ASX drops as markets slide amid US-China tensions

Concerns of China’s growth and fear of renewed activism in Hong Kong have sparked a heavy sell-off across the region.

David Rogers and Melissa Yeo

US President Donald Trump and China's President Xi Jinping. Markets are feeling the impact of a fresh wave of US-China tensions. Picture: AFP

31 min read

8:28PMMay 22, 2020.

Updated 8:47PMMay 22, 2020

Real threat of new Hong Kong protests
Aussie dollar slips, China in focus
Target stores to close, convert to Kmart
China scraps GDP targets

That’s all from the Trading Day blog for Friday, May 22. The ASX lifted in early trade but succumbed to weakness in the region as markets weighed the impact of China’s abandonment of GDP targets and new security laws on Hong Kong.

Locally, Wesfarmers announced a shake-up of its Target stores, to cost as many as 1300 jobs while Fitch downgraded Australia’s credit rating.

US futures are down by 0.7 per cent, suggesting more pain to come in the overnight session.

Jared Lynch 8.45pm Strong almond demand for Select Harvest

Almond producer Select Harvest has maintained the size of its crop but reported a dip in profit as the company combats high water prices and other input costs.

Despite water costs soaring close to $1000 a megalitre, managing director Paul Thompson said the company was being smarter with its use of water and fertiliser to maintain yields.

“We’re not precision farmers, but we have got closer to that,” Mr Thompson said.

“We are applying water more at the right time and fertiliser to drive yields.”

The company is forecasting a 2020 crop of 22,600 mega tonnes, relatively unchanged from the prior corresponding period.

It reported a 13.4 per cent fall in net profit to $17.4m in the six months to March 31, while revenue fell 6.5 per cent to $93.5m.

Mr Thompson said demand for almonds remained strong across the globe, with Australian exports increasing 25.7 per cent in the past year. Although the COVID-19 pandemic had disrupted shipping programs.

Nevertheless, he said the company had sold about 70 per cent of its estimated crop.

Helen Trinca 8.17pm New challenge for woke capitalism

Sydney academic Carl Rhodes was busy writing his book on “woke capitalism” when COVID-19 disrupted the world a couple of months ago, highlighting the tensions that already existed around corporate social responsibility.

A crisis that only governments could truly address sent Rhodes, who is professor of management and organisation studies at the University of Technology Sydney, back to update his manuscript about a style of corporatism that has seen business taking a stand on everything from climate change to same-sex marriage in recent years.

Rhodes found his criticism of the “caring capitalism” that increasingly drives company boards was reinforced as corporations were forced to make decisions on economic rather than social grounds. And it all happened so quickly.

In January the wealthy of the world were gathered in Davos for a World Economic Forum that feted teenage climate warrior Greta Thunberg.

Says Rhodes: “Corporations suggested they would back progressive political causes out of genuine concern for others, they would take over where government left off in the provision of public goods.”

A few months earlier the US Business Roundtable had announced that the core purpose of a corporation was not to serve its shareholders but to promote an economy that served everyone well.

It seemed we had reached peak corporate social responsibility, the high point of almost 30 years of advocacy about the need for companies to involve themselves in social issues.

Then along came the biggest economic and social crisis for generations, one that proved overwhelming for business.

John Durie 8.00pm Target gets the bullet

Target was one brand retail guru Guy Russo never quite cracked and after 10 years at Wesfarmers he left with the resurrection all but finished before Friday’s decision to write down its brand value by fourth-fifths to $60m.

The retail brand is one of many left floundering in the middle market, stuck between premium brands and the bottom end.

It’s a trap many managers have fallen into, in part because there is a natural desire to keep climbing. After settling for a small segment in the middle many want more or want to reach the top end.

In all Wesfarmers has taken a $900m writedown on Target and its struggling industrial safety division, which is a victim of COVID-10, with brands like King Gee and workplace uniforms doing it tough.

The writedowns are an accounting charge that effectively reduces the amount of capital applied to the investment and results in a boost to returns.

Inevitably, with Wesfarmers loaded with struggling assets and one superstar in Bunnings, the question will be asked: surely shareholders can do better by spinning off the prime asset?

Richard Gluyas 7.32pm Negative rates on the corporate radar

Negative interest rates are a “first-order issue” issue in corporate Australia, even with Reserve Bank governor Philip Lowe reaffirming this week that a cash rate below zero is “extraordinarily unlikely”.

“We’re that close to the (zero) line, so it’s on the radar; you have to plan for contingencies,” John Elias, leader of national law firm Minter Ellison’s debt capital markets practice, says.

“It’s now a first-order issue for corporate treasury teams.”

With the cash rate hovering at a record low of 0.25 per cent, Lowe told a regulators’ webinar hosted by FINSIA on Thursday that the RBA board was not contemplating negative rates because “the cost of that exceeds the benefits”.

He repeated his “extraordinarily unlikely” assessment, first made last October.

Since then, COVID-19 and economic lockdowns have gone global, with central banks aggressively lowering policy rates close to zero and governments rolling out massive stimulus programs.

Eli Greenblat 7.11pm Anko: the newish private label from Kmart

Anko is the newish private label brand launched by Kmart for a range of categories such as clothing, homeware and toys. The store in Seattle took on that name because the Kmart brand was already in use in the US.

