that the banks have traded in a relatively tight range since March, and have therefore “missed out” on the broader market rally, underperforming by 19pc in three months.

“We believe further catch-up is likely near term as the economy reopens,” he says.

Mr Mott notes a “string of positive economic data” as the economy reopens: authorities revising down JobKeeper wage subsidies recipients to 3.5 million from 6.5 million; $10.6bn withdrawn from Superannuation helping consumer cash flows; card spend and retail data recovering; positive trading updates from many small caps, and a recovery in auction clearance rates.

“This is all good news, and with the healthcare outcomes continuing to improve, the outlook for the economy is on the rise,” Mr Mott says. “While we are certainly not out of the woods, the likelihood of a more severe downturn with even larger credit losses and CRWA pro-cyclicality driving dilutive capital raisings appears less likely in our view.”

Still, he thinks the December quarter will be “the most challenging period” for the banks with ~$100bn in policy support coming to an end in September.

Mr Mott keeps a Neutral rating on the sector, with ANZ the only bank rated “Buy”.

Financials are surging by 2.1pc and are the only sector in the green in the first hour of trade.

10.10am: Shares give back rally

After a 5 per cent rally in just the past two days the local market is taking a breather, edging lower by 1 per cent in early trade.

At the open, shares are down by 60 points or 1.04 per cent to 5720 but keep in mind the index jumped a solid 2.9pc by the close yesterday.

The late retreat on Wall Street caused by a Bloomberg report about the US mulling sanctions on China over Hong Kong has been followed by a 0.3pc fall in S&P 500 futures, which has caused the bigger-than-expected fall in the local bourse.

Financials are the only saving grace, up 1.3pc as NAB adds 3.2pc after upsizing its share purchase plan to $1.25bn. Westpac is also up by 3pc and ANZ by 2.5pc as CBA continues to lag its peers with a 1.1pc. lift.

Elsewhere, BHP is dragging by 3pc and CSL is taking a 3.9pc hit.

Jared Lynch 9.56am: Marcus Blackmore sits out of raise

Vitamins maker Blackmores is tapping the market to raise $117m via an institutional placement and share purchase plan but one key shareholder has already ruled themselves out from participating in the plan to accelerate the company’s growth in Asia and strengthen its balance sheet.

Executive director and former chairman Marcus Blackmore, whose father founded the company 87 years ago, said he remained a “committed long-term shareholder” but he and his related entities will not participate in the equity raising.

“Unfortunately I am unable to participate in the equity raising at this time, however Blackmores has been an integral part of my family since 1932 and needless to say I am absolutely committed to being a long term shareholder,” Mr Blackmore said.

Chief executive Alastair Symington said the equity raising aimed to accelerate Blackmores’s growth in Asia, invest in an efficiency program and strengthen the company’s balance sheet.

He is expecting full year net profit to plunge as much as 67 per cent to $17m, with the costs of transitioning from being a brand owner to manufacturer weighing on the company, as well as well coronavirus-fuelled lower shopping traffic and supply chain constraints.

Read more: Blackmores raising $117m

Blackmores executive director Marcus Blackmore at his Newport home. Picture: John Feder/The Australian.

9.39am: ASX rally to be cut short

Australia’s sharemarket is expected to pull back today, even after a rally on Wall Street but looks a buy-on-dips toward 5600 points this week.

Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 0.6pc at 5745 on Wednesday, with buying temporarily exhausted after the index rose 5pc rise in the past two days and 27 per cent in the past two months.

With the S&P/ASX 200 outperforming bonds this month, there is likely to be some selling from balanced funds on Friday.

Moreover there looks to be a good chance of a 2pc fall in the S&P 500 before the weekend following a failed test of potentially strong resistance from the 200-day moving average at 3000 points.

