ASX adds to rally as energy, tech stocks outperform

Comments from the PM that Australia has successfully ‘flattened the curve’ fuelled a late rally on the market, to finish at daily highs.

David Rogers and Melissa Yeo

38 min read

8:41PMMay 05, 2020

US airline shares took a big hit after Warren Buffett said he had liquidated his holdings in major carriers. Picture: AFP

Late surge sends ASX to daily highs
It’s now or never for oil stocks: Bernstein
Economy well placed to weather COVID: Macq
Qantas extends flight cancellations
James Hardie suspends payouts

That’s all from the Trading Day blog for Tuesday, May 5. The local market notched gains more than 1.6pc to follow Wall Street higher in a rebound from Friday’s 5pc plunge as the government declared Australia had ‘flattened the curve’ and plans for an economic restart were in the works.

That was after the latest ABS jobs figures showed close to 1 million have been laid off since mid-March, while the Reserve Bank board kept its policy settings unchanged and set a base case of a 10pc output drop for the second half.

US futures are pointing to futher gains to come on Wall Street, up 0.8pc.

John Durie 8.37pm: Airlines’ flight of fancy

Beware the person with a deal to sell you an asset in an industry forecast to lose $US252bn ($391bn) this year and the person with the most to win if the deal collapses.

This week both have been front and centre backing Paul Keating’s favourite horse — self-interest — just days after Warren Buffett declared he has sold all his airline stocks.

Virgin administrator Vaughan Strawbridge, with a straight face, circulated a sales pitch for Virgin forecasting earnings before interest, tax, depreciation and amortisation of $1.2bn on revenues of $5bn in 2022. Last year, the company reported EBITDA of $460.8m on revenues of $5.8bn and, while issuing the sales pitch, Strawbridge was doing his best to shake as much spare cash as he could given free cash flow when he arrived was just $30m.

He has reportedly built it up to $100m now but is still seeking to raise $200m in debt to bolster the airline pre-sale, weighed under with $6.8bn in debt.

David Rogers 8.18pm: Lowe hopes for ‘strong recovery’

Philip Lowe has reason to expect a V-shaped recovery in the Australian economy.

Based on the fall in coronavirus infection rates in a number of countries so far, the Reserve Bank governor is betting that a global economic recovery will start later this year.

That’s good news for Scott Morrison as he plots a course to bring the economy out of hibernation, with the national cabinet due to outline plans to further ease restrictions on Friday.

Encouragingly, while financial markets conditions haven’t completely normalised, they are now “working more effectively” than they were a month ago, thanks to lower infection rates and substantial measures undertaken by central banks and fiscal authorities.

Eli Greenblat 7.57pm: NY law firm eyes TWE class action

Exclusive | A high-powered New York law firm that took down Chinese e-commerce giant Alibaba in a record $US250m ($390m) settlement over its IPO has aimed its Madison Avenue guns at Australian winemaker Treasury Wine Estates by investigating a shareholder class action against the company.

The Rosen Law Firm, based in New York and sporting a large trophy cabinet of corporate kills, is spruiking for business in a possible class action against Treasury Wine and its lack of disclosure over the winemaker’s financial performance that saw a string of profit downgrades and a collapsing share price.

“When companies and directors violate federal securities laws, the Rosen Law firm makes them pay for their wrongdoings,’’ warns the Rosen Law website.

The potential shareholder class action would mark the third lawsuit against Treasury Wine, with local litigation specialists Slater & Gordon and Maurice Blackburn recently launching their own courtroom actions against the company.

7.09pm: FTSE up; new car regos at 75-year low

London stocks gained at the opening of trade, though UK service-sector data due later is set to provide further signs of the economic downturn ahead. The FTSE 100 rose 1.7pc with miners, oil and financial stocks higher as the price of Brent crude tops $US29 a barrel, up 6.8pc at $US29.05.

The number of new cars registered in the UK hit a record low in April as showrooms remained closed due to government restrictions to combat the coronavirus pandemic, an industry body said on Tuesday.

The Society of Motor Manufacturers and Traders said that 4321 cars were registered in April, a fall of 97pc compared with the same month last year and the lowest level since 1946 when the number stood at 4044.

At the same time, the SMMT has cut its 2020 forecast for the second month in a row, putting the sector on course for its worst performance since 1992. A total of 1.68 million cars are forecast to be sold this year, compared with guidance given last month of 1.73 million. This compares with 2.31 million car registrations in 2019 and a previous forecast of 2.25 million provided in January.

For the first four months of the year 487,878 cars were registered compared, with 862,100 for the same period in 2019.

“A strong new car market supports a healthy economy and as Britain starts to plan for recovery, we need car retail to be in the vanguard,” SMMT Chief Executive Mike Hawes said.

The UK’s top two best-selling cars in April were the Telsa Model 3 and Jaguar I-Pace, according to the SMMT.

Dow Jones Newswires

New car sales drop 49 per cent in April | In Australia, new car sales suffered their biggest monthly drop on record in April, the latest in a growing line of history-making collapses in business and economic activity.

Glenda Korporaal 6.55pm: Online AGMs get official go-ahead

Josh Fydenberg has given the formal go-ahead for companies to hold virtual annual general meetings amid the COVID-19 crisis, as companies such as AMP line up to address shareholders online.

In a statement released on Tuesday, the federal Treasurer said he would be using new temporary powers inserted into the Corporations Act to allow companies to hold annual meetings online, and allow them to achieve a quorum with shareholders attending online.

The move, which will apply for the six months from May 6, relieves companies from potential legal action under the Corporations Act for holding virtual AGMs. The virus crisis has prompted some firms to consider delaying AGMs because of social distancing pressures.

Ben Wilmot 6.23pm: Listings slump hits Domain Group

The Nine-owned Domain Holdings Group was hit by a sharp fall-off in new sale listings in April as the property market was slugged by the coronavirus, amid warnings from analysts a market recovery could be slow.

The company said listings declined over the course of the month, with an improvement last week reflecting a post-Easter bounce, albeit a far cry from the rising market of March.

Analyst SQM Research said national residential property listings decreased in April by 4.9 per cent to 292,775 as the virus sapped vendor confidence.

Domain shares closed up 17c on Tuesday at $2.72.