It is a small store, trying to fuse together the online and physical store world with fast checkouts and plenty of tech to help accelerate the supply chain and present shoppers with what they are looking for.

As part of the Target restructure announced on Friday, Wesfarmers chief executive Rob Scott also announced anko would be closing down following its pilot trial with the ideas, technology and skills picked up in Seattle to be rolled out where possible in smaller Kmart stores in Australia.

Customers here may not notice the anko name when they walk in to a store, but the shop’s stock levels and back office will include some of the anko know-how picked up in Seattle.

Glenda Korporaal 6.53pm Brookfield ‘still in the mix’ for Virgin

Canadian infrastructure giant Brookfield Asset Management is believe to be still talking to Virgin Australia administrator Vaughan Strawbridge about becoming involved in a bid for the airline.

The Australian understands that while Brookfield had dropped out of the formal bidding process last weekend with several concerns about the process including the tight time frame for the bids and Virgin’s financial position, it remains interested in becoming involved in a bid for the airline and was still having discussions with Deloitte.

Virgin was placed into administration on April 21 with debts of almost $7bn.

Max Maddison 6.20pm ACCC monitors Holden negotiations

The consumer watchdog has intervened in the ongoing dispute between General Motors (GM) Holden and its 185 dealers, pressuring the company to negotiate in good faith, but the United States auto giant says its compensation offer stands.

In a statement released on Friday afternoon, the Australian Competition and Consumer Commission said Holden was accused of placing “undue pressure” on dealers to accept its compensation package through an “unnecessary” and “unfair” deadline of May 31.

In the statement, ACCC chairman Rod Sims said he would continue to closely monitor Holden’s commitment to engage in good faith negotiations.

“As franchisees, the dealers have less bargaining power than Holden. Holden was putting pressure on dealers to accept the compensation package by 31 May without giving a proper opportunity to negotiate and engage in a dispute resolution process,” Mr Sims said.

However, it is understood that the ACCC released the statement before GM Holden had formally signed up to the commitment.

In a statement, GM said its “fair and reasonable” offer continued to stand, but it would extend the acceptance deadline until June 30. The Detroit-based company’s initial offer stands at $1500 per new vehicle. None of the 185 dealers have accepted the offer, and GM hasn’t budged since.

Bridget Carter 5.34pm: UBS on $64m TechOne block trade

Investment bank UBS is working on a $64m block trade out of Technology One.

Shares are being sold on behalf of JL Mactaggart Holdings, which is selling a $28m interest and Masterbah Pty, which is offloading $37m.

The deals represent 2.2 per cent of shares on issue.

Shares are being sold at $9.20 each, a 7.2 per cent discount to their last close of $9.91.

4.55pm: Real threat of new Hong Kong protests

Regional tensions were a key driver of weakness on the local market and while the ASX finished lower by 1pc, save a thought for Hong Kong which continues to slide.

At the local close, the Hang Seng was off by 5.5 per cent while China’s Shanghai Composite traded down 1.6 per cent and Japan’s Nikkei closed down 0.8 per cent.

“The very real threat now, is the return of mass protests to the streets of Hong Kong, a downgrade in trade status with the US, and potentially an exit of large companies from the special administrative region,” OANDA’s Jeffrey Halley says.

“Overhanging this, are concerns that China and the United States are about to engage in a new round of trade wars. In all honesty, the timing could not be worse by China, facing increasing calls for a more open investigation into the origins of COVID-19, and criticisms about leading Belt and Road borrowers into debt traps.”

Trade concerns hit the Aussie dollar too, sending it down by 0.6 per cent to US65.26c.

4.27pm: Error may extend JobKeeper: NAB

The Treasury department error in JobKeeper calculations provides scope for the government to extend the life of the subsidy scheme, so says NAB.

The direct stimulus is now worth $180bn or 8.8pc of GDP, versus earlier estimates of $240bn or $11.8pc of GDP.

Markets analyst Kaixin Owyong writes that while it is still enormous, “the cheaper-than-expected JobKeeper program provides room for the government to potentially extend its fiscal stimulus, where both the JobKeeper wage subsidy and the boost to JobSeeker unemployment benefits are legislated to end in September”.

“The government is reviewing the wage subsidy in June, where there have been widespread calls to taper the program past September to avoid a shock to the labour market as the economy recovers,” she adds.

David Swan 4.25pm: Ticketek, Afterpay link up

Australian ticketing outfit Ticketek says it’s the first ticket company in the world to offer a ‘buy now, pay later’ service, landing a deal with market darling Afterpay.

Ticketek, which is owned by live entertainment company TEG, said Afterpay’s functionality will be integrated into Ticketek’s website and apps in coming months, giving customers the ability to buy tickets and pay for them in four fortnightly instalments.

The company’s boss Geoff Jones said Afterpay’s tech would help bolster its online offerings as it moves to recover post COVID-19.

“As we work on plans for the safe return of live entertainment in Australia, one of the best things we can offer fans is greater choice in how they secure tickets,” Ticketek chief executive Geoff Jones said.

“Ticketek with Afterpay does just that … we are thrilled to have partnered with Afterpay to offer this world-first.”

