ASX extends rally after RBA’s rate cut, QE
Stocks surged more than 2pc after the RBA confirmed a widely expected rate cut and quantitative easing; Governor Philip Lowe said negative rates were ‘extraordinary unlikely’.
- RBA cuts rate to new low of 0.1pc
- Brambles rallies on update
- Isentia counts cost of hacker attack
- Sandfire plays down China ban reports
That's all from the Trading Day blog for Tuesday, November 3. Australian stocks extended a rally after the widely expected RBA rate cut and QE announcement, and after world markets gained ground ahead of the US election. The Dow gained 1.6pc, the S&P 500 rose 1.2pc and the Nasdaq added 0.4pc.
Joyce Moullakis 7.43pm: Small lenders jump to cut rates
The major banks were considering cutting fixed rates on mortgages late on Tuesday, after several small lenders reduced variable home loan rates and the federal government applied pressure to the big end of town.
The major banks all kept quiet on their standard variable mortgage rates on Tuesday after the Reserve Bank cut the official cash rate by 15 basis points to 0.1 per cent. The Australian understands the big banks are taking on board calls from Josh Frydenberg to seek out ways to lower borrowing costs, despite the impact that will have on net interest margins and savers.
Mr Frydenberg fired a warning shot to banks on Tuesday, saying “it’s my expectation that the banks will now look for ways to pass on those rate cuts — pass it on to small businesses, and pass it on to mortgage holders”.
The Treasurer’s comments were stern but seemed to acknowledge the sharp margin pressure rate cuts were causing the banks, which are navigating COVID-19 loan losses and markedly lower profits.
Ahead of the RBA move, bank analysts were questioning whether the big banks would pass on any of the expected official rate cut given the sector wants to protect profit margins, and interest rates on savings accounts and term deposits are already at record lows.
Reserve Bank governor Philip Lowe on Tuesday said “we would expect and hope these rate reductions get through to borrowers”.
Ben Wilmot 7.00pm: Pitt lays out Evans Dixon plan
The battle lines are sharpening in the contest for troubled financial services company Evans Dixon with corporate raider Tony Pitt holding out an olive branch to staff who have suffered heavy losses on their shareholdings.
The funds manager is pitching himself as the one to take the underperforming firm private and turn it around and also revealed he had made approaches to privatise the company last year.
The moves had not been previously disclosed to the ASX although his attempts to take control of the company‘s struggling US property fund, alongside with US manager Oaktree, have been made public.
In a letter to “fellow” shareholders — 360 Capital has built up a 19.55 per cent interest in the company — Mr Pitt laid out the rationale for the takeover.
He revealed 360 Capital had been in talks with Evans Dixon chair David Evans since August 2019 “regarding various strategies to maximise the value of ED1 and the funds it manages”.
He laid out the rebuffing of his offers writing that the plans, which “included privatising ED1”, had met with resistance, as “David was unwilling to engage with us on these strategies”.
JLachlan Moffet Gray 6.30pm: Retirees should ‘think of the greater good’: RBA
Reserve Bank governor Philip Lowe has said he understands the pain of individuals who depend on a newly-slashed cash rate for their income, but argued the central bank’s actions are “about the collective good.”
Speaking on Tuesday after the RBA announced it would slash the interest rate by 15 basis points to a record low of 0.1 per cent, The Australian’s Patrick Commins asked Dr Lowe what he had to say about those who live on bank interest income, and whether they were “collateral damage” of monetary policy.
“What I’d say to them is we understand their pain,” Dr Lowe said in response.
“We discussed this extensively at our board meeting today, and I know personally because many of the people write to me explaining the difficult circumstances that they are in and I acknowledge that the effect of monetary easing falls very uneasily across the community,” Dr Lowe said.
“The people who are relying on interest income as their main source of income bear a heavy share of the burden here and I understand why they’d be unhappy, and I think it’s regrettable that we find ourselves in this situation.”
Dr Lowe said that the situation of low interest rates was a global economic phenomenon that can only be reversed through economic growth.
James Kirby 5.45pm: House price fuse lit again
The Reserve Bank’s historic decision to make one final cut in official rates is expected to extend an uneven lift in national house prices.
But the real question is whether the residential recovery can continue without the enormous government support now baked into the system.
Mortgage rates should become marginally more competitive off the back of a widely expected decision to slice official rates from 0.25 per cent to 0.10 per cent.
If banks pass on the full cut, analysis from the Canstar research agency suggests a household currently paying at an average variable rate (3.37 per cent) on a $400,000 loan amount would see payments come down by $33 a month (or $396 annually).
Home Loan borrowers looking at fixed rates - or anyone refinancing their mortgage - should also get a boost from the RBA’s identical cut to the so-called Term Funding Facility (TFF) - the rate the banks pay the RBA.
The new deal on the TFF means the central bank is also obliged to keep its long term rates closer to 0.10 per cent.
Lilly Vitorovich 5.23pm: ABC admits Pell description ‘inappropriate’
The ABC says it was inappropriate for its news channel to call Cardinal George Pell “disgraced” during a news bulletin last month, but stopped short of apologising for the mistake.
The public broadcaster posted a brief statement on its corrections and clarifications page online on Monday afternoon, acknowledging that it was “inappropriate” for its news channel to describe Cardinal Pell as “disgraced” in the bottom of the screen text during a news bulletin on October 1.
“The ABC recognises this was inappropriate in light of his successful appeal and acquittal by the High Court of his previous conviction for child sexual abuse,” the ABC said in a post titled Cardinal Pell.
The statement comes just weeks after an ABC journalist said the coronavirus should be awarded a Nobel prize “if it killed (Cardinal) Pell”.
ABC cameraman Lincoln Rothall, in an email inadvertently copied across the newsroom, made the statement in response to an internal news alert noting Pope Francis had met Cardinal Pell.
“I would have voted Covid for the Noble (sic) Prize if it killed Pell,” Rothall wrote on October 12.
Rothall’s comment was in response to an email from the ABC’s London-based supervising producer, which read: “The Pope has met with Cardinal George Pell at the Vatican this morning.”