Mackenzie Scott 6.03pm: News housing listings slump

While coronavirus restrictions on the property market continue to lift, SQM Research managing director Louis Christopher warned “we are not out of the woods” as new listings in April dropped in line with consumer confidence.

New listings fell 7.2 per cent in Sydney and 4.6 per cent in Melbourne through April as sellers nervous about the economic uncertainty and government bans on open homes and public auctions decided to sit on their hands.

Properties lingering on the market for 30 to 60 days also increased through the month, suggesting campaigns listed in March struggled to find buyers ready to commit.

April often experiences a drop in new listings because of holidays including Easter and ANZAC Day, Mr Christopher noted, but the 11.9 per cent national fall from 2019 highlighted the impact of consumer sentiment.

4.51pm: Energy surge leads ASX higher

Energy stocks led the local rally with a 4.2 per cent lift thanks to a jump in oil prices, and amid upgrades from a key US broker.

Woodside lifted by 4.4 per cent to $21.89 while Santos jumped by 5 per cent to $4.83 and Oil Search added 3.1 per cent to $2.96.

Energy retailer AGL predicted a jump in domestic gas prices, and reassured investors the collapse of its aluminium smelters was unlikely. Its stock eked a more moderate gain of 0.1 per cent to finish at $16.36.

Qantas told the market it was extending its flight cancellations and staff stand-downs until the end of July – still its shares added 1.7 per cent to $3.62 as investors focused on new debt deals.

In other news, James Hardie narrowed its earnings guidance and suspended its interim payout, prompting a share jump of 4.9 per cent to $21.82.

Here’s the biggest movers at the close:

4.11pm: Late surge sends ASX to daily highs

Signs that Australia is getting on top of the coronavirus crisis fuelled a further rally on the local market, with shares surging at the close to finish up 1.6 per cent.

Momentum built through the day in a broad rally, undeterred by further weakness in the labour market and largely unchanged as the RBA kept its policy settings on hold.

By the close of trade, the benchmark ASX200 was at daily highs of 5407, up 87 points or 1.64 per cent.

3.39pm: Board skips exchange rate commentary

The RBA board passed up a chance to comment on the exchange rate in its latest statement, but its moves to widen the range of eligibility of corporate debt securities prompted a slight dip lower for the local currency, so says Westpac.

Assessing the market reaction to the latest statement, head of financial market strategy Robert Rennie points out it's the third time in a row that the RBA has skipped on making any exchange rate commentary.

Mr Rennie says that is likely due to strength in the currency which “is not playing its traditional role of acting as a key mechanism through which monetary policy supports the Australian economy”.

But he adds that the board’s moves to widen the eligibility of collateral for domestic market operations did generate some interest.

“We see the A$ as being expensive to fair value, that it remains a sell on strength to 0.6550, and it should be closer to 0.62. However, the sense that the RBA is done from a policy perspective and that we are moving towards reopening the Australian economy may support sentiment in the short term.”

AUDUSD last up 0.4pc to 0.6452.

3.30pm: RBA forecasts ‘relatively benign’: GSFM

GSFM adviser Steve Miller says the latest statement from the RBA board was “almost upbeat”, with the baseline scenario “relatively benign” as opposed to some punters tipping trajectories comparable to the Great Depression.

In a note following the board’s decision this afternoon, Mr Miller notes that the board remains satisfied by the array of measures to soften the blow of coronavirus.

“It seems that the RBA Board has drawn significant comfort from the magnitude of the direct fiscal response from the Federal and State governments. That response is, on some measures, the biggest (as a percentage of GDP) in the world,” he writes.

Perry Williams 2.44pm: Domestic gas prices to jump: AGL

AGL Energy has hinted governments will be reluctant to let the Portland and Tomago aluminium smelters collapse in a post COVID-19 environment and predicts domestic gas prices will jump from current lows as new investment is pulled back.

The power giant supplies electricity to Victoria’s under threat Portland plant and NSW’s Tomago facility, which have both suffered losses with the facilities struggling to compete internationally partly due to high energy costs.

Alcoa’s Portland smelter continues to hang in the balance ahead of its existing power supply agreement expiring in mid-2021 while Rio Tinto’s jointly owned Tomago smelter is also under pressure as the mining giant races to sharply curb its carbon footprint.

Still, AGL said it was too early to consider closing either facility despite the market challenges and suggested governments may be reluctant to let big industry shut plants given the economic downturn.

AGL last traded down 0.1pc at $16.33.

2.33pm: RBA maintains policy settings

The Reserve Bank has maintained its policy settings, keeping rates on hold at 0.25 per cent as expected by the market.

The board said the economy was going through a difficult period and set out its baseline scenario for output to fall by around 10 per cent over the first half and 6pc over the year as a whole – to be followed by a bounce back of 6pc next year.

“Given this outlook, the Bank will maintain its efforts to keep funding costs low in Australia and credit available to households and businesses,” it said.

“The Board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery.

“The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.”

The ASX is little changed on the news – holding up by 1.3pc while the AUDUSD is still higher by 0.3pc at US64.42c.

#RBA on hold:
Has scaled back bond buying (~$50bn) but is prepared to scale up again
Base case is for GDP to of -10% in H1, -6% for yr, unemp to peak ~10%, -ve inf in Q2 (similar to our forecasts)
Committed to do what it can

We expect 0.25% rate for next 3 yrs at least pic.twitter.com/hLppOWPkdp
— Shane Oliver (@ShaneOliverAMP) May 5, 2020

2.19pm: Stay defensive in shares: Macq

Investors should stay defensive in Australia shares amid high valuations and a negative economic impact from coronavirus shutdowns, according to Macquarie.

The investment bank’s Australian equity strategist Matthew Books says valuations are high relative to the last two decades, and particularly high in comparison to contractions.

“We continue to suggest investors upgrade the quality of their portfolios,” he says. “We think the market is likely range-bound between the March low and April highs.”

After comparing the COVID-19 pandemic to the H1N1 “Spanish flu” pandemic, he found that the health impact of COVID-19 health impact was even smaller when adjusted for population.

After adjusting for population, he found the 1919 influenza had nearly 400x the number of cases as COVID-19, and 300x the number of deaths.

But while Australia had a similar economic shutdown in 1919, the 2020 shutdowns have had a more negative economic impact as it comes after years of growth in a more mature economy.