The S&P 500 rose as much as 2.2pc intraday to a 3-month high of 3021.7 amid easing coronavirus restrictions, improved economic data and vaccine studies. But it almost halved its intraday rise to close up 1.2pc at 2991.8, near an intraday low of 2988.2, after Bloomberg said the US is mulling sanctions on Chinese officials and firms over Hong Kong.

S&P 500 futures are down 0.2pc this morning.

Locally, the fact that the S&P/ASX 200 broke resistance (now support) near 5600 with its biggest rise in 7 weeks and its best volume in 4 weeks is a bullish sign, supporting the view that the index will surge toward 6000 points in coming weeks, based on an ascending triangle pattern.

The S&P/ASX 200 rose 2.9pc to 5780 on Tuesday.

Gerard Cockburn 9.27am: NAB lifts SPP by $750m

NAB has increased the size of its share purchase plan by $750m, saying it still had to scale back demand from shareholders.

In a statement provided to the ASX on Wednesday morning, the major bank said it decided to increase its share purchase program by $750m from an initial target of $500m, to a total sum of $1.25bn.

Approximately 88 million new fully paid NAB ordinary shares will be issued at $14.15 apiece under the scheme, representing 2.8 per cent of the bank’s total stock on issue.

Chief executive Ross McEwan said applications had been received from 155,000 eligible holders, worth $2.9bn.

“Together with our recently completed institutional placement, the capital raised through the offer will assist us to manage through a range of possible scenarios related to the COVID-19 pandemic, including a prolonged and severe economic downturn,” Mr McEwan said.

Valid applications received represented a participation rate of approximately 25pc of eligible

shareholders (representing 21pc by shareholding), with an average application amount of

approximately $18,500.

Read more: NAB’s retail shareholders could miss out again

9.24am: APA appoints Phillippo as new director

APA Group have tapped a director of Pacific Hydro as its latest board hire, this morning announcing Rhoda Phillippo as a new non-executive director.

Ms Phillippo is a director of the Chinese-owned renewable energy group Pacific Hydro, as well as Datacom, and is an alternate director for the Perth Airport on behalf of the Future Fund.

“I am pleased to welcome Rhoda Phillippo to APL’s Board. Rhoda is a highly experienced Executive and Non-executive Director having had a diverse career across energy, telecommunications and IT,” chairman Michael Fraser said.

“Her experience and skills in these areas will complement those of our existing Directors and strengthen the Board.”

9.13am: What’s on the broker radar?

• Accent Group raised to Add – Morgans
• BHP cut to Sell – Morningstar
• Catapult Group cut to Hold – Bell Potter
• Cleanaway cut to Sell – Morningstar
• Coca-Cola Amatil raised to Neutral – Goldmans
• Coca-Cola Amatil cut to Neutral – Macquarie
• Insurance Australia cut to Hold – Morningstar
• Metcash raised to Buy – UBS
• Navigator Global raised to Outperform – Macquarie
• Newcrest raised to Neutral – UBS
• Qantas cut to Hold – Morningstar
• Scentre Group cut to Hold – Morningstar
• SeaLink cut to Hold – EL & C Baillieu
• Seven Group cut to Hold – Morningstar
• Sydney Airport cut to Hold – Morningstar

Bridget Carter 9.06am: Blackmores taps Goldmans for $117m raise

DataRoom | Blackmores is raising $117m through Goldman Sachs to strengthen its balance sheet.

The funds will also be used to fund Asian growth initiatives.

The company will secure $92m through a placement and $25m through a share purchase plan.

Shares are being sold at $72.50, an 8.1 per cent discount to their last closing price of $78.85 on Tuesday.

Namesake Marcus Blackmore and the Blackmore Foundation will not take part in the equity raise, but say they are still committed as long term shareholders.

8.53am: Blackmores halted for raise

Blackmores shares have been halted ahead of the open, pending further detail of a capital raising.

Requesting the halt, the vitamin maker said it expected to make an announcement to the ASX regarding a capital raising, comprising of an institutional placement and a share purchase plan.

It asked for the halt to be in place until the earlier of the company making an announcement or the commencement of trade tomorrow.