Lachlan Moffet Gray 5.07pm: RBA ‘not financing the government’
Dr Lowe said that the RBA will not buy bonds within a week of them being tapped, partly because he did not want to give the perception that the RBA was financing the government.
“We haven’t got a hard and fast rule there but my thinking is that if a bond has been tapped or issued in the past week we will steer clear of that bond,” he said.
And although Dr Lowe said “we will be coming out of a recession,” he said we are not out of it yet unless viewed in the strictly technical sense.
“No, the recession isn’t over and I would have to say my colleague Guy Debelle did not say the recession was over as well.
“There was a lot of misreporting on that issue.”
Dr Lowe also denied that the main goal of the RBA’s action is to depreciate the Australian dollar to help the economy.
“I wouldn’t conclude that currency is the main factor, it’s one of the factors,” he said, adding that the cash flow effect, a lower exchange rate and stronger balance sheets are the three “channels” through which the economy will return to health through RBA action.
Dr Lowe said the RBA is not considering actively intervening in foreign exchanges.
“Our position on that has been well spelt out and hasn’t changed for a long period of time. The only case where we’ll intervene is if the market is dysfunctional, which it’s not.”
Dr Lowe has now concluded his remarks.
5.04pm: Rate cut ‘kick in the guts for retirees’
“Action by the Reserve Bank to reduce the official cash interest rate by 0.15pc to just 0.10pc increases the financial pain for fully and partly self-funded retirees,” said Mr Wayne Strandquist, President of the Association of Independent Retirees.
“Fixed interest investment forms a substantial part of a retiree’s superannuation and private savings, particularly in the latter years of retirement”, said Mr Strandquist. “The Reserve Bank cash rate reduction will put more downward pressure on term deposits rates with cash held in bank accounts paying almost zero interest”, Mr Strandquist added.
“When retired, risk tolerance reduces over time to favour more conservative investments with less volatility and less risk like term deposits, bank savings accounts and other fixed interest investments,” said Mr Strandquist. “The reduction in fixed interest by the RBA continues a trend that has seen term deposit rates fall to historic lows, to a fraction of what they were when many retirees left the workforce.” Mr Strandquist emphasised.
“After bank account fees are charged and zero-interest paid, retirees are effectively paying the banks to hold their savings”, said Mr Strandquist. “This negative return will further lower the living standards of retirees and require larger drawdowns from their retirement savings until they are forced to rely on the aged pension”, Mr Strandquist explained.
Lachlan Moffet Gray 4.55pm: RBA ‘prepared to adjust over time’ if number wrong
Dr Lowe said the $100bn figure for the bond buying program was chosen because it represented 5 per cent of Australia’s GDP.
“One advantage we have here of doing it a bit later than other central banks is we have got to observe what others have done,” he said, explaining he has read and been involved in many studies on the issue.
“While the estimates vary, across the various studies it’s reasonably clear that a bond purchase programme equal to 5 per cent of GDP - which is what $100bn here is - has a noticeable effect.
“If it turns out that’s the wrong number, we are prepared to adjust over time.”
A journalist asked why Dr Lowe and the RBA board did not wait before cutting rates.
“The conclusion we drew is that the outlook for the economy over the next 2 years was sufficiently concerning, particularly around the labour market, (and) that we should act today,” Dr Lowe said.
He also clarified that just because the board went back on earlier assurances on quantitative easing, that did not mean that the RBA would necessarily go back on the promise not go into negative interest rate territory.
“I’ve been careful in the past not to say that we wouldn’t do these things...and I think absent a global pandemic, we wouldn’t be going down this route,” he said.
“On negative interest rates, (we are) saying they are extraordinarily unlikely and that remains a view.”
Dr Lowe added that if the major central banks all went negative the RBA likely would as well, although he did not view it as a possibility.
Will Glasgow 4.52pm: Bejing denies ‘rumours’ of sweeping trade ban
China’s Commerce Ministry has downplayed “rumours” of a multi-billion-dollar hit to Australian exports that has spooked the wine, lobster, copper, sugar, timber and coal industries.
The mooted ban - which would be unprecedentedly wide ranging, even for President Xi Jinping’s administration - was first reported by the South China Morning Post, citing unnamed sources.
It appears to be based on notes of an unusual, and unverified, meeting which have circulated among traders in China.
China’s Ministry of Commerce in Beijing told The Australian they had no knowledge of the meeting that, according to circulated notes, outlined a sweeping ban on trading with Australia.
“We did not hold such a meeting, neither did we issue the notice, nor do we know about such rumours,” said a spokesperson for the Ministry of Commerce.
The Australian government, Australian businesses and investors have been scrambling to establish whether the notes of the meeting were authentic.
Miner Sandfire Resources share price fell 6.5 per cent as investors, including short sellers, responded to unconfirmed reports of a trade ban on Australia’s more than $3b-a-year copper exports to China.
Lachlan Moffet Gray 4.43pm: ‘I am more optimistic than you are’
Continuing to take questions, Dr Lowe said that the factors he will examine when considering whether to expand the six month bond purchase plan include “the impact of our purchase on market functioning” and “the outlook for jobs and employment”.
Dr Lowe also denied the suggestion that the RBA’s actions constituted a criticism of the government’s fiscal response, saying “what we are doing is supporting and supplementing the government’s efforts” and that the government is “on the right track.”
After having it put that the goal of lifting rates sometime within five years is perhaps unrealistic, Dr Lowe said he expected an economic “recalibration” within that time.
“I am more optimistic than you are. I would hope we are not permanently in this world of zero interest rates,” he said.
“We’re here because the desire to save globally is very high, understandably, and the desire to invest is very low.
“I don’t think this is a permanent state of affairs.”
The Australian’s Patrick Commins asked what Dr Lowe would say to savers who are relying on interest income to live.
“We understand their pain, we discussed this extensively at our board meeting today,” he said.
“Many of the people write to me explaining the difficult circumstances that they are in and I acknowledge that the effect of monetary easing falls very unevenly across the community.
“I think it’s regrettable we find ourselves in this situation.
“There’s an issue about the collective good here - lower interest rates will help support spending and ultimately that will create jobs, so the broader community will benefit from today’s decision.”