“In contrast, GDP fell in 3 of the 4 years preceding the 1919 pandemic and it is estimated the economy actually grew during the epidemic as wartime restrictions ended,” Mr Brooks said.

“This may be the reason why we cannot find data indicating a bear market in 1919.”

Bridget Carter 2.12pm: National Storage raise covered

DatRoom | National Storage REIT’s $300m placement has been covered, according to a book message sent to investors.

The group announced Tuesday it was raising $330m through JPMorgan and Citi.

Shares were being sold at $1.57 each, a 7.1 per cent discount to their last closing price of $1.69.

The funds are to be used to strengthen the company’s balance sheet.

As well as a $300m placement, the group will also raise $30m through a share purchase plan.

David Ross 2.05pm: No need for protectionism: Treasurer

Australian Treasurer Josh Frydenberg has signalled the government will focus on “a practical solution” to the challenges that confront Australia Post-COVID, warning against a protectionist business sentiment.

In a speech to the National Press Club, Mr Frydenberg said that although there were calls for bringing production onshore, trade was still a top priority.

“While we must always safeguard our national interests, we must also recognise the great benefits that have accrued to Australia as a trading nation. In conclusion, this crisis has seen the very best of Australia and Australians,” he said, pointing out that local production of health equipment could be an area of growth.

“But the Prime Minister has made very clear – we have got to play to our strengths. We have to play to our comparative advantages. And that does not mean we produce everything or need to produce everything in this country.

“But we do need to ensure that in areas where there are going to be materials that could be absolutely necessary in times of crisis, that we won’t be left vulnerable to disrupted supply chains.”

Follow the latest updates at our coronavirus crisis blog

Treasurer Josh Frydenberg at the National Press Club in Canberra. Picture: AAP Image/Mick Tsikas.

1.42pm: Nine warns of free-to-air drop

Broadcaster Nine Entertainment has warned that free-to-air revenue was down by 9.5 per cent for the third quarter as advertisers feel the squeeze of the coronavirus downturn.

In a presentation to the Macquarie conference, Nine said its free-to-air revenue was down 29.8 per cent in April – with a 9 percentage point hit from the suspension of the NRL season.

Further, “May looks likely to be down on April”.

NEC last traded flat at $1.41.

1.35pm: James Hardie lifting despite payout pause

James Hardie is trading higher on Tuesday after handing down guidance largely in-line with consensus.

The construction group suspended its dividend and noted strong “double digit” volume growth in North America.

RBC analysts say the narrowing of guidance range was in line with its forecasts, but the dividend cut and capacity reductions would likely weigh on near-term investor expectations.

“The company also expects a light capex year in FY21, guiding to $80-95MM of expenditures versus our prior $150MM forecast,” the broker wrote, adding that a shift from NZ to Australian production could potentially lower unit production costs.

JHX last traded up 5.7 per cent to $21.99.

Olivia Caisley 1.04pm: Time to restart the economy: Treasurer

Josh Frydenberg has said it is “time to restart the economy”, declaring the nation must get people back into jobs and back into work.

The Treasurer warned on Tuesday that for every additional week the current restrictions remain in place, it is estimated the nation will see close to a $4bn reduction in economic activity from a combination of reduced workforce participation, productivity, and consumption.

“This is equivalent to what around 4 million Australians on the median wage would earn in a week,” Mr Frydenberg said.

He called on Australians to download the government’s COVIDSafe app.

“It is also why every Australian that wants to get back to work and every business owner that wants to open their doors again should download the COVIDSafe app,” Mr Frydenberg said.

“We must get people back into jobs, and we must get people back at work.”

1.01pm: Health, staples the only detractors

The local market is holding higher in lunch trade as all sectors bar staples and health push higher.

At 1pm, the ASX200 has trimmed an earlier rise as much as 1.6pc to 57 points or 1.1 per cent at 5376.7, albeit in light trading thanks to holidays in Asia.

Banks and tech stocks are the key drivers of today’s rally – the big four are all holding gains between 0.8pc and 1.5pc while Afterpay is up by 5.5pc after yesterdays surge.

James Hardie is lifting by 5.4pc even as it scrapped its dividend, and energy stocks are tracking a rise in oil futures.

A lack of selling liquidity might have exaggerated the early rise. Still, US stock index futures remain strong – S&P 500 futures are up 0.6pc after rising 0.8pc.

Here’s the biggest movers at 1pm:

12.28pm: Hang Seng rises on bargain buying

Hong Kong stocks rose at the start of business Tuesday as bargain-buying after the previous day’s steep losses offset data showing the city’s economy suffered its worst contraction on record in the first quarter.

The Hang Seng index is up 0.5 per cent in early trade while Chinese and Japanese markets are closed for a holiday.

12.10pm: Oil fundamentals shifting: Innes

Oil prices are picking up as investors shrug off the US President’s latest threats against China, and look ahead to the lifting of lockdowns at home in abroad.

AxiCorp’s Stephen Innes writes that “oil fundamentals are finally showing signs of improvement”.

“Prices are reacting positively, assuringly accelerating higher as supplies have started to decline quickly, with signs of demand improving even as major economies are in the nascent stages of reopening,” he says.

“And while a shift into deficit is likely still weeks away, it could be accelerated by pent up retail demand as consumers will be eager to get back in their cars again.”

Crude WTI futures last up 6.4pc to $US21.70, helping energy stocks to put on 4.1pc.

Patrick Commins 11.46am: Job losses balloon near 1 million

Another 195,000 jobs were lost over the week to April 18, bringing total losses to 976,000 since the pandemic gained a foothold from March 14, according to ABS payroll data.

The figures from the Australian Bureau of Statistics show job losses accelerated over the week to April 18, with a decline of 1.5 per cent versus a 0.3 per cent fall in the previous week.

That brought the decline in paid jobs since mid-March – when Australia recorded its 100th coronavirus case – to 7.5 per cent.

The report suggests unemployment has surged to almost 1.7 million people, implying an unemployment rate of over 12 per cent, IFM Investors chief economist Alex Joiner said.

Perry Williams 11.34am: Transurban defends toll hikes

Transurban has defended annual price hikes on its toll roads, despite outstripping both inflation and wage growth, and said some fees may be too low given the amount of traffic congestion on its network before COVID-19 hit.