APT finished Friday’s session up 1.2pc to $44.51.

4.14pm: Shares close out at daily lows

Concern of rising geopolitical tensions wiped 1 per cent from the market as the broader region took a beating.

Developments out of China were firmly in focus – both as the Premier abandoned its GDP forecasts and also as the party considered new security laws for Hong Kong.

While local shares popped higher early, the sustained hit to risk sentiment ultimately pulled the benchmark ASX200 lower by 53 points or 0.96 per cent to 5497 – just off its daily lows.

Still, that wasn’t enough to erase all gains from the four-day rally earlier in the week. Friday’s close marks a 1.7 per cent weekly jump.

3.23pm: ASX extends decline

Asian market weakness is rubbing off on local stocks, with the benchmark ASX200 down 1 per cent in the last hour of trade.

With just over half an hour to go, the index is off by 53 points or 0.95 per cent to 5497.5 – with China growth fears front of mind, alongside jitters that protests in Hong Kong will escalate once again.

The Hang Seng is off by 5.7pc and the Shanghai Composite by 2pc after their lunchbreak.

“Riots in the street and plummeting real estate markets might be the least of HK’s building wall of worry as this authoritarian national security plan will most certainly bring into question HK status as a global banking centre,” warns AxiCorp market strategist Stephen Innes.

Geoff Chambers 2.40pm: JobKeeper cost slashed by half

The cost of the JobKeeper wage subsidy scheme has been slashed in half and covers three million people less than forecast by Treasury following a “reporting error in estimates of employees likely to access” the $1500 fortnightly payment.

Treasury and the Australian Taxation Office said the cost of the Morrison government’s COVID-19 economic rescue package centrepiece had been revised down to around $70 billion, down from $130bn.

In a joint statement released on Friday afternoon, Treasury and the ATO said they now expected the number of employees likely to be covered under the JobKeeper program to be around 3.5m, down from 6.5m.

“Late yesterday, the ATO and Treasury advised the Government of a reporting error in estimates of the number of employees likely to access the JobKeeper program. The enrolment forms completed by 910,055 businesses who have self‑assessed as eligible under the scheme had indicated that this program would cover around 6.5 million eligible employees,” the statement said.

Follow the latest at our coronavirus live blog

Ben Wilmot 2.37pm: Village Roadshow bid ‘opportunistic’

US investor Mittleman Brothers has fired a shot at the bargain $468m takeover proposal by BGH Capital for Village Roadshow with the activist 5 per cent shareholder saying it was greatly concerned the leisure company’s board had determined to engage with the private equity firm about its non-binding proposal for the company.

The US group said the proposed deal, at up to $2.40 per share, though less if cinema and theme parks stay shut, would deprive minority shareholders of their equity interest at a price that represented a 45 per cent to 40 per cent discount to the $4 per share indicative proposal made by BGH in January.

“In our view, the offer is highly conditional, unusually complex, and blatantly opportunistic,” Mittleman said. “It is also unfairly discriminatory against minority shareholders.”

“As such, we are surprised that the careful consideration the board states that it has given this proposal has resulted in something other than a polite no thank you.”

VRL last traded down 0.5pc to $2.09.

Village Roadshow’s Sea World. Picture: Adam Head.

Gerard Cockburn 2.32pm: Is this the bottom of the rate cycle?

ANZ has increased its interest rate on two-year fixed owner-occupier loans by 10 basis points to 2.29 per cent, falling in line with two-year rates offered at NAB and Commonwealth Bank.

The move has prompted some talk that mortgage interest rates may be at or near the bottom of the cycle.

Since May 1, eight banks have increased rates on owner-occupied variable home loan products, while 20 mortgage providers increased two-year fixed rates.

“There’s no question we’re close to the bottom of the fixed rate market but some lenders could still potentially shave their rates further in a bid to get new customers in the door,” research director at comparison group Rate City Sally Tindall told The Australian.

Read more: ANZ ups fixed home loan rate

1.58pm: Hang Seng plunges 5pc

Hong Kong’s stockmarket is plunging as investors mull the future of the territory amid a threat of strict new security laws from China.

The Hang Seng is pulling lower by 4.8 per cent as some commentators speculate the move could mark “the end of Hong Kong” and spark a new period of unrest.

Reuters is reporting that activists in Hong Kong have already called for a protest march on Friday against Beijing’s plans.

Xinhua, citing draft of Hong Kong national security legislation: "The increasingly notable national security risks in the HKSAR have become a prominent problemâ€¦Law-based and forceful measures must be taken to prevent, stop and punish such activities."https://t.co/LQJH4dUglx
— Jonathan Cheng (@JChengWSJ) May 22, 2020

1.51pm: Myer investors cheer reopening

Shares in department store Myer are surging by 15 per cent in afternoon trade as it plots the reopening of all its stores from next Wednesday.

The group has staged a gradual reopening of its stores over recent weeks following almost two months with doors closed.

By Wednesday, the bulk of its 60 stores will be open, with the exception of its Karrinyup store in WA which is closed for renovations.

MYR shares are up by 13.7 per cent to $30.7c – giving the company a market value around $22m. Meanwhile market darling Afterpay has a market cap of $12bn – roughly 50x more.