Dr Lowe also said he was not concerned the lower interest rates would push up housing prices as “the dynamics of the housing market have changed” with lower immigration and falling rents.
4.35pm: ASX best rise in 4 weeks
The ASX extended an early rise in afternoon trade after the RBA cut the cash rate to a new record low of 0.1 per cent and unveiled a $100bn bond-buying program to help spur economic recovery.
The gains pushed the index to close the session firmly higher in what was the biggest rise in four weeks.
At the close of trade, the ASX benchmark S&P/ASX200 had gained 115.1 points, or 1.9 per cent, to 6090.8 points.
The gains followed a lift on Wall Street overnight ahead of the US presidential election.
BHP rose 2.6 per cent to $34.70, while Westpac dropped 0.6 per cent to $17.70 as analysts warned of the headwinds facing the bank over the next few years, after Westpac unveiled a cash profit figure down 62 per cent on the prior year.
Brambles surged 5.6 per cent to $10.10 after the supply chain logistics giant shifted its full-year outlook to the upper end of guidance, as it recorded an increase in first-quarter sales growth.
Meanwhile Copper miner Sandfire Resources lost ground following reports of a potential import ban on Australian copper by China, closing down 7 per cent at $4.13.
Lachlan Moffet Gray 4.31pm: Borrowers will pressure banks: Lowe
Dr Lowe is now taking questions from journalists and analysts.
Dr Lowe has said the rate cuts are “more about unemployment” over the next few years than Victoria’s lockdown, although he did note that the lockdown had an impact.
“It’s clear that the lockdown in Victoria detracted from GDP growth, our estimate is that it’s taken 1.5 to two per cent off GDP,” Dr Lowe said referring to the current quarter.
Dr Lowe also urged Australians to switch banks if they are unable to get a rate reduction with their current bank or lender.
“I would expect and hope that these interest rate reductions get passed through to all borrowers,” Dr Lowe said.
“I think the best outcome would be for standard variable rates to be lowered, but if that doesn’t occur I am confident that there will be passthrough occurring through renegotiating and switching.”
Dr Lowe also indicated that he is not inclined to cut interest rates any lower than 0.1 per cent.
“I think 10 basis points is pretty low, there is not much room between zero and ten, is there?” Dr Lowe said.
“I think we’ve done as much as we can on interest rates and the focus is on the quantity of asset purchases.”
Lachlan Moffet Gray 4.27pm: Still a no to negative rates
Dr Lowe is continuing to answer the four questions he considers will be commonly asked following today’s RBA decision.
3.Why have you elected to have both a price and a quantity target?
“As part of the RBA’s much package we announced a price target for the yield on 3-year Australian government bonds, rather than a quantity of bonds to purchase,” Dr Lowe said.
“Given that we expect the cash rate to remain low for years, we judged it was appropriate to target a three year yield and stand behind that target with our balance sheet.
“These arguments for a yield target remain valid and we are continuing with the three year yield target.”
“This quantity target is similar to the approach by other central banks who have responded to the pandemic with government bond buying programs.
“The evidence is that these programs have lowered government bond yields in these countries.
“One result of this is that Australia has had higher long-term bond yields than elsewhere.
“Even though the setting of the short term policy has been similar across countries these
higher bond yields have added to the attractiveness of Australian dollar asset and this has put some upward pressure on our exchange rate.
“There’s also been an accumulation of evidence that the central bank balance sheet has an effect beyond that resulting from lower bond yields.”
4.With interest rates so low, is the RBA now out of firepower?
“We have additional monetary policy options and we are prepared to use those if the circumstances are direct. In terms of interest rates, I think we have gone as far as it makes sense to do so in the current environment,” Dr Lowe said.
“There has been no change to the board’s view that there is little to be gained from lowering deposit policy rate into negative territory.
“While a negative rate might lead to a helpful depreciation of the Australian dollar, it could impair the supply of credit to the economy and it could lead some people to save more, rather than spend more which could be counter productive.”
Lachlan Moffet Gray 4.23pm: 4 questions in RBA FAQ, says Lowe
Dr Lowe is addressing four questions he anticipate will be common after today’s RBA meeting. Here are the first two.
1. Why make this change today?
“Apart from the general case for further monetary easing that I already spoke about, there are a couple of other actors that have influenced the timing,” Dr Lowe said.
“The first is that over recent months, we have learned about pandemic and its economic impact. As the months have passed, it has become increasingly apparent that there are likely to be long lasting effects from the pandemic, in particular, higher unemployment.”
“The second factor influencing the timing is that monetary easing is likely to give more traction today than would have been the case when there were widespread
restrictions in place.”
Dr Lowe said he realised the rate cut would impact people living off interest and that the issue would have to be watched “closely.”
2.Is the RBA now financing the government?
“The RBA is not providing finance to the government, but our actions are lowering the cost of government finance,” Dr Lowe said.
“I should point out though that our actions are also lowering the cost of finance for all other borrowers in Australia, whether they are a household buying their first home or businesses wanting to and employ people.”
Lachlan Moffet Gray 4.13pm: Inflation remains key, says Lowe
Despite the low inflation forecasts, Dr Lowe said that “the inflation target remains a cornerstone of Australia’s monetary policy framework.” but anticipated the cash rate will be not be lifted again for at least another three years until inflation is “actually in the target range” of 2-3 per cent over the medium term, which will require wage growth.
Dr Lowe then went to detail the RBA’s bond-buying program but noted.
“On Mondays and Thursdays, we plan to buy bonds issued by the Australian government and on Wednesdays we plan to purchase bonds issued by the states and territories,” he said.
“We will focus on buying bonds with maturities for around 5- 10 years, but we may also buy bonds outside this range depending on market circumstances.”
“We purchase fixed-rate nominal bonds only, as these are the benchmark fixed-income securities in Australia and they underpinned the pricing of many other assets.
“Inflation indexed bonds are not part of this program. The initial auctions for Australian government securities will be for around $2 billion, and the initial auctions for semis will be around $1 billion.
“This means that we expect to purchase around $5 billion of bonds each week.”
Dr Lowe said the balance sheet of the RBA has tripled as a result of its bond buying this year.