The transport operator has the right to increase tolls on most of its roads by either annual inflation rates or 4 per cent a year over the life of the toll concession under contracts with state governments in NSW, Victoria and Queensland.

Asked whether that was appropriate given the massive economic downturn, Transurban chief executive Scott Charlton said not everyone uses its toll roads every day and consumers had to make choices about congestion and time savings.

“If you see some of the toll roads and how they’ve behaved when we are in congested times – CityLink or the M2 – where the average speed is pretty low because there’s so much congestion, that would suggest that the tolls are actually too low,” Mr Charlton told the Macquarie Australia Conference in Sydney on Tuesday.

“Because people are choosing to be in congestion in a toll road environment as opposed to a free road.”

TCL last traded up 1.3pc to $13.81.

Congestion on Transurban’s CityLink. Picture: Jay Town.

11.25am: KFC drive-thru, delivery sales surge

Local KFC chain owner Collins Foods says increased drive-thru and home delivery sales have more than offset any impact from restrictions of its dine-in sales imposed by the government.

In an update to the market, Collins said over the last five weeks of FY20, Australian same store sales were down marginally at 0.9pc versus the prior year. Excluding its food court stores, same store sales had actually grown by 4pc over the prior year.

It international stores in Germany and the Netherlands were significantly worse performers – down 28pc and 40 per cent in the same period.

“Our business continues to show strong resilience despite the very challenging operating environment and is well positioned to manage through the recovery period of the respective markets we operate in,” chief Graham Maxwell says.

CKF shares last traded up 6.7pc to $7.34.

11.18am: Shares hit two-day highs

Australia’s sharemarket has jumped 1.6pc to a two-day high of 5403.5.

After falling 5pc on Friday, the index has now risen an impressive 3pc so far this week

Once again it’s outstripping US stock index futures with the S&P 500 up 0.5pc.

Share trading volume is 21pc below normal with China and Japan closed but the only logical explanation is the amount of money being pumped into markets by the major central banks.

Ben Wilmot 11.15am: Dexus robust even as tenants pressured

Office heavyweight Dexus has flagged that city towers and even industrial parks are coming under pressure from the coronavirus crisis but it is still striking fresh deals and has not tapped the market for new equity.

Dexus announced it had made some redundancies and frozen discretionary spending in one of the first public statements about widespread job cuts across property companies and real estate agencies.

Chief executive Darren Steinberg said the COVID-19 pandemic had a profound impact on real estate but said the company was in a robust position with high portfolio occupancy, limited new supply in key CBD office markets and a strong balance sheet.

Dexus pulled its guidance in March and said it was still assessing the impact of COVID-19 on its operating environment, including help it may need to provide to its tenants.

DXS last traded up 2.5pc to $8.98.

Nick Evans 11.07am: Citi cuts Aussie coal outlook

Citi analysts have cut earnings expectations for Australian coal producers in the face of plunging commodity prices, saying the combination of weak coal prices and gains for the Australian dollar will further undermine earnings at companies such as Whitehaven Coal and New Hope Corporation.

In a client note on Tuesday Citi analyst Paul McTaggart said benchmark prices of high-grade Newcastle coal had tumbled from $US64.60 a tonne to $US50/t, and spot prices for hard coking coal from $US137/t to $US109/t.

“Weaker coal prices reflect the restart of Richards Bay exports of thermal coal and weaker demand from key markets (India, North Asia) with Asia spot LNG prices also moving to $US1.86/mmbtu from $2.36 over the last 4 weeks,” he said.

“Of note, NEWC5500 thermal is now $US43/t, down from $US65/t and $US11/t cheaper than China domestic coal, VAT and freight adjusted. Australian hard coking coal is now $US70/t cheaper than China domestic metallurgical coal.

“In the last month, the AUD has disconnected from commodity prices and is a near-term headwind for the Australian-based miners.”

On the back of the price and currency changes, Citi cut earnings expectations for Whitehaven, before interest and tax, by 9.6 per cent to $167.4m, and New Hope EBIT by 6 per cent to $182.5m.

New Hope shares last up 0.35pc to $1.42, with Whitehaven up 3.2pc to $1.77.

Bridget Carter 11.02am: Talk of Westpac wealth exit grows

DataRoom | Further suggestions emerged on Monday that Westpac could exit wealth management, announcing it would move its Wealth Platforms business into a “Specialist Businesses” division, along with other units that are non-core.

According to analysts from Citi, the decision is a positive for groups such as Netwealth and HUB24.

In the Specialist Businesses division would be its wealth management platform Panorama.

Westpac is expected to conduct a strategic review of the ‘Specialist Businesses’ and flagged that some of the businesses could be sold to a more suitable owner.

The bank is the largest platform provider in Australia, with 19 per cent market share, and started a price war in 2018 by materially lowering its platform pricing.

New Westpac CEO Peter King. Picture: Nikki Short.

10.30am: US futures send ASX higher

A stronger-than-expected start for Australian shares came as US futures perked up in early trading.

The S&P/ASX 200 rose 1.1pc to 5377.7 as S&P 500 futures rose 0.4pc, adding to positive US leads from Monday.

Regional holidays are potentially magnifying the volatility with China and Japan remaining closed today.

Qantas rose 5.6pc after securing additional debt funding and James Hardie jumped 6.6pc on cost cutting plans

Sector performance has been pro-risk, with IT, Energy, and Materials are outperforming, and Health Care, Staples, Communications and Real Estate lagging.

10.24am: It’s now or never for oil stocks: Bernstein

Wall Street research firm Bernstein says now is the time to buy oil stocks, as it upgrades its view on producers including locally-listed Woodside, Santos.

In a note to clients, cited by Bloomberg, the broker asks, “if you don’t want to buy oil equities now, will you ever?”

They forecast market oversupply to persist for the next three months, and that prices could go lower, but that a recovery in crude will come in 2021.

“Oil stocks are currently discounting the long end of the forward curve at $35-$40/bbl. We upgrade based on a view that prices will recover to $US50/bbl over the next 12-18 months.”

Still, they say the biggest risk to their call is a new wave of infections, in which case “all bets are off”.