8.30am: Japara flags impairment charge

Aged care provider Japara has signalled an impairment charge of between $270m and $300m in its full-year results.

It follows a review of the carrying value of its assets in the wake of the impact of the COVID-19 pandemic.

In an update, Japara says conditions in aged care are challenging, with a weakening in occupancy levels since Easter. The occupancy rate is currently at 91.7 per cent.

Japara said net debt totalled $201 million as at April 30, 2020 with available liquidity in cash and undrawn debt of $144 million.

It said uncertainty meant some development projects had been put on hold.

8.20am: Oil prices climb

Oil prices rose overnight, supported by signs that producers are following through on commitments to cut supplies and as fuel demand picks up with coronavirus restrictions easing.

Brent crude futures gained 64 US cents, or 1.8 per cent, to settle at $US36.17 a barrel. US West Texas Intermediate (WTI) crude futures rose $US1.10, or 3.3 per cent, to settle at $US34.35 a barrel.

The Organisation of the Petroleum Exporting Countries and producers including Russia, a group known as OPEC+, agreed last month to cut their combined output by almost 10 million barrels per day in May-June to support prices at a time when coronavirus pandemic quarantines have slashed fuel demand.

Russian Energy Minister Alexander Novak was due to meet oil producers on Tuesday to discuss the possible extension of current cuts beyond June, sources familiar with the plans told Reuters.

Reuters

7.50am: NZ banks face test: RBNZ

The resilience of New Zealand’s banks will be tested by the coronavirus pandemic, but the overall financial system is in a solid position to weather the economic downturn, the central bank said.

Loan losses for banks will rise, but stress tests indicate they can maintain adequate capital even if the economic downturn is worse than current projections, the Reserve Bank of New Zealand said in its twice-a-year review of financial stability.

“At the outset of the pandemic the banking system had significant capital and liquidity buffers, built up due to both regulatory requirements and several years of favourable banking conditions,” RBNZ said. “These buffers can now be used to support their customers’ long-term economic future.”

New Zealand’s banking industry is largely owned by Australia’s four main trading banks.

The banks would be able to maintain capital above minimum required levels in a scenario where house prices fall 36pc, unemployment peaks at 13.5pc and economic recovery to pre-pandemic levels takes until June 2023, according to RBNZ’s stress tests.

Dow Jones

7.20am: ASX poised to fall

Investors can expect the ASX to drop in early trade after reports the Trump administration was weighing a range of sanctions on Chinese officials, businesses and financial institutions.

At 7am (AEST) the SPI 200 futures contract was lower by 63 points, or 1.08 per cent, to 5,744.0, indicating losses in early trade.

Overnight US stocks pared gains late in the session, after Bloomberg News reported US President Donald Trump was considering sanctions, reinforcing comments earlier from White House adviser Larry Kudlow.

Kudlow said the president was “so miffed with China on virus and other matters that the trade deal is not as important to him as it once was”.

The benchmark S&P 500 had crossed 3000 for the first time since March 5 before dropping back late in Tuesday’s session.

It closed 11.7 per cent below its February 19 record high.

Meanwhile in Australia today, construction data for the March quarter is due.

The Australian share market enjoyed its best day in seven weeks on Tuesday. The S&P/ASX200 benchmark index closed up 164.4 points, or 2.93 per cent, at 5,780 points, while the All Ordinaries index was up 160 points, or 2.79 per cent higher, at 5,889.9.

The Australian dollar was buying US66.54 cents at 7am (AEST), up from US65.91 cents at the close of trade on Tuesday.

AAP

6.10am: Markets rally on reopening optimism

US stocks rose on optimism about economies reopening and the potential development of a coronavirus vaccine.

The Dow Jones Industrial Average rose 2.2 per cent. The S&P 500 added 1.2 per cent, while the technology-heavy Nasdaq Composite advanced 0.2 per cent.