4.06pm: RBA will own about 16pc of bonds: Capital Economics
Capital Economics estimates the Reserve Bank will own around 16 per cent of the combined sum of federal and State Government bonds once its $100bn quantitative easing program is over.
However Capital’s economist Marcel Thieliant said this will still be “fairly low” by international standards.
“The RBA didn’t disappoint when it cut interest rates and launched quantitative easing today, but we suspect it will expand its government bond purchases beyond the planned six months,” Thieliant said, even though the RBA today became more optimistic about the outlook for the economy.
Along with the 15 basis point cut, the RBA on Tuesday announced that it will buy $100bn of five to 10 year government bonds over the next six months.
“While that implies that the Bank is aiming to lower long-term bond yields, it’s worth noting that the average maturity of the bonds the Bank bought to achieve its 3-year yield target was just under six years,” Thieliant says.
4.03pm: RBA reassures on QE
RBA Governor Philip Lowe has moved to reassure the public after starting quantitative easing - large scale asset purchases by the central bank - cutting interest rates to record lows.
Dr Lowe has posed and answered ‘four specific questions...some people would have”.
The RBA made these changes now because it sees “long-lasting economic effects” from the pandemic, including high unemployment.
The RBA’s assessment that this policy shift will get more traction now that restrictions have eased, because the risk to the economy from an extended period of high unemployment outweighed the effects on medium term financial stability and the impact on savers.
Secondly, Dr Lowe makes it clear that the RBA is not financing government spending, but lowering the cost of the government’s finance.
Bonds purchased by the RBA will have to be repaid by the government at maturity, and the fact that the RBA is holding some bonds makes no difference to the financial obligations of the government, other than through a lower cost of finance, Dr Lowe says.
As for why it makes sense to set both a quantity and price target for government bonds, he says the evidence is that because other countries have set quantitative targets, Australia has had higher long-term bond yields than elsewhere.
“These higher bond yields have added to the attractiveness of Australian dollar assets and this has put some upward pressure on the exchange rate,” Dr Lowe says.
“There has also been an accumulation of evidence that central bank balance sheet expansion has a stimulatory effect beyond that resulting from lower bond yields.
“And when the central bank buys assets, investors in the private sector adjust their portfolios, buying different assets with the proceeds of their bond sales.
“This portfolio rebalancing can affect the price of other assets and international capital flows, as well as the exchange rate,” according to Dr Lowe.
Finally, as for whether the RBA is now “out of firepower”, while negative interest rates remain “extraordinarily unlikely”, the RBA “has additional monetary policy options and we are prepared to use them if the circumstances require”.
“In terms of interest rates, I think we have gone as far as it makes sense to do so in the current environment (and) there has been no change to the board’s view that there is little to be gained from lowering the policy rate into negative territory,” Dr Lowe says.
While a negative rate might lead to a helpful depreciation of the Australian dollar, it could impair the supply of credit to the economy and lead some people to save more, rather than spend more.
“But monetary policy is now about more than just short-term interest rates – we have returned to a world in which quantities matter too,” Dr Lowe adds.
“In this world, it is certainly possible for us to increase the size of our bond purchases.
“Given this, we will continue to closely monitor the economic situation and the impact of our purchases on market functioning. If we need to do more, we can and we will.”
3.42pm: Impact of RBA move likely to be limited: BetaShares
BetaShares chief economist David Bassanese described the RBA’s “drastic action” as a “last-ditch effort” to demonstrate its commitment to its inflation target.
“Given the economic outlook has improved, rather than worsened, since the RBA last cut interest rates, it suggests the policy move is not based on new information but rather a major change in policy approach,” Mr Bassanese said.
“Fear of the impact of persistent low interest rates on the financial system has been jettisoned, as has the fear of creating run-away asset prices.
“Instead, the RBA has decided to now follow the aggressive global race to the bottom in terms of interest rates, and race to the top in terms of money printing – lest it be seen as somewhat more miserly than its global peers.”
Mr Bassanese said that appart from good PR, the economic impact of the RBA’s measures is likely to be limited.
“By the RBA’s own reasoning, the Australian dollar is already close to fair value – supported by high iron-ore prices – so is unlikely weaken all that much in the face of an incremental further drop in interest rates.
“Spending $100 billion to buy long-term government bonds also won’t do much to lower key local lending rates which are more sensitive to already rock-bottom short-term rates.”
3.36pm: Rate cut home loan savings revealed
Analysis by comparison website RateCity.com.au shows that the average mortgage holder with a $400,000 loan could see mortgage repayments dip by $391 annually if the RBA’s 0.15 per cent rate cut announced today is passed on to borrowers in full.
A borrower with a $1m mortgage would save $979 a year if the rate cut was fully passed on.
“Today’s announcement puts immense pressure on the banks to pass it on to their existing variable home loan customers,” said RateCity research director Sally Tindall.
“As our economy starts to re-open, along with our borders, this move from the RBA is intended to help people get jobs, assist businesses and provide people in financial distress with some rate relief.
“Around half a million mortgages were deferred at some point during COVID, and those families are unlikely to be in a position to refinance. These are the people who need a rate cut.”
Athena Home Loans and Mortgage House have announced they are passing on the full cut to both new and existing variable customers.
3.25pm: RBA QE to extend further: Capital Economics
There’s a good chance the RBA’s plan to buy $100bn of federal and state bonds in the next 12 months will be extended further, according to Capital Economics.
“We estimate that when those purchases expire, the Bank will own around 16pc of the combined sum of federal and State Government bonds, which would still be fairly low by international standards,” Capital Economics senior economist Marcel Thieliand says.
“So even though the RBA today became more optimistic about the outlook for the economy, we think there’s a good chance that QE will be extended further next year.”
3.20pm: RBA measures aim to influence exchange rate: GSFM
GSFM investment strategist Stephen Miller says the RBA’s easing measures announced today are “squarely aimed” at influencing the exchange rate.
“The world’s central banks are playing a game of ‘competitive devaluation’ – a ‘currency cage match’,” he said.
“That cage match got serious with the Fed’s move to ‘flexible’ inflation targeting.
“That prompted a weaker US dollar that led other central banks, led by the European Central Bank, to formulate similar plans to stem any marked appreciation of their currencies against the US dollar.