Santos, Oil Search and Woodside were raised to Outperform and are all up between 1pc and 1.5pc in early trading.

10.12am: Energy leads as shares put on 1pc

Shares are following Wall Street higher, adding 1 per cent in early trade with gains led by energy and tech stocks.

At the open, the ASX200 is higher by 51 points or 0.96 per cent to 5370.8.

The major banks are all higher by between 1pc and 1.5pc while Afterpay is headed higher by 4.5pc after yesterday’s 25pc rally.

Ben Wilmot 10.06am: Centuria swoops on Augusta

Property funds group Centuria Capital has swooped on a stake NZ-based syndicator Augusta Capital, taking a 19 per cent interest in the company in one of the first post-crisis moves in real estate.

Centuria in March withdrew plans for a $NZ180m ($174.8m) takeover of Augusta as the coronavirus all but stopped activity.

It has now taken an initial 19 per cent interest in Augusta, with an opportunity to increase its holdings to 24.99 per cent.

Augusta is undertaking a $NZ45m equity raising to strengthen its balance sheet and provide capital for new opportunities. The fundraising consists of a $12.4m placement and a $32.6m entitlement offer.

Centuria will acquire the 19 per cent interest in Augusta on a fully diluted basis at NZ55c per share and could commit about $NZ23.6m in total to the deal, funded by its cash reserves.

After the deal, Centuria’s cash reserves will be about $120m and the company is already scouting new office and logistics plays.

Centuria joint chief executive John McBain said the investment in Augusta was a unique opportunity to develop a strong presence in the NZ funds management arena.

“We remain attracted to Augusta’s leading position in New Zealand, its strong distribution platform and its fund origination capability,” he said.

Augusta manages $NZ1.8bn in assets across a range of listed, unlisted and private funds. Centuria was advised by Moelis.

Joyce Moullakis 9.55am: Economy well-placed to weather COVID: Macq

Macquarie Group chief executive Shemara Wikramanayake believes Australia is well placed to weather COVID-19 short-term economic shocks and an ensuing global recession, given long-term drivers of activity remain in place.

Ms Wikramanayake was speaking at the Macquarie Australia Conference 2020 which will see 60 Australian and New Zealand companies present virtually to more than 500 investors around the world.

“In recent days the curve of new infections is flattening in many countries, and commentary from some governments has turned to strategies that will allow the gradual easing of COVID-19 measures, reintroduce freedom of movement among communities and provide economic activity,” she said.

“What we can expect in the short-term is a global economy in recession as governments begin to walk back from the sudden economic stops implemented in an effort to contain the virus. However, quantifying the magnitude of the near-term hit with any certainty is very challenging... there are strong long-term fundamentals which will re emerge as we move beyond this environment.”

Macquarie Group CEO Shemara Wikramanayake earlier this year. Picture: Supplied.

9.38am: Shares to rise, RBA comments in focus

Australia’s share market is expected to rise again today, with overnight futures relative to fair value suggesting the S&P/ASX 200 will open up 0.4pc.

It will be hard to top Monday’s surprising 1.4pc gain, the magnitude of which appears to have been magnified by Friday’s outsized 5pc fall but the direction was right, as the S&P 500 rose 0.4pc, albeit some US sectors with heavy weights in the Australian market – including Financials and Healthcare – fell.

Holidays in China and Japan will make for thin and potentially choppy trading again, but key chart levels at 5100 and 5550 are unlikely to be tested.

In terms of market catalysts, the national cabinet meets to consider the scale of a relaxation of restrictions expected to be announced on Friday. The RBA also meets and while no policy change is expected it will be interesting to see if the RBA is less negative on the economy as a result of the expected lessening of restrictions.

At the individual stock level, James Hardie’s new earnings guidance matches consensus, but the suspension of its dividend was not expected. Qantas revealed its burning $40m a week but can cope with current trading conditions lasting through 2021.

9.31am: What’s Qantas’ weekly cash burn?

Cash clearly rules the skies. It’s worth drilling down a little deeper into the Qantas update which reveals the airline is burning cash at a rate of $40m a week.

However, Qantas borrows a further $550m in funding against three of its wholly-owned Boeing 787-9 aircraft.

This follows the $1.05bn raised in March against seven of its 787-9s. Net debt is now within “the middle” of the target range, at $5.8bn.

Qantas maintains it has no financial covenants on any existing or new debt facilities and no significant debt maturities until June 2021, a little over 12 months away.

The airline says it has “sufficient liquidity” to respond to a range of recovery scenarios, including one where the current trading conditions persist until at least December 2021. Here it notes the group currently has $2.7bn in unencumbered aircraft assets “and can raise funds against these if required”.

Qantas Group CEO Alan Joyce says the airline’s cash balance shows that it is in a “very strong position”.

“Our ability to withstand this crisis and its aftermath is only possible because we’re tapping into a balance sheet that has taken years to build,” Joyce says.

Since the last cash balance update in March, Qantas has seen outflows including a $250 million bond repayment, elevated levels of annual leave payments from standing down more than 25,000 employees ahead of the JobKeeper program starting, and payment of bills from its pre-crisis levels of flying activity.

But it says total short-term liquidity stands at $3.5bn, including a $1bn undrawn facility

Bridget Carter 9.25am: National Storage raising $300m

DataRoom | National Storage REIT is raising $300m through JPMorgan and Citi.

Shares are being sold at $1.57 each, a 7.1 per cent discount to their last closing price of $1.69.

The funds will be used to strengthen the company’s balance sheet.

As well as a $300m placement, the group will also raise $30m through a

share purchase plan.

National Storage joins Charter Hall Social Infrastructure REIT in raising $115m in recent days, while retirement village operator raised $175m.

Other real estate groups that have tapped the market amid COVID-19 disruptions are Lendlease, Shopping Centres Australasia and Charter Hall Retail REIT.

The raise comes after Public Storage walked away from a $1.9bn takeover of the Australian listed National Storage, equating to $2.40 per share.

It’s market value is now $1.34bn.

Jared Lynch 9.22am: PolyNovo supply chain, sales strong

Biotech PolyNovo says it has so far dodged the coronavirus, with the David Williams-chaired company having six months’ of inventory in stock and continuing to manufacture its cutting-edge synthetic skin grafts.