After a two-day rally which added 5.1 per cent to the local market, the ASX is set to fall in early trade. At 6am (AEST) the SPI futures index was down 69 points, or 1.2 per cent.

Investors were cheering signs of economic activity resuming faster than expected across parts of the US and elsewhere in the world. Restaurant bookings and spending on hotels and airlines appears to be picking up in the US, coinciding with a decline in the daily number of new infections.

The UK has laid out plans to reopen retail stores next month, while Italy, one of the hardest-hit countries, saw people return to bars and restaurants over the weekend.

Closer to Wall Street, the New York Stock Exchange’s famed trading floor reopened – incidentally, also the 124th anniversary of the start of the Dow Jones Industrial Average. The floor had only around one-quarter of its usual number of traders and new social-distancing rules to limit the spread of COVID-19. A mask-wearing New York Governor Andrew Cuomo rang the opening bell.

All three major indexes have surged more than 30 per cent from their late March lows.

Stocks have quickly recaptured a level of euphoria usually seen at market tops, said Peter Boockvar, chief investment officer at Bleakley Advisory Group. That’s because stock traders are looking only at the direction of the recovery, while bonds are more concerned with the degree of the recovery, he said.

“As long as things are reopening, the economic data don’t matter,” Mr. Boockvar added.

Investors are also betting that one of at least 10 coronavirus vaccines under development will eventually come to market, halting the spread of the coronavirus and allowing normal business and social activity to resume.

The concern among some investors is how to value stocks when earnings have fallen so sharply and many companies have withdrawn their future forecasts.

The recent rally has pushed the S&P 500’s forward-looking price/earnings ratio to 23.36, its highest level since 2002. But corporate profits are expected to remain under pressure until next year as sales tumble and expenses rise as companies spend to make their workplaces safe.

“It’s safe to say it’s going to be a couple of years,” before earnings recover, Mr. Boockvar said.

After S&P 500 operating earnings hit $157 a share in 2019, they are projected to fall to $111 this year and rise to $162 in 2021, according to estimates from Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices.

In another sign investors are embracing risk, a range of assets typically considered safe are falling sharply. Most actively traded gold futures are down 1.7 per cent at $US1,704.80 a troy ounce, while the WSJ Dollar Index is down 0.9pc as investors favour riskier parts of the market like commodities and emerging markets.

It is unusual for gold and the dollar to be down so much at the same time because a weaker dollar makes gold and other dollar-denominated assets cheaper for overseas buyers. The synchronous drop highlights the strength of Tuesday’s “risk-on” move.

West Texas Intermediate, the main U.S. crude gauge, advanced 3.3pc to $US34.35 a barrel.

Overseas, the pan-continental Stoxx Europe 600 advanced 1.1pc, led by gains in bank shares and the travel and leisure sector.

Dow Jones Newswires

6.05am: Macron plans car industry aid

French President Emmanuel Macron said his government planned to spend billions of euros to prop up France’s auto industry amid a collapse in car purchases caused by the coronavirus crisis.

Most of the package is going to Renault SA in the form of a state-backed credit facility of EUR5 billion ($US5.49 billion). However, Mr Macron said the state wouldn’t complete the agreement until the company’s management and unions had reached an agreement over the shape of the car maker’s future workforce and sites.

Mr Macron also unveiled rebates and subsidies to stoke demand for next-generation vehicles, particularly electric and hybrid cars. Car owners in France who scrap older vehicles and buy more fuel-efficient models are eligible to receive EUR5,000 starting on June 1, Mr. Macron said. The state is also boosting its rebate for buying an electric vehicle to EUR7,000 from EUR6,000, Mr. Macron said.

“We need to get our fellow citizens buying more vehicles in the coming weeks,” Mr. Macron said, speaking from a car-parts factory in northern France.

The French state, Mr. Macron said, was also creating a EUR1 billion fund focused on transforming the auto industry, spurring consolidation among smaller companies and investing in research and development. Renault and Peugeot owner PSA Group each planned to contribute EUR100 million to the fund.