“The RBA has no choice but to enter the cage by enacting easing measures whose primary purpose is to prevent the Australian dollar from appreciating to a level that compromises international competitiveness.”
3.16pm: RBA announcement, ‘momentous’: Schroders
Schroders deputy head of Fixed Income, Stuart Dear, has labelled the RBA’s announcement to buy $100bn of government and semi-government bonds as “momentous”, saying it is the central bank’s first foray into pure quantitative easing.
“Today’s announcement positively surprised the market, which was already expecting a range of easing measures,” Mr Dear said.
“Australia has been our preferred market for duration, and it’s possible this remains the case as the RBA implements its program.”
Ben Wilmot 3.11pm: Stockland snaps up Melbourne development land
Residential property developer Stockland is making the most of an extended first home buyer boom, snapping up a $180m parcel of development land in Melbourne.
The company has been riding the tide of government stimulus in the wake of the coronavirus crisis, which is enticing first home buyers into the market and it is looking to benefit from extension of the schemes.
From Tuesday, first home buyers will be able to apply to First Home Loan Deposit Scheme lending panel lenders to secure a guarantee to build a new home or purchase a newly built home with a deposit of as little as 5 per cent.
The Morrison government scheme will allow 10,000 first home buyers to buy a new under the scheme that will be open until the end of June, 2021, and drive more construction.
Stockland’s acquisition is also a bet on a longer term recovery in immigration levels which traditionally drive home demand on the outskirts of major cities.
Read more: Stockland punts $180m on Melbourne land boom
Richard Ferguson 3.05pm: RBA cut a ‘vote of no confidence’: Chalmers
Opposition treasury spokesman Jim Chalmers says the Reserve Bank’s Cup Day interest rate cut is a “vote of no confidence” in Scott Morrison’s post-pandemic economic recovery agenda.
The RBA has reduced the cash rate to 0.1 per cent from 0.25 per cent - the lowest the interest rate has ever been in Australian history.
Dr Chalmers said on Tuesday that the rate cut and the introduction of a form of quantitative easing showed the government’s October budget was not doing enough to boost the economy.
“It’s a vote of no confidence in the Morrison government’s handling of this recession and their handling of the Budget,” he said in Brisbane.
“By taking these steps, the Reserve Bank has obviously concluded that the Morrison Government has not done enough in their Budget to support the economy and to support jobs
during this very difficult period.
“It makes no sense whatsoever for the Morrison Government to be cutting JobKeeper and other forms of economic support at the same time as the Reserve Bank, and others, say that more, not less, needs to be done.
“The Reserve Bank has been forced to do more because the Morrison government is not doing enough.”
2.58pm: RBA move unlikely to significantly impact borrowing costs: KPMG
KPMG chief economist Brendan Rynne says the impact of today’s rate cut on borrowing costs is likely to be minimal, but said it does reinforce the point that the RBA will use every tool possible to spur economic growth and lift employment.
“It is clear the RBA has adopted a more aggressive policy stance than its (historically) conservative approach,” Dr Rynne said.
“The pushing down of the cash rate to its bare bones; the application of QE for the first time during the pandemic; the changing of the policy rules surrounding inflation targeting; and the increased dialogue with the market around signalling future policy moves are collective actions that Australia’s monetary authority has not seen necessary to use previously in its attempts to help our nation recover from economic shocks.”
Joyce Moullakis 2.55pm: Homeloans first past post on rate cut
Homeloans.com.au, a division of Resimac Group, has raced out of the blocks to pass on the Reserve Bank’s 15 basis point rate cut.
The non-bank lender made the announcement about seven minutes after the RBA revealed the official rate reduction. All eyes are on the major banks on Tuesday afternoon, amid question marks over whether they will pass on the RBA’s move given record low savings and deposit rates.
Daniel Carde, homeloans.com.au distribution manager said following the RBA rate cut the ender was reducing variable mortgage rates by 0.15 per cent for all new and existing variable rate customers. The announcement included customers still completing their loan application.
“This is the second time we’ve reduced our interest rates in less than a month,” Mr Carde said.
He noted that homeloans.com.au low variable rate mortgage was priced from 2.14 per annum, or a comparison rate of 2.16 per cent.
Digital non-bank lender Athena also passed on the RBA cut to new and existing customers.
The latest reduction by Athena, puts its interest rates for owner occupiers at 2.19 per cent per annum for those paying principal and interest.
2.47pm: ASX extends rally after rate cut, QE move
Australia’s share market has extended its rise after the RBA’s interest rate cuts and quantitative easing announcements.
The S&P/ASX 200 was up 2.2pc at a five-day high of 6084.2 after adding 25 points after the RBA meeting.
Australian 10-year bond yields dropped to a 2-week low of 0.743 per cent from 0.80 per cent.
And 3-year bond yields fell almost 1.5bps to a record low of 0.96pc.
AUD/USD fell about 15 points to 0.7036.
Overall it has been a fairly muted reaction to a well-telegraphed monetary policy easing.
Patrick Commins 2.30pm: RBA cuts rate to new low of 0.1pc
The Reserve Bank of Australia has gambled that a Melbourne Cup day mini rate cut from 0.25 per cent to a new record low of 0.1 per cent alongside a new commitment to buying billions more in bonds will help secure the country’s economic recovery from its worst recession in almost a hundred years.
In a major new policy initiative, RBA governor Philip Lowe also announced the start of a $100bn billion bond-buying program aimed at lowering longer term rates. Known as quantitative easing, or QE, the commitment to buy over the next 6 months is aimed at weakening the Australian dollar, which would boost exporters and further assist the economy rebound from the COVID-19 downturn.
Alongside the cash rate, Dr Lowe lowered central bank’s three-year bond rate target to 0.1 per cent. The new, lower rate will also apply to the RBA’s term funding facility, or TFF, which by early September had provided $52bn in cheap money to banks. Critically, the RBA now predicts the unemployment rate will peak at a little below 8 per cent by the end of this year, rather than the 10 per cent forecast in its last Statement on Monetary Policy in August.