Chief executive Paul Brennan will present at Macquarie Bank Conference today where the trained nurse will deliver a clean bill of health for PolyNovo.

Mr Brennan said the COVID-19 pandemic, which has shutdown swathes of local and international economies, has so far had little impact on PolyNovo’s supply chain.

“We have adequate raw material supplies, six months forward inventory holdings and continue to manufacture,” Mr Brennan said. “Sales continue with March and April (reporting) strong performances.”

But he said recruitment of sales representatives had halted until the pandemic passes.

Mr Brennan said construction of a factory in Port Melbourne which will manufacture a new hernia product was also on track and is set to be completed in July.

He said the global hernia market was worth about $3.1bn and PolyNovo was on track to begin selling into the US, which represents about $1.5bn of the global market, in July-August next year.

9.19am: Prime revenues slide 38pc in April

Regional media group Prime have detailed the COVID-19 hit to revenues, posting a 38pc slide in revenue for April.

For the financial year to April, it said total revenue was down by $20.2m or 12.7 per cent on the prior year.

“National and local direct advertising revenues have been heavily impacted by weak consumer

sentiment and significant declines in advertiser categories such as retail, household furnishings and the motor vehicle sector. Changes to AFL fixtures and broadcast has also impacted Prime’s advertising revenue opportunity,” the company said.

It said key management personnel were taking a temporary 20pc reduction to their base salary and would forgo short and long term incentives for the current financial year.

Directors have also agreed to a 20pc reduction in fees, while the whole company is on a hiring freeze.

PRT last traded at 10.2c.

9.11am: AGL warns of rising bad debts

Energy provider AGL says an increase in customer bad debt expense and other unanticipated operating costs arising from COVID-19 will put its profit likely at the low end of its previously released range.

In presentation notes to be delivered at the Macquarie conference today, AGL said it was still guiding to profit between $780m and $860m, but that a result in the upper half, as forecast in February, was “now less likely given potential for worsening of COVID-19 lockdown impacts on bad debt expense, other costs and wholesale energy price”.

The company said market and economic headwinds were increasing into the new financial year, with a shift in demand mix thanks to the uncertain outlook for some sectors and “increases in customer bad debt expense associated with increase in economic hardship”.

AGL last traded at $16.34.

9.03am: What’s on the broker radar?

Adairs raised to Add – Morgans
Alumina raised to Hold – Morningstar
FBR cut to Speculative Hold – Bell Potter
IGO raised to Buy – Hartleys
IOOF target cut 38pc to $4.50 – Morgan Stanley
Monadelphous raised to Buy – Morningstar
Monash IVF raised to Add – Morgans
Oil Search raised to Outperform – Bernstein
Qube cut to Hold – Morningstar
Qube raised to Buy – UBS
Raiz rated New Speculative Buy – Bell Potter
Santos raised to Outperform – Bernstein
Transurban cut to Hold – Jefferies
Transurban cut to Neutral – JP Morgan
Woodside raised to Outperform – Bernstein

8.58am: National Storage halted for raise

National Storage shares are halted ahead of the open, pending further detail of a capital raising.

The storage group had been in the throws of a $1.9bn takeover by US group Public Storage before the coronavirus crisis hit, but the ensuing volatility prompted the offer to be withdrawn.

In a filing this morning, National Storage said it expected to make an announcement to the ASX in connection with a capital raising comprising an institutional placement and a security purchase plan.

NSR last traded at $1.69.

8.48am: Qantas extends flight cancellations

Qantas has extended its flight cancellations out til July, but says its standing by to restore domestic and trans-Tasman travel if those restrictions ease.

Ahead of a national cabinet meeting including NZ Prime Minister, in which its tipped leaders will discuss the possibility of a “trans-Tasman bubble”, Qantas says it has scope to restore some services at relatively short notice.

Still, Qantas has extended flight cancellations from end-May through to the end of July – which had been at pre-coronavirus levels.

In addition, the airline said it had secured a further $550m in debt funding against three of its wholly owned Boeing 787-9 aircraft and its lower cash burn rate gave it headroom to manage through the current crisis.

“The Group has sufficient liquidity to respond to a range of recovery scenarios, including one where the current trading conditions persist until at least December 2021. The Group currently has $2.7bn in unencumbered aircraft assets and can raise funds against these if required,” it said.

8.10am: Hardie suspends payouts

James Hardie Industries said it has suspended dividend payments until further notice and will cut about 375 jobs globally in response to the drop in demand for building supplies amid the coronavirus pandemic.

The Australia-listed company said it would close a South Carolina manufacturing plant and its permanent formwork business in Australia. It also aims to close fibre cement manufacturing in New Zealand to consolidate regional manufacturing in Australia.

The closures will result in the loss of about 375 jobs, the company said in a filing to the Australian Securities Exchange.

“Our leadership team took this action with considerable thoughtfulness, with the strategic objective of preserving and enhancing the global organisation’s competitiveness over the long term,” said James Hardie chief executive Jack Truong.

James Hardie will also temporarily close its manufacturing plant in Siglingen, Germany, in response to lower short-term demand in Europe.

It said it will take a US$90 million non-cash impairment expenses in Q4. The company lowered the upper end of its previously issued fiscal 2020 adjusted profit guidance, narrowing the range to $US350 million-$US355 million, from $US350 million-$US370 million previously.

The impairment will be excluded from adjusted net profit.

Dow Jones Newswires

8.00am: Carnival to resume cruises

Carnival Cruise Line, owner of the ill-fated Ruby Princess, says it plans to resume sailings on eight ships departing from Florida and Texas beginning August 1 and is extending the cancellations of some of its other voyages — in North America and Australia — to later in the year as it continues to tackle the fallout from the COVID-19 pandemic.

The cruise line’s plans to start sailing again came after the US House Committee on Transportation and Infrastructure launched an inquiry into Carnival’s health and safety practices. The committee sent letters Friday to Carnival, the Centres for Disease Control and Prevention and the Coast Guard requesting copies of all memos, emails and other communications that pertained to COVID-19 or other infectious disease outbreaks aboard cruise ships.

“Our goal is the same as the committee’s goal: to protect the health, safety and wellbeing of our guests and crew, along with compliance and environmental protection,” Carnival Corp. Carnival Cruise Line’s parent company, said. “We are reviewing the letter and will fully co-operate with the committee.”