1.44pm: Air NZ cuts executives as pandemic bites

Air New Zealand said it would take two years for its business to return to 70pc of the pre-pandemic level as it reduces its team of nine top executives by a third, the pandemic forcing it to become a smaller business.

“We are creating a structure that is appropriate for an airline which we expect will take two years to get back to 70 per cent of its former size,” said chief executive Greg Foran.

Three top executives will leave the airline by end-May and their roles will be absorbed by the remaining leaders, the company said.

Mr Foran said he would also review the number of second-tier executives. The airline, which received a loan from the New Zealand government to keep operating, has said it will reduce staff numbers by about 30pc.

Dow Jones Newswires

Air New Zealand chief executive Greg Foran. Picture: Hannah Peters / Getty Images.

1.37pm: Oil drop hurting energy producers

China’s move to abandon its GDP growth targets has spurred a reversal in oil prices, hitting local energy plays in afternoon trade.

WTI Crude futures are lower by 7.8 per cent on concerns the economic rebound in China might not be as robust as first thought.

The local energy sector is off by 1.4pc, the worst behind only healthcare which is losing 2.2pc.

Oil also pulling back.#Oil - WTI (JUL) 3187 -6.18%#Oil - WTI (AUG) 3237 -5.89%#Oil - Brent (JUL) 3434 -4.97%#Oil - Brent (AUG) 3469 -4.92%#Gasoline 10142 -4.29%#London Gas Oil 286 -3.9%#Oil #Brent #WTI #OOTT pic.twitter.com/21sWLfz0sH
— IGSquawk (@IGSquawk) May 22, 2020

1.19pm: Regional MP calls for Target boycott

Nationals deputy leader David Littleproud has called for a consumer boycott after Wesfarmers announced the closure or conversion of up to 167 Target outlets.

Target Country has been hardest hit by the decision, with 50 to be axed and 52 set to become small-format Kmart shops.

Wesfarmers will also convert 10 to 40 Targets to Kmarts and close between 10 and 25 of its large format outlets.

In a withering spray at the corporate sector, Mr Littleproud accused major companies of turning their backs on regional Australia.

“It just goes to show they don’t give a rat’s about us,” he told reporters in Toowoomba.

“Australians should vote with their wallets and not go near them.” He said corporations should be showing social conscience during the coronavirus crisis.

WES last traded up 0.2pc to $38.97.

AAP

1.02pm: Shares reverse on health drag

The local market is sharply lower in lunch trade, as mining and health care stocks rewind.

At 1pm, the ASX200 is lower by 27 points or 0.5 per cent to 5523.2 – after early gains as much as 0.5pc.

Focus is firmly on developments out of Beijing, where the National People’s Congress is underway.

BHP and Rio Tinto are pulling shares lower but it is CSL that is doing the most damage – its shares off by 2.3pc.

Here’s the biggest movers at 1pm:

12.42pm: Wesfarmers’ maintains strong liquidity: Moody’s

Ratings agency Moody’s says Wesfarmers’ credit rating will be little changed after its announced changes to its Target chains.

The group this morning said it was axing up to 1300 jobs as it closes or rebrands around half of Target’s 284 stores.

Moody’s notes the measures were largely expected after Wesfarmers flagged a review of the ailing business in April.

“For fiscal 2020 ending June 30, we expect Wesfarmers will maintain significant headroom relative to the parameters set for its rating,” the agency said in a statement.

“The company also maintains very strong liquidity, which is a credit positive in the current environment.”

As at 30 April, Moody’s says Wesfarmers had committed facilities of $5.3bn and an additional $1.6bn from the partial sale of its stake in Coles in February and March.

“The remaining stake in Coles is 4.9pc, which places its value at around $1bn, providing another potential source of liquidity if required.”

WES has reversed an early loss to trade up 0.2pc to $38.96.

12.20pm: Aussie dollar slips, China in focus

The Aussie dollar is taking a hit as markets focus on the developments out of Beijing – namely its security laws to be imposed on Hong Kong and its abandonment of this year’s GDP targets.

AUDUSD was trading around US65.60c in morning trade but fell sharply to US65.45c as the National People’s Congress kicked off.

AxiCorp markets strategist Stephen Innes writes that comment from China that it was working to implement a phase one deal was an attempt to calm trade fear at home, while its direction on GDP could be a hit to the local dollar.

“When the dust clears, this could be interpreted as putting less focus on infrastructure investment. For commodity prices, particularly iron ore, which is used in rebar, it could be detrimental for AUD in the context of its recent rally,” he says.

Adam Creighton 11.56am: Fitch cuts Australian credit outlook

The government’s debt is on track to almost treble in 13 years according to rating agency Fitch, which has warned it could strip the federal government of its AAA credit rating.

One of the world’s top three rating agencies put the government on “negative outlook” on Friday citing concerns about soaring debt and deficits as the government pushed on with $194bn in stimulus.

“This reflects the significant impact the global coronavirus pandemic has on Australia’s economy and public finance,” it said, noting gross public debt – including state – was on track to reach 60 per cent of GDP by 2024, up from 22 per cent in 2011 when Fitch upgraded Canberra to AAA.

“Growth will fall sharply in 2020 and government spending in response to the health and economic crisis will cause large fiscal deficits and a sharp increase in government debt/GDP,” it added.