Robyn Ironside 1.53pm: Qantas chief calls on government over IR, green issues
Qantas boss Alan Joyce will use a key business address on Tuesday night to demand action on climate change, industrial relations and over-regulation as well as state border closures.
Liberal Senator Andrew Bragg invited Mr Joyce to deliver the Tony Shepherd Oration, intended as a platform for business leaders to take part in public policy formation.
In his speech shared with The Australian, Mr Joyce highlighted those areas in need of attention to accelerate the post-COVID recovery.
After delivering another swipe to Queensland and Western Australia for their “Rubik’s cube approach to state borders”, he called for greater flexibility and certainty in industrial relations policies.
Mr Joyce gave the example of Qantas being able to immediately pause wage increases for executives as the airline’s revenue evaporated, but not for employees on enterprise agreements.
“We have to go through lengthy negotiations with unions and than a vote to change provisions that don’t work in a post-COVID world,” he said.
Read More: Qantas chief calls on government over IR, red tape, green issues
Cliona O’Dowd 1.50pm: Symond retires from Aussie Home Loans
Legendary Aussie John Symond has retired as chairman of Aussie Home Loans, 28 years after he founded the business and revolutionised the home loan market.
Mr Symond, who founded Aussie Home Loans in 1992, announced his exit from the mortgage broker on the same day the Reserve Bank is widely tipped to drop the official cash rate to 0.1 per cent in a move that could ignite the housing market.
“My retirement from the role comes at a very good time for Aussie as it is posting record loan settlements, despite the pandemic, and has a very strong management team in place, led by my nephew James,” Mr Symond said.
“I have had a long and rewarding journey with Aussie, which now has a team of over 1000 people – covering staff, mortgage brokers and franchisees in over 200 stores across Australia.
“I am most proud of leading the revolution that has helped millions of Australian consumers by lowering their costs through increased competition among the major lenders in providing cheaper interest rates and better customer service,” he said.
Cliona O’Dowd 12.50pm: Analysts warn of headwinds ahead for Westpac
Banking analysts are warning of the headwinds facing Westpac in the coming years, after it posted a 62 per cent plunge in cash earnings for 2020, but most rate the stock a buy on the upside potential.
The big four bank on Monday posted cash earnings of $2.61bn for the 12 months ended September 30, down 62 per cent on the prior year.
The “disappointing” result was driven by a weak operating environment and expected COVID-19 loan losses, as well as writedowns and a $1.3bn penalty to the financial crimes regulator.
After poring over the numbers, Macquarie analysts told clients the 2020 financial year had been particularly difficult for Westpac and cautioned on the outlook for the lender.
“While we expect earnings headwinds across the sector to persist into fiscal, it appears that Westpac’s underlying growth is likely to lag peers again. “In our view, Westpac needs to improve its underlying performance (i.e. arrest market share losses in key segments) and deliver productivity benefits to drive better cost performance to close the valuation gap to peers,” the analysts said.
For Bell Potter’s banking analyst TS Lim, the 2020 result suggested Westpac “possibly came close to having a near-death experience in fiscal 2020”.
Based on the numbers and outlook, Mr Lim revised his earnings forecasts for the lender. He now expects earnings to dip a further 9 per cent in 2021, followed by a 6 per cent drop in 2022 and another 1 per cent fall in fiscal 2023.
“The revisions are mainly due to lower non-interest income (ongoing pressure as per the fiscal 2021 outlook) and elevated operating expenses, net of a better net interest margin in the medium term,” he said.
Bridget Carter 11.55am: Senex prepares for $87.5m asset sale
Senex Energy has tapped advisory firm Rothschild and law firm Allens for the sale of its Cooper Basin assets to Beach Energy.
Beach Energy will pay $87.5m cash for the South Australian-based Cooper Basin assets.
Beach was understood to be self-advised for the transaction.
More to come.
11.52am: ASX surges ahead of rates decision
Australia’s share market continues to surge in anticipation of interest rates and quantitative easing by the RBA.
The S&P/ASX 200 rose 1.7pc to a three-day high of 6053.3 and is on track for its biggest one-day rise in a month.
At this rate, it may be settling itself up for a “sell-on-fact” reaction to confirmation of RBA easing after its meeting concludes at 2.30pm (AEDT).
But to some extent, the Australian market may also be anticipating a “risk-on” environment assuming US election sweep by Democrats leads the major fiscal stimulus.
The Energy and Technology are the strongest sectors, with a 0.4pc rise in S&P 500 futures and a 0.8pc rise in WTI crude oil prices adding to the rally.
The Industrials, Materials, Consumer Discretionary sectors are also outperforming, with Brambles up 5.6pc on upgraded earnings guidance, BHP up 2.3pc and Wesfarmers up 1.9pc.
Perry Williams 11.11am: Refinery closure hits Triangle
Shares in Triangle Energy, which supplies oil to BP’s Kwinana refinery, have plunged 28 per cent after the British giant’s decision to close the West Australian plant.
The WA producer delivers crude from its Cliff Head oil project to Kwinana under a supply deal and said it was now assessing both domestic and export customers as it searches for new markets to supply.
Triangle said it had not received a formal notice of termination under the supply agreement.
It noted BP had advised it will keep operating Kwinana for “many months” as it moves to converting the facility to a fuel import terminal.
Triangle shares plunged by 28 per cent to 2c after emerging from a trading halt on Tuesday.
“Triangle shares the concerns voiced by the Western Australian and Federal governments and believes ongoing refining capability is vital for the nation’s future energy security,” the company said in a statement.
“Triangle has investigated several export and domestic markets for its product in the past and will continue these efforts in parallel with government policy measures aimed at protecting Australia’s domestic refining capability.”
Some 600 manufacturing workers will be out of a job within six months following BP’s decision on Friday to close Kwinana, the nation’s largest refinery.
BP’s decision has ratcheted up fears the nation’s refining sector could disappear entirely in the face of falling demand brought on by the coronavirus crisis and competition from far larger refineries in Singapore, South Korea, Japan and elsewhere in Asia.
11.09am: ASX in best rise in four weeks
Australia’s share market is having its best day in four weeks.