The Wall Street Journal reported last week that cruise-ship operators had ample evidence to believe their fleet of luxury liners were incubators for the new coronavirus, yet they continued to fill ships with passengers and helped spread the disease.

Carnival owns the “Ruby Princess” cruise ship, identified as a link to many cases of coronavirus in Australia after passengers were allowed to disembark in Sydney despite signs of illness. The incident is the basis of an official inquiry.

Dow Jones, AP

Eli Greenblat 7.45am: Kathmandu, Rip Curl stores reopening

Kathmandu has reported a leap in online sales while its stores were closed because of the coronavirus pandemic, making it the latest retailer to report a surge in online sales.

The outdoor and adventurewear retailer said that during April, online sales were 2.5 to 3 times higher than last year, with the highest growth rates in Australia, its largest market. Online sales growth strengthened over April as consumers adapted to online being their only available shopping channel, the company said.

On Monday, home furnishings retailer Adairs also reported strong online sales as consumers stuck at home in isolation shopped online.

In terms of store reopening, In Australia, over recent days, most Kathmandu and Rip Curl stores in New South Wales and Queensland have reopened on a trial basis, with robust safety protocols in place. The majority of the group’s Australian stores are expected to reopen by the end of this week.

Kathmandu chief executive Xavier Simonet said the retailer had responded decisively to the COVID-19 challenges as a team, with the aim of getting through the difficult period and coming out on an even stronger footing.

“In the medium term, consumer demand is expected to be subdued overall, and international travel reduced as a result of the ongoing economic and social impacts of COVID-19. However, there is a clear opportunity to answer the needs of our brands’ core consumers as they engage in active pursuits locally, on the beach, in the mountains and the outdoors.”

KMD last traded at 71c.

Kathmandu stores across the country are slowly reopening, as the chain reports an online sales surge. Picture: AAP Image/Attila Csaszar.

7.30am: ASX set to open higher

Investors in the Australian share market may not have a lot to crow about on Tuesday with early indicators of modest gains in early trade.

At 7am (AEST) the benchmark SPI 200 futures contract was up 17 points, or 0.32 per cent, to 5,335.0 points, indicating a subdued start. US stocks finished higher overnight with increases in large tech and internet companies and oil price gains.

Gains in Microsoft, Apple and Amazon were the biggest lifts for the S&P 500. Energy was the best performing S&P 500 sector, rising 3.7 per cent, as oil prices gained.

Meanwhile in Australia, the Reserve Bank board will meet, but economists expect the record low level cash rate of 0.25 per cent to remain.

JP Morgan Australia chief economist Ben Jarman said: “There aren’t any other obvious policy levers to be pulled right now given how much already has been done”.

The bank cut the rate twice in March, and introduced quantitative easing measures, as COVID-19 crept its way into the country.

Elsewhere on the home front, construction industry data for April is due to be published.

The S&P/ASX200 benchmark index closed Monday up 73.9, or 1.41 per cent, at 5,319.8 points, while the All Ordinaries index finished 64.5 points higher, or 1.21 per cent, at 5,389.5 points.

One Australian dollar buys US64.26 cents at 7am (AEST), down from US63.90 cents at Monday’s close.

AAP

6.10am: US stocks end higher

Wall Street eked out small gains, despite comments from Warren Buffett over the weekend where the world’s most famous investor said he sold his airlines holdings and talked candidly about his concerns in the market.

The Dow Jones Industrial Average was up 0.1 per cent at 23750 as of the close of trading. The S&P 500 was up 0.4 per cent and the Nasdaq Composite was up 1.2 per cent. The Dow industrials had been down as many as 363 points in the morning.

After adding 1.4pc yesterday, Australian stocks are tipped to open higher. At 6,00am (AEST) the SPI futures index was up 29 points, or 0.5 per cent.

US equities appeared to be following a rally that started in the oil market.

The nuanced comments from Mr Buffett, the chief executive of Berkshire Hathaway, reflect the state of the markets and world. Stocks have come off their March lows, but value judgements are difficult given the economy. The markets appeared to be pricing in a quick recovery from the coronavirus pandemic, but bonds haven’t reflected that, and equities themselves have stalled the past two weeks.

Meanwhile, the economy is still under pressure. On Monday, retailer J. Crew Group Inc. filed for bankruptcy protection, crushed by the damage from coronavirus. It was the first big retailer to do so, but others are likely to follow.

Mr. Buffett reported that he sold his entire stake in four airlines, and talked about problems in that sector, energy, and small businesses, too. While he sounded optimistic notes and waxed about “American magic,” he also conceded that he didn’t see any attractive investments right now.

“For him to come out and say ‘I don’t see any opportunities’ is a big thing,” said Greg Harmon, founder and president of Dragonfly Capital. “It’s clear to him that it’s not time for everything to start going up.”

The airlines Mr Buffett sold were all down on Monday. Delta Airlines declined 7 per cent, United Airlines Holdings slid 5.4 per cent and American Airlines Group was down 8.2 per cent. Southwest Airlines also slipped 5.7 per cent.

“What (Mr Buffett) said is entirely reasonable,” said Robert Colby, chairman of Robert W. Colby Asset Management. “He’s keeping his cash hoard, and so am I.” Mr. Colby, who earlier advised his clients to get out of stocks, said he sees no good reason to buy equities right now.

Meanwhile, investors were also nervous after a seeming renewal of antagonism between the US and China.

The Trump administration stepped up assertions that the new coronavirus originated at a laboratory in the Chinese city of Wuhan, with Secretary of State Mike Pompeo saying Sunday that he has seen “enormous evidence” for this. The White House will release a “conclusive” report on the topic, according to President Trump.

More than the accusations themselves, investors are taking the increase in tensions seriously, said Sebastien Galy, a macro strategist at Nordea Asset Management.

“The last escalation was pretty detrimental for equity markets,” he said, referring to the sell-off in mid-2019 at the height of the US-China trade war. “A de-escalation process can take weeks.”

In Europe, the pan-continental Stoxx Europe 600 fell 2.7 per cent, playing catch-up after most European markets were closed Friday for the May 1 holiday.