The agency said government containment measures would lead to a 5 per cent fall in GDP this year.

11.31am: Hang Seng dives on new China law

Hong Kong stocks are diving at the open on the proposal of a new national security law from China to sidestep the city’s legislature.

At the National People’s Congress in Beijing today, politicians are set to consider a bill that could limit opposition activity in Hong Kong.

At the open, the Hang Seng dived 3.1 per cent and last traded down 2.9pc.

Zhang Yesui said the National People’s Congress will deliberate a bill on “establishing and improving the legal system and enforcement mechanisms for the Hong Kong Special Administrative Region to safeguard national security.”

Such a move has long been under consideration but was hastened by months of anti-government protests last year in the former British colony that was handed over to Chinese rule in 1997.

With AP

Gerard Cockburn 11.23am: Ords tips 20pc profit hit for Bendigo

Ord Minnett is tipping coronavirus to wipe nearly 20 per cent from Bendigo Bank’s expected cash profits, with likely cuts to dividends at its upcoming March quarter update.

The brokerage says the regional bank is exposed to a very challenging retail environment, facing downward pressure on credit and deposit books, due to the low-interest rate environment and exacerbated by COVID-19.

Its analysts have reduced cash net profit forecasts by 17 per cent for the current financial year, and by 21 per cent for the coming financial year.

“While its capital position has been improved, we see execution risk in the medium term on its accelerated investment program and hence see little prospect of BEN improving its return on equity materially in the absence of a rising cash rate environment,” Ord Minnett said.

Ord Minnett did note the bank is faring better than some of its competitors due to high exposures in mortgages and agricultural loans but cut its price target for Bendigo shares from $8.30 to $6 apiece.

BEN last traded down 0.5pc at $5.61.

Eli Greenblat 11.09am: 1000 Target jobs could go in restructure

Wesfarmers CEO Rob Scott said many Target team members would be redeployed to Kmart or other parts of its business, but between 1000 and 1300 Target team members could have their jobs lost as part of this restructure of Target.

Mr Scott said he was focused on doing the right thing and “above and beyond” to help Target team members at this time as more than a thousand jobs are possibly lost.

“Wesfarmers is doing a good job creating new jobs for Australians,’’ Mr Scott said.

10.59am: China scraps GDP targets

Chinese Premier Li Keqiang said Friday the government wouldn’t set an economic target for 2020, in a stark acknowledgment of the challenges facing the world’s second-largest economy as it continues to grapple with the uncertainties around the coronavirus pandemic.

The lack of an official growth forecast, the first time Beijing has omitted a numerical target since it began the practice in 1994, comes after China reported a 6.1pc gain in gross domestic product last year – its slowest pace in nearly three decades, though within the targeted range of between 6.0pc and 6.5pc.

It also comes after a first quarter of 2020 in which China reported its first economic contraction in more than four decades, shrinking by 6.8pc from a year earlier.

In an annual government report delivered at the opening session of the National People’s Congress, China’s largely ceremonial legislature, Mr. Li said Beijing aims to keep consumer-price inflation at about 3.5pc in 2020, higher than last year’s goal of around 3pc.

Dow Jones Newswires

LIVE: Premier Li Keqiang outlines China's biggest policy plansâ€”from the economy to trade and the pandemicâ€”at the National People's Congress https://t.co/V6CwlyqNc3 https://t.co/krWI8NuVLe
— Bloomberg Markets (@markets) May 22, 2020

10.49am: Service Stream weakness persists

Construction engineering group Service Stream is one of the worst performers on the market for a second day after warning investors COVID-19 impact would linger “at least” into the early part of FY21.

The group said some clients had temporarily adjusted or delayed aspects of their work programs while its costs had risen to safely deliver field-based operations.

The warning prompted Canaccord to cut its target price on the stock by 17pc to $2.60 while Macquarie reduced its target by 5.6pc to $2.88.

SSM last traded down 2.9pc to $2.01.

Nick Evans 10.37am: BHP boss makes first major hire

Mike Henry has made his first major appointment as BHP chief executive, tapping former WA iron ore boss Edgar Basto to his former role running the mining’s giants Australian operations.

The decision comes as no surprise, given Mr Basto has been acting in the role of President of Minerals Australia since Mr Henry was announced as Andrew MacKenzie’s replacement to the top job at BHP in November 2019, helping steering the company through the chaos caused by the coronavirus.

But the decision indicates BHP has no imminent plans to reshape its divisional structure, and clears the way for Mr Henry to put together the remainder of his executive leadership team.

Edgar Basto (centre) has been appointed President of Minerals Australia for BHP. Picture: Supplied.

10.33am: Shares extend early lift

Shares are striding higher after a shaky start, the ASX now up 0.4pc to 5569.7 as S&P 500 futures rise 0.5pc.

The property sector is strongest with Stockland up 4pc, Mirvac up 2.3pc and Scentre up 2.4pc.

Energy, Tech and Financials, with standouts including Beach, Afterpay and Challenger.

Defensive sectors including Consumer Staples, Health Care, Utilities and Communications are underperforming.

Bloomberg says China’s National People’s Congress has omitted an annual GDP target due to COVID-19, as expected.