The S&P/ASX 200 has risen 0.3pc to a three-day high of 6029.1 - on track for its biggest one-day gain since October 5, even though overnight futures rose only slightly.
An easing of domestic monetary policy, including quantitative easing, has been expected for weeks, but share market investors are suddenly buying before the RBA’s decision at 2.30pm (AEDT).
The interesting thing is that the Australian dollar has risen 0.4pc to a two-day high of US70.57c since the NY close.
The exchange rate hit a 3.5-month low of US69.91c overnight.
Lachlan Moffet Gray 11.06am: Brambles rallies on Q1 update
Shares in supply chain logistics giant Brambles have rallied more than 6 per cent in early trade after the company recorded an increase in first-quarter sales growth and shifted its outlook to the upper end of guidance.
In a statement released to the ASX on Tuesday Brambles said that in the first quarter of the financial year it reported sales revenue of US$1.188bn ($2.67bn), an increase of five percent and constant foreign exchange rates.
As a result, Brambles, which owns the ubiquitous CHEP pallets business, said it was lifting guidance to the upper end of guidance provided in August.
It is predicting sales revenue growth of between two and four per cent, underlying profit growth of three to five per cent and a dividend payout ratio of 45 to 60 per cent.
Brambles shares last up 6.1 per cent at $10.14 each.
11.02am: Finche ‘best value’ bet: Morgans
Morgans analysts are recommending punters put an each-way bet on Finche for this afternoon’s Melbourne Cup – in what they say is the best value bet, rather than the highest win probability.
Using a point system and tips from seven tipsters in today’s newspaper, they found that a bet on Finche was the best value, followed by Prince of Arran, Tiger Moth and Russian Camelot.
The analysts gave points to each horse tipped to win or place by each tipster, and then multiplied the total points for each horse by the odds.
The odds in the electronic market this morning for these horses were Prince of Arran $9.50, Tiger Moth $6.50, Finche $18, and $12 for Russian Camelot.
Visit our blog for live Melbourne Cup updates
Read more: Melbourne Cup 2020 expert tips, form guide, field and start time
10.35am: What a Biden win might mean
With opinion polls suggesting a greater likelihood of a Democratic sweep in the US election, BlackRock Investment Institute strategists are starting to incorporate themes we believe would outperform in that event, moving toward a more pro-risk stance overall despite last week’s market pullback.
They believe a repeat is unlikely in 2021, and see potential for smaller companies to outperform, especially in the case of a Democratic sweep that would result in significant fiscal stimulus.
This electoral outcome should also lead to a new global minimum tax and more strenuous antitrust review which could weigh on large cap tech and pharmaceutical companies in their view.
A boost in infrastructure spending could lend support to companies in industrials and materials many of them small in size.
New recommendations include an overweight in the size style factor in the US market to capture a preference for smaller, high growth companies.
They have also upgraded broad Emerging Markets equities to Overweight.
“Positive spillovers to global growth from increased fiscal stimulus, more predictable US trade and foreign policy and the prospect of a weaker dollar amid negative US real rates in the event of a Democratic sweep would all bode well for EM assets,” they say.
They have also downgraded Japanese equities to Underweight because they expect Japanese stocks to benefit less than other Asian markets and EM in general from a recovery in global trade, since a weaker dollar could send the Japanese yen up, putting pressure on the country’s export sector.
And they’ve upgraded Asia ex Japan equities and Asia fixed income to overweight, and cut European equities to Neutral.
They note that China and other Asian economies have done a better job of containing Covid and are further ahead in the economic restart, while a resurgence in Covid cases in Europe has triggered lockdowns on local and national levels albeit with more flexibility than earlier in the year.
“We are taking another step toward a pro risk stance despite last week’s market pullback and the uncertainties just ahead,” they say.
“A Democratic sweep outcome in the election would tip us to a more pro risk stance overall, strengthening our conviction that a cyclical upswing will benefit risk assets over a 6-12 month horizon.
They feel the key risk to their view is a “material probability of an election outcome that would deliver much less fiscal stimulus”.
10.24am: ASX off to a fast start
Australia’s share market has surged before an expected announcement of interest rate cuts and quantitative easing by the RBA after its meeting concludes at 2.30pm (AEDT).
The S&P/ASX 200 unexpectedly jumped as much as 1.1pc to a three-day high of 6014 in 3early trading.
The index 100-day moving average is offering some resistance at the high.
BHP is making the single biggest positive contribution with a 1.2pc rise.
Brambles jumped 6pc after upgrading its FY21 earnings guidance.
Woodside is up 4.3pc after crude oil prices jumped and Beach is up 7pc after buying Cooper Basin assets.
Sandfire Resources dived 4.3pc after noting media reports of a potential ban on Australian copper imports by China.
A 0.2pc rise in S&P 500 futures is adding to positive offshore leads.
10.15am: Isentia counts cost of hack attack
A cyber security attack on Isentia’s SaaS platform last week is expected to cost the media monitoring company between $7m and $8.5m.
In an update to the market this morning, Isentia said that the restoration of services on its Mediaportal platform are ongoing, after a cyber security attack last week “severely compromised” the delivery of services to customers.
While the platform is now operational some key services remain affected, Isentia said.
The immediate impact on the company’s net profit before tax from the incident is expected to be a significant decline in the range of $7m to $8.5m for the 2021 fiscal year, reflecting customer remediation costs during the service outage.
“Isentia responded rapidly to the cyber security attack last week putting in place measures to support our customers and contain the impact on our systems,” chief executive Ed Harrison said.
“We are pleased to report that we are making good progress in resolving this issue, with key elements of our service being restored each day and I would like to thank our customers for their patience during this time.”
9.59am: What’s impressing analysts?
GrainCorp raised to Buy: Morningstar
PWR Holdings cut to Hold: Moelis
PointsBet raised to Buy: Ord Minnett
Western Areas cu to Hold: Shaw & Partners
9.58am: Brambles in guidance lift
Brambles raised the lower end of its fiscal 2021 revenue and earnings guidance ranges after unexpectedly strong demand for consumer staples helped the pallet supplier to lift first-quarter sales revenue by about 6pc.