Benchmarks in Asia declined, with Hong Kong’s Hang Seng index, which was closed for the previous two sessions, playing catch-up to lose 4.2 per cent. South Korea’s Kospi Composite fell more than 2.5 per cent. Markets in mainland China and Japan were closed for holidays.

U.S. crude-oil futures for delivery in June rose 3.1 per cent to $US20.39 a barrel.

Dow Jones Newswires

5.44am: US Treasury to borrow $US2.999 trillion

The United States Treasury said it will to borrow a record $US2.999 trillion in the April-June period largely to finance spending on relief programs amid the coronavirus pandemic.

That total in the second quarter far outstrips debt issued in most years, and compares to $US1.28 trillion issued in the last fiscal year, a Treasury official told reporters.

The increase is “primarily driven by the impact of the COVID-19 outbreak, including expenditures from new legislation to assist individuals and businesses” and deferred taxes, Treasury said in a statement.

AFP

5.40am: Carnival planning cruise restart

Carnival Cruise Lines said that it plans to gradually resume cruising in North America in August, nearly five months after it halted operations due to the new coronavirus.

Sailings will begin on August 1 with eight ships setting off from Galveston, Texas; Miami; and Port Canaveral, Florida. A majority of customers can easily drive to those ports, the company noted.

Carnival said its operations from other North American and Australian markets will be on hold through August 31. It is also cancelling planned sailings from Vancouver to Honolulu on September 25 and Honolulu to Brisbane, Australia, on October 6.

Miami-based Carnival Cruise Lines is the largest brand owned by Carnival Corp., which also owns Princess, Holland America Line and other brands. Carnival Cruise Lines has 27 ships and transported 5 million passengers last year. The company has taken a huge hit from the new coronavirus, which stranded some ships at sea with sick passengers. Multiple ships reported outbreaks and struggled to find places to dock. In early April, two Holland America cruises disembarked in Florida with at least nine passengers sick with COVID-19. Carnival Cruise Lines halted new sailings on March 13. It initially expected to be able to sail again on April 10.

5.35am: J.Crew files for bankruptcy

The owner of J.Crew is filing for bankruptcy protection, the first major US retailer to do so since the pandemic forced most stores in the United States to close.

More retail bankruptcies are expected in coming weeks with thousands of stores still shuttered, though states have begun a staggered restart of their economies.

March sales at stores and restaurants had their most severe plunge on records dating back to 1992. Clothing sales fell more than 50pc that month and, in the timeline of a pandemic, those may have been the good days.

J.Crew said lenders have agreed to convert $US1.65 billion of its debt into equity. It’s also secured commitments for financing of $US400 million from existing lenders Anchorage Capital Group, L.L.C., GSO Capital Partners and Davidson Kempner Capital Management LP, among others.

A sign in the window of a closed J.Crew store in New York. Picture: AFP

J.Crew, like a number of major retailers, was already in trouble before the pandemic and it was laden with debt.

The company’s roots date back to 1947, when Mitchell Cinader and Saul Charles founded Popular Merchandise Inc., which sold low-priced women’s clothing. It was renamed J.Crew in 1983 and retooled as a preppy catalogue to compete with those published by Lands’ End and L.L Bean.

It became a fashion staple by the 1990s and new stores popped up across the country. Mickey Drexler, who had spearheaded Gap’s explosive expansion, joined in 2002 as chairman and CEO and catapulted J.Crew into a high-tier player. Former First Lady Michelle Obama elevated the brand even further during her eight years at the White House, favouring casual pieces like J.Crew’s cardigan and slim skirts. In 2011, J.Crew became the first mass fashion brand to show its designs at New York Fashion Week.

5.30am: Stocks hit by trade war fears

Stock markets fell after US President Donald Trump sparked fears of a renewed trade war with China over its role in the coronavirus pandemic.

Key eurozone markets were more than 3.5 per cent lower at the close on simmering US-China tensions, with Frankfurt and Paris playing catch-up with London after a long holiday weekend.

“Risk sentiment is very fragile as we enter another critical week in terms of economic and corporate data,” Swissquote bank analyst Ipek Ozkardeskaya said.

“Donald Trump’s attacks on China are really not helping”.

London closed down 0.2pc, Frankfurt lost 3.6pc and Paris closed down 4.2pc.

The region’s losses came as millions of Europeans emerged from lockdown on Monday, with Italy, the continent’s hardest-hit country, leading the way out of its two-month coronavirus confinement.

Oil prices were mixed after last week’s surge, while the US dollar was on the front foot against the European single currency.

Trump had hinted he could impose new tariffs on China over its handling of the virus outbreak, claiming he had seen evidence linking a Wuhan lab to the contagion.

The claim, repeated by US Secretary of State Mike Pompeo, overshadowed a further slowdown in the number of infections and deaths from COVID-19.

AFP

5.25am: Ferrari slashes forecast

Luxury sports carmaker Ferrari lowered its full- year earnings guidance significantly due to the COVID-19 pandemic, and acknowledged that the new outlook assumes a sharp recovery in the second half of the year.

Ferrari, which is based in the Emilia Romagna region that is one of the hardest- hit by the coronavirus in Italy, lowered its guidance for net revenues to between 3.4 billion euros and 3.6 billion euros from 4.1 billion euros previously.

It cut its forecast for adjusted earnings before interest, taxes, depreciation and amortisation to a top range of 1.2 billion euros from a top range of 1.43 billion euros.

The company reported an 8pc drop in first-quarter net profit to 166 million euros as revenues dipped just 1pc to 932 million euros amid a 5pc increase in deliveries to 2,738 units.

The Ferrari Monza SP1 car on display in Italy. Pic: AP

5.20am: Argentina debt offer rejected

Three creditor groups have rejected the debt restructuring offer made by Argentina’s government for $US66 billion in bonds, saying the proposed haircut on their investment is too steep.

Argentina’s Economy Minister Martin Guzman on Sunday called for creditors to co-operate with the government’s efforts but the groups, which a spokesman said each represent about 100 bondholders, said they “require Argentine bondholders to bear disproportionate losses that are neither justified nor necessary.”

“Each of the three bondholder groups and the institutions they represent, together with various other investors, wish to reiterate and make clear that they cannot support Argentina’s recently launched exchange offer, and will not tender their bonds in such offer,” the statement said.

AFP

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