10.31am: Hyperion tops Morningstar fundie ranks

Brisbane-based Hyperion Asset Management’s Global Growth Companies B fund has topped a table of 295 Equity World large cap funds, according to Morningstar.

The fund delivered a total annualised return of 18.34 per cent over the five year period ending 30 April.

The next best performing fund returned 14.81 per cent and the median return of all funds delivered 7.39 per cent.

Hyperion chief investment officer Mark Arnold said that while he expects the intense market volatility sparked by COVID-19 to be a short-term issue, economic recovery will be “difficult” and “hindered by pre-pandemic headwinds” including high debt levels, rising wealth inequality, ageing populations and disruption coming from technology and climate change.

“We are currently in an economic environment of stagnation where most companies will experience lower earnings and lower growth and we expect this period will last many years,” he said.

“With the economic pie not growing, companies will need to secure more market share in order to prosper.”

10.12am: Shares flat as Wesfarmers weighs

The local market is trading flat at the open as escalating geopolitical tensions overnight are countered by a rebound in US futures.

At the open, the benchmark ASX200 is down 1.1 point or 0.02 per cent to 5549.3.

BHP is headed higher but heavyweight CSL is dragging the index lower alongside a 1.1pc slip in Wesfarmers amid writedowns and a restructure of its Target chains.

9.57am: Downer settles Spotless class action

Downer EDI has settled a class action against its Spotless arm, set to cost the group $35m.

The suit related to allegations Spotless had misled the market by making a series of announcements without reasonable basis back in 2017.

In a brief notice to the market this morning, Downer said it had settled the Federal Court action but was “without admission of liability”.

“As a result of the settlement, if approved, the impact on Downer Group’s results for the 2020 financial year will be $35m,” it said.

9.31am: US futures to support ASX

Australian stocks should be supported initially today by modest gains in US stock index futures.

Overnight futures versus fair value had pointed to a 0.2pc opening fall in the S&P/ASX 200 after the S&P 500 fell 0.8pc. However, US stock index futures are up 0.4-0.5pc in early trading.

US-China tensions caused minor risk aversion in global equities as the US Senate passed the Holding Foreign Companies Accountable Act, which could – if implemented – delist Chinese companies from US stock exchanges if they can’t prove they aren’t controlled by a foreign government. In China meanwhile, the government outlined plans for new national security laws in Hong Kong, prompting US President Trump to say “if it happens, we’ll address the issue very strongly”.

Still, if there is significant risk aversion, it is likely the Fed will increase its asset buying program, supporting equities.

BHP ADRs equivalent close at $34.68 implied a 0.5pc rise for BHP. While the iron ore price fell 1.4pc, WTI crude rose 1.3pc to be up 30pc in the past 6 days.

Most of the attention will be on China’s National People’s Congress, which kicks off today after a two-month delay. China’s economic guidance and policy measures will be key.

Otherwise it should be a fairly quiet day before the Memorial Day long weekend holiday, with the US stock and bond markets due to stay closed Monday.

9.12am: What’s on the broker radar?

Afterpay price target raised 12pc to $51.50 – Bell Potter
AusNet raised to Hold – Morningstar
Aventus Group raised to Buy – Goldman
GPT Group raised to Buy – Jefferies
Mosaic Brands cut to Market-weight – Wilsons
NRW Holdings raised to Overweight – Wilsons
Steadfast cut to Hold – Morningstar

9.03am: Cancellations on the rise at AVJennings

Residential property developer AVJennings says its experienced an uptick in home sales deferrals and a small number of cancellations amid the coronavirus downturn, as it withdrew its previous guidance for full year growth.

In a notice to the market, AVJennings said sales and enquiry levels were below initial forecasts but still above its short term expectations.

It said it had completed 100 contracts in February but numbers were petering out to 57 and 51 in March and April.

“Settlements of pre-sales continue to occur largely in line with expectations, with a slight uptick in the number of deferrals. There have also been a small number of rescissions, which had previously been rare,” the company said.

As such, the developer pulled its previous guidance of a 2020 outcome stronger than the prior year, while it tipped housing to feature strongly in any further government stimulus.

8.25am: Target stores to close, convert to Kmart

Wesfarmers says it plans to close up to 75 Target stores and convert some to Kmart stores, following a review of retail operations.

It also says it will make provisions of between $120m to $170m for the closures, a non-cash impairment in Kmart Group of about $430m to $480m, and a non-cash impairment in its industrial and safety division of approximately $300m.

Wesfarmers said following a review it had “identified a number of actions to accelerate the growth of Kmart and address the unsustainable financial performance of Target”.

“These actions include the conversion of suitable Target and Target Country stores to Kmart stores, the closure of between 10 to 25 large format Target stores, the closure of the remaining 50 small format Target Country stores, and a significant restructuring of the Target store support office.”

Wesfarmers said it was continuing to assess strategic options for a commercially viable Target and its remaining store network.

Wesfarmers boss Rob Scott said: “For some time now, the retail sector has seen significant structural change and disruption, and we expect this trend to continue.

“With the exception of Target, Wesfarmers’ retail businesses are well-positioned to respond to the changes in consumer behaviour and competition associated with this disruption.”