Dow Jones

6.00am: Latam seeks bankruptcy protection

Latam Airlines, South America’s biggest carrier, sought US bankruptcy protection Tuesday as it grapples with a sharp downturn in air travel sparked by the coronavirus pandemic.

The Chapter 11 bankruptcy filing underscores the severity of the financial challenges facing the travel industry as a result of the lockdowns, quarantines and other measures taken by governments the world over to stem the spread of the virus that causes COVID-19.

Passenger and cargo flights will continue to operate during the reorganisation, and employees will still be paid, the Santiago, Chile-based airline said. Travellers with existing tickets and vouchers can still use them.

Chief Executive Roberto Alvo said Latam was profitable before the pandemic brought most of the world’s flights to a halt, but is now facing a “collapse in global demand.”

A Latam airlines plane sits on the tarmac at Santiago International Airport. Picture: AFP

AP

5.55am: Markets rise as reopenings trump tensions

Further easing of coronavirus lockdowns pushed equities higher, with optimism stoked by the reopening of bars, cafes, pools and beaches outweighing China-US tensions that have hurt the dollar.

While countries including Brazil, Chile and Russia are enduring rising death tolls and infection rates from COVID-19, an increasing number of governments are seeing figures tail off.

“Once again the markets embraced an optimistic outlook … setting aside fears over the long-term economic impact of the pandemic and the ever-growing tensions between the US and China to focus on another round of global easing measures,” said Connor Campbell, analyst at trading group Spreadex.

Adding to the broadly positive outlook was optimism about progress on a possible vaccine, which would allow the shattered global economy to start bouncing back.

But Chris Iggo, at AXA Investment Managers, warned: “That does not mean we should ignore the risk of second waves, prolonged weak growth and geopolitical issues.”

Wall Street, where the NYSE trading floor reopened after two months of closure, was more than 600 points higher in the late New York morning.

Key European markets were all one per cent or more higher at the closing bell, with London playing catch-up after a strong eurozone performance on Monday, though its gains were capped by a rising pound.

London closed up 1.2pc, Frankfurt rose 1.0pc and Paris ended up 1.5pc.

Earlier, Asian markets had closed higher, with Tokyo rising more than two per cent, and Hong Kong up 1.9 per cent as city leader Carrie Lam sought to reassure investors.

Oil prices pushed on with their recovery, having suffered a spectacularly bad April when WTI crashed below zero. The reopening of economies and a massive cut in output by some of the world’s top producers has helped the US benchmark WTI virtually double in value this month.

AFP

5.50am: Floor trading resumes at NYSE

The New York Stock Exchange, the symbolic heart of Wall Street, reopened its floor after a two-month closure due to the coronavirus, with traders donning masks and separated by plexiglas.

Stocks surged at the outset of the session following the trademark opening bell, which was presided by New York Governor Andrew Cuomo and NYSE officials – all donning masks.

While the NYSE is ramping only gradually, the moment is an important one symbolically for Wall Street and the United States as the country charts its recovery from the COVID-19 crisis.

“The really important thing is to get us down there, to get trading, to be there symbolically,” said longtime trader Peter Tuchman.

“We’re willing to step back into the floor and to be part of the reopening of the economy, and markets and the world.”

A trader works on the partially reopened NYSE trading floor. Picture: AP

AFP

5.45am: US consumer confidence index steady

US consumer confidence was stabilised in May at 86.6, after two months of sharp declines as the coronavirus pandemic slammed the world’s largest economy, according to a survey.

While The Conference Board’s confidence index was above the reading in April, which was revised down to 85.7, the May result was just below analysts’ expectations.

Consumers gave a gloomy assessment of the current economic climate, with the survey’s Present Situation Index falling to 71.1 from 73.0 in the prior month, though they were optimistic about the future: the Expectations Index improved to 96.9 from 94.3 in April.