Wesfarmers also said it would make a pre-tax gain on the sale of a 10.1 per cent interest in the spun-of Coles of $290 million, and one-off pre-tax gain of $221 million on the revaluation of the remaining Coles investment

Wesfarmers is closing some Target stores, and rebranding some as Kmart. Picture: Stewart McLean.

8.00am: Brent at highest price since March

Global benchmark Brent rose more than 1 per cent overnight to its highest price since March, supported by lower US crude inventories, OPEC-led supply cuts and recovering demand as governments ease coronavirus restrictions on people’s movements.

Oil has slumped in 2020, with Brent hitting a 21-year low below $US16 a barrel in April as demand collapsed.

With fuel use rising and more signs that the supply glut is being tackled, Brent has since more than doubled.

Brent rose 34 US cents, or 1 per cent, to settle at $US36.09 per barrel. US West Texas Intermediate crude closed up 43 US cents, or 1.28 per cent, to $US33.92.

In the latest sign the supply glut is easing, US crude inventories fell 5 million barrels last week. Analysts had expected an increase.

Reuters

Lachlan Moffet Gray 7.40am: ‘Concern’ at China coal snub reports

Deputy Prime Minister Michael McCormack has said the government will manage the Australia-China relationship in a “careful and considered way”, amid reports that the Chinese government is instructing domestic energy firms to purchase domestic coal over Australian thermal coal exports.

It comes as the relationship between Australia and China has hit new lows after Australia began a global push for an independent investigation into the origins of coronavirus in China, and China hit Australian barley exports with an 80 per cent tariff and four Australian abattoirs with an export ban.

“Well, of course we’re concerned. Of course we’re very concerned by it,” Mr McCormack told ABC News breakfast on Friday.

“But we have a two-way relationship with China. China needs Australia as much as Australia needs China, and we want to make sure that whatever we do is in a careful and considered way.

“That’s why I know Simon Birmingham and our Department of Foreign Affairs and Trade officials are working very closely with our Chinese friends and diplomats in making sure that we work through this in the way that you would expect the Australian government to operate.

“We want to make sure that our coal exports have a destination. China has long been a customer of ours. They know the quality of our coal, of our iron ore and other resources. For their steel mills, for their energy needs, they’re going to require Australian coal.”

7.25am: ASX set for flat start

A steady or slightly lower start is likely for the Australian share market after Wall Street closed lower due to tensions between the US and China.

At 7am (AEST) the SPI 200 futures contract was lower by 7 points, or 0.13 per cent, to 5,537.0.

US President Donald Trump said the United States would react strongly if China imposes national security laws for Hong Kong in response to last year’s often violent pro-democracy protests.

Earlier, US Secretary of State Mike Pompeo criticised Beijing authorities’ handling of the coronavirus outbreak, while a Chinese official said the country will not flinch from any escalation in tensions.

The Dow Jones Industrial Average fell 0.41 per cent to end at 24,474.12 points, while the S&P 500 lost 0.78 per cent to 2,948.51. The Nasdaq Composite dropped 0.97 per cent, to 9,284.88.

In Australian market activity today, Sydney Airport will hold its annual general meeting.

Airport revenue has been decimated by flight restrictions imposed to stop the spread of the coronavirus.

The Australian share market on Thursday ended a four-day streak of closing higher.

The S&P/ASX200 benchmark index finished down 22.6 points, or 0.41 per cent, at 5,550.4 points, while the All Ordinaries index closed down 19.2 points, or 0.34 per cent, at 5,660.9.

The Australian dollar was buying US65.65 cents, down from US65.71 cents at the close of trade on Thursday.

AAP

6.50am: US stocks end lower

Wall Street stocks finished lower following a choppy session as markets weighed heightening US-China tensions and another spike in jobless claims.

The Dow Jones Industrial Average shed 0.4 per cent to 24,474.12. The broadbased S&P 500 dropped 0.8 per cent to 2,948.51, while the tech-rich Nasdaq Composite Index tumbled 1.0 per cent to 9,284.88.

After slipping yesterday, the ASX is set to edge lower at the open. At 6am (AEST) the SPI futures index was down 5 points, or 0.1 per cent.

Wall Street’s pullback extended the week’s pattern of volatility after a big rally day Monday was followed by a pullback Tuesday and then more gains Wednesday.

“Every other day is another direction,” said Art Hogan, chief market strategist at National Securities.

Markets are trying to suss out whether states reopening their economies were seeing significant coronavirus outbreaks and also weighing announcements about pharmaceutical developments that could combat COVID-19.

“We’re as glued to the coronavirus news as much as the economic news and that’s going to cause a lot of volatility,” Hogan said.

The Labor Department reported that another 2.43 million US workers applied for unemployment benefits last week, bringing the total since the coronavirus shutdowns began in mid-March to a massive 38.6 million.

Investors also increasingly view tensions between Washington and Beijing as a risk to stocks in the coming months, with US President Donald Trump loudly blaming China for the outbreak that has claimed more than 90,000 American lives.

While Secretary of State Mike Pompeo criticised Beijing authorities’ handling of the coronavirus outbreak, a Chinese official said the country will not flinch from any escalation in tensions.

Mr Trump also said the United States would react strongly if China imposes national security laws for Hong Kong in response to last year’s often violent pro-democracy protests.

“It seems like China is going to be used as a punching bag for the upcoming elections,” said Bob Shea, CEO and co-chief investment officer at TrimTabs Asset Management in New York.

“The White House has resolved to itself that it is more effective to swing at China than to salvage what was going to already be a watered-down Phase 1 trade deal. You don’t score any points for that,” Shea said.

AFP, Reuters

6.45am: Oil rally continues

Oil prices climbed, advancing for the sixth consecutive session with producers curtailing output in response to ultra low crude prices and the coronavirus crisis.

U.S. crude futures for delivery in July rose 1.3pc to $US33.92 a barrel on the New York Mercantile Exchange, extending a recent recovery.

Brent crude, the global gauge of oil prices, rose 0.9pc to $US36.06.

Crude futures collapsed last month, sending front-month futures below $0 for the first time ever due to an overwhelming glut and lack of available storage for excess oil. That dearth of storage forced holders of the May futures on April 20 to pay to have the contracts taken off their hands, driving prices into negative territory.

Oil has since staged a powerful recovery with the industry’s storage crisis easing. Supply curtailments and a nascent rebound in fuel demand are driving down stockpiles in the U.S. and China, supporting the price rebound. More people are travelling as states and countries ease lockdown measures designed to stop the coronavirus.

Dow Jones

6.40am: Fed’s Powell warns of uncertainty

Efforts to forecast the U.S. economy’s path to recovery from the current deep downturn face “a whole new level of uncertainty,” Federal Reserve Chairman Jerome Powell said.

Not only is there the difficulty predicting how the coronavirus pandemic will play out, it is also unclear how American workers and consumers will react as lockdowns aimed at limiting the spread of the virus are lifted, Powell said in an address to a virtual Fed conference.

Successfully restarting the economy will depend in large part on the public’s confidence that the loosening of the stay-at-home orders will not trigger a resurgence of the virus, he said.

“The pain of this downturn is compounded by the up-ending of normal life, along with great uncertainty about the future,” he said. “All of us have our own decisions to make … and those decisions will depend on public confidence that it is again safe to undertake various activities.” He noted that the country is going through a sudden and severe economic downturn that is without modern precedent.

“It has already erased the job gains of the past decade and has inflicted acute pain across the country,” Powell said. “And while the burden is widespread, it is not evenly spread. Those taking the brunt of the fallout are those least able to bear it.”

‘A whole new level of uncertainty.” US Federal Reserve Chairman Jerome Powell. Picture: AFP

6.25am: Russia industrial output shrinks

Russia’s industrial output fell by 6.6 per cent in April year on year, dampened by a coronavirus lockdown, the state statistics agency said Thursday.

Russia imposed a “non-working” period across the country at the end of April which “served as the decisive factor in lowering industrial output,” the Rosstat statistics agency said in a statement.

AFP

6.20am: Stocks retreat on virus fears

Stock markets slipped after rallying for much of the week amid concerns over the long-term impact of the virus and worsening China-US relations.

On Wall Street, the Dow Jones index extended slight opening losses throughout the New York morning, while key eurozone markets were down by more than one per cent at the closing bell, with London performing slightly better thanks to a weaker pound.

Stock markets had presented a mixed picture in Asia earlier. “The prospect of economies reopening and returning to something that resembles normal has, at times, been very positive for markets, as have positive vaccine and treatment trials, but it hasn’t all been good news,” said Craig Erlam, senior market analyst at Oanda Europe.

“There’s been some setbacks in countries previously lauded for their handling of the spread …, putting more emphasis on the dreaded second wave if the exit strategy isn’t handled properly” Erlam added.

“On top of that, tensions between the US and China have increased dramatically which is making investors nervous.”

The eurozone’s economic slump, meanwhile, has “likely bottomed out” after the bloc suffered a disastrous collapse under lockdowns to contain coronavirus, a closely watched survey by IHS Markit said on Thursday.

The dollar rose, as did oil prices.

London closed down 0.9pc, Frankfurt fell 1.4pc, and Paris lost 1.2pc.

AFP

6.15am: US existing home sales plunge

Sales of existing homes plunged 17.8pc in April with the real estate market still in the grips of the coronavirus pandemic.

The National Association of Realtors said Thursday that last month’s decline pushed sales down to a seasonally adjusted annual rate of 4.33 million units, the slowest pace since September 2011.

The sales drop was the largest one-month decline since a 22.5pc fall in July 2010.

6.10am: Nearly 39m seek US jobless benefits

More than 2.4 million people applied for US unemployment benefits last week in the latest wave of lay-offs from the viral outbreak that triggered widespread business shutdowns two months ago and sent the economy into a deep recession.

Roughly 38.6 million people have now filed for jobless aid since the coronavirus forced millions of businesses to close their doors and shrink their workforces, the Labor Department said Thursday.

An additional 2.2 million people sought aid under a new federal program for self-employed, contractor and gig workers, who are now eligible for jobless aid for the first time.

These figures aren’t adjusted for seasonal variations, so the government doesn’t include them in the overall number of applications.

The continuing stream of heavy job cuts reflects an economy that is sinking into the worst recession since the Great Depression.