“Following two months of rapid decline, the free-fall in confidence stopped in May,” said Lynn Franco, senior director of economic indicators at The Conference Board.

But Franco cautioned that “the uneven path to recovery and potential second wave are likely to keep a cloud of uncertainty hanging over consumers’ heads.”

AFP

5.40am: Ryanair to appeal Lufthansa rescue deal

Irish no-frills airline Ryanair said it will appeal against Germany’s temporary partial nationalisation of rival carrier Lufthansa, arguing the rescue deal constitutes “illegal state aid” that distorts competition.

Berlin had launched Monday a nine-billion-euro ($US9.8-billion) rescue of Lufthansa under a deal that sees it take a 20-percent stake of the coronavirus-ravaged group.

“The German government continues to ignore EU rules when it suits them to subsidise large German companies, but then lectures every other EU government about respecting the rules when they ignore them,” said Ryanair Chief Executive Michael O’Leary in a statement.

“Ryanair will appeal against this latest example of illegal state aid to Lufthansa, which will massively distort competition and level playing field into provision of flights to and from Germany for the next five years.”

The Dublin-based carrier had meanwhile taken a £600-million loan earlier this month from the UK government’s COVID Corporate Financing Facility, as the deadly COVID-19 outbreak grounded planes worldwide and sparked a collapse in global travel.

Ryanair however argues that the facility, which is designed to help coronavirus-hit companies and is administered by the Bank of England, does not compare to Lufthansa’s rescue package.

“Lufthansa is addicted to state aid. Whenever there is a crisis, Lufthansa’s first reflex is to put its hand in the German government’s pocket,” said O’Leary.

AFP

5.35am: McLaren to cut 1200 jobs

UK-based sports car maker McLaren said it was cutting 1,200 jobs and scaling back its involvement in Formula One racing because of the lockdowns imposed by the coronavirus pandemic.

“We deeply regret the impact that this restructure will have on all our people, but especially those whose jobs may be affected,” the group’s executive chairman Paul Walsh said, adding that the cuts “will have a significant impact on the shape and size of our F1 team”.

A McLaren 720S is seen on a production line. Picture: AFP

AFP

5.30am: US home price gains quicken

US home prices accelerated in March even though sales plummeted, as those Americans still buying bid for a sharply diminished supply of homes.

The S&P CoreLogic Case-Shiller 20-city home price index rose 3.9pc in March, the largest gain in more than a year, up from 3.5pc in February.

Home sales fell 8.5pc in March before plummeting 17.8pc in April, according to the National Association of Realtors, as the viral outbreak and business shutdowns caused a flood of lay-offs and restricted economic activity.

But the number of homes for sale also plunged in March, falling more than 10pc, pushing up prices.

AP

5.25am: ECB warns over virus response

A vast fiscal fightback to the coronavirus crisis unleashed by eurozone governments could raise questions about capitals’ ability to repay debts and revive the threat of countries exiting the single currency, the European Central Bank warned.

“Should measures taken at the national or European level be deemed insufficient to preserve debt sustainability, the market assessment of redenomination risk might rise further,” the ECB said in its biannual Financial Stability Report.

“Redenomination risk” refers to the danger of some countries quitting the euro – or the single currency collapsing altogether.

AFP

5.20am: Aston Martin CEO steps down

Aston Martin chief executive Andy Palmer has left James Bond’s favourite carmaker as it seeks to recover from crashing demand and ballooning losses, the company said.

Palmer, who oversaw the company’s London stock market float two years ago, agreed to leave on Monday after six years at the wheel, Aston said in a statement.

He is replaced by Tobias Moers, head of Mercedes-AMG, the performance division of German car giant Daimler.

The move comes after Aston clinched a cash injection from Canadian billionaire Lawrence Stroll at the start of 2020.

The flagging automaker’s net losses almost doubled last year on weak global demand, while its performance worsened in the first quarter on coronavirus fallout.

AFP