The firm reported sales revenue from continuing operations for the three months through September of $US1.19 billion, up by about 6pc when adjusted for the prior corresponding period’s two additional days. Stripping out currency changes, it said the increase was about 5pc.
Brambles said it now anticipates fiscal 2021 sales revenue growth of 2-4pc at constant foreign exchange rates, compared with the 0pc-4pc range provided at August’s annual result and reiterated at October’s annual meeting of shareholders. It expects improved underlying profit margins, including a one percentage-point increase in U.S. margins.
It expects underlying profit growth of between 3pc and 5pc, compared with a previous 0-5pc range. It said free cash flow should be sufficient to fund dividends and core business capital expenditure despite increased investments to support new core business opportunities.
Dow Jones Newswires
9.45am: RBA decision may lift ASX
The Australian share market awaits the outcome of today’s RBA meeting at 2.30pm (AEDT), with positive leads from offshore markets.
While it has outperformed in recent weeks partly because of expected RBA easing, the S&P/ASX 200 has fallen about 5pc from its October peak.
Thus there may be some positive reaction to confirmation of expected rate cuts and a new target to buy about $100bn of 5-10 year bonds, albeit investors would react negatively if the RBA doesn’t cut and start “proper” quantitative easing .
While overnight futures rose only 0.1pc, the Euro Stoxx 50 rose 2.1pc on strong German manufacturing data and the S&P 500 rose 1.2pc on strong US manufacturing data plus a surge in oil prices.
Russia’s apparent willingness to delay an easing of OPEC+ production cuts boosted WTI crude 3.6pc after a 5pc intraday fall, making Energy the strongest S&P 500 sector.
Elsewhere in commodities, spot iron ore rose 0.9pc to $US119.05 a tonne, spot gold rose 0.9pc to $US1895.32 and LME copper rose 0.7pc. BHP ADR’s equivalent close at $34.12 implies a 0.9pc rise in BHP.
But with the S&P 500 Materials, Industrials, Real Estate, Utilities, Financials, Health care and Consumer Staples sectors also outperforming, investors seemed to be betting on a US share market rise on a decisive win by Democrats.
In corporate news, Brambles has increased its FY21 profit outlook to the upper end of its previous guidance range.
Reports of Chinese bans on a widening range of Australian imports are concerning but haven’t had any discernible impact on the Australian dollar.
9.04am: Sandfire plays down China copper ban reports
Copper miner Sandfire Resources has said it’s confident in its ability to increase sales volumes to non-Chinese markets, as the company responded to media reports that China may be considering a ban on copper imports from Australia.
The company said its Western Australian operations continue to operate at full production rates, and that four shipments of copper concentrate in the month of October have made the company’s balance sheet position more robust, as it looks to progress its project development pipeline.
“Sandfire maintains regular contact with its key customers and concentrate trading and smelter partners around the world in the sale of copper concentrate from its DeGrussa operations in Western Australia, including customers within and trading into China,” the company said in a statement to the ASX.
“The global copper concentrate markets are mature, robust and highly competitive for clean, high quality concentrate such as that produced from DeGrussa over the past eight years.”
Sandfire said it was not aware of the reasons for the reported potential ban or the reliability of the media reports.
8.30am: ASX set to edge higher
Australian stocks are set to edge higher at the open after global markets gained as attention focused on the US election.
At about 8.20am (AEDT) the SPI futures index was up 5 points, or 0.1 per cent.
Yesterday, Australian stocks closed higher in choppy trade.
The Australian dollar was higher at US70.55.
Brent oil was 2.7pc higher at $US38.97c a barrel.
8.29am: Beach expands Cooper Basin assets
Beach Energy says it’s buying Senex Energy’s Cooper Basin assets for $87.5 million.
Following the deal, Beach will be the sole operator in the Western Flank and associated infrastructure.
It says the acquisition is immediately earnings accretive, with $5 million per annum of synergies identified
Beach boss Matt Kay says the deal would enable the company to apply its exploration, appraisal and development expertise across a broader footprint.
The deal will result in Senex’s exit from the Cooper Basin after more than 20 years, and will support its plans to accelerate the development of its Surat Basin natural gas assets, increasing the supply of natural gas to the east coast to support manufacturing and jobs.
8.06am: Wall Street higher as election looms
The Dow Jones Industrial Average and S&P 500 rose ahead of an election that will shape the government’s response to the coronavirus pandemic and economic downturn.
The blue-chip index gained 423 points, or 1.6 per cent, rebounding after its worst week since March. The Dow was up by more than 540 points in the morning, before paring gains.
The S&P 500 climbed 1.2 per cent, while the Nasdaq Composite eked out a 0.4 per cent gain.
Former Vice President Joe Biden is leading President Trump by 10 percentage points among voters nationally, although Mr. Biden’s lead is tighter in the battleground states that are likely to decide the election, according to a new Wall Street Journal/NBC News poll.
Investors have been hoping for a definitive result in the presidential race, helping avoid a contested outcome, and clear control of the Senate and House by the same major party. That would lead to more clarity on additional stimulus packages and new legislation on health care and taxes.
“It’s a bit of a relief rally,” Hans Olsen, chief investment officer of Fiduciary Trust Co., said of Monday’s gains. “We’re coming to the end of the election cycle, and we’re on the verge of resolving the uncertainty.”
Last week’s 5.6 per cent slide in the S&P 500 prompted some bargain shopping by investors, setting the stage for Monday’s rebound, analysts said. The broad-based index is down more than 8 per cent from the records it reached in early September, before being dragged down by a selloff in tech stocks and jitters over the election.
“We could see some buying back, with some investors seeing this as a buying opportunity given the huge selloff that we had last week,” said Sean Markowicz, strategist at Schroder Investment Management.
New data showed U.S. factory activity expanded at a fast clip in October. The Institute for Supply Management said its purchasing-managers index came in at 59.3 last month, beating expectations from economists polled by The Wall Street Journal, who predicted it to be 56.0. Strong demand for consumer goods and capital equipment has driven a manufacturing rebound after coronavirus-related disruptions depressed output this spring.
Overseas, new lockdown measures introduced in the U.K., France, Germany, Ireland, Austria and Belgium to contain the pandemic have been less restrictive than some investors expected, and for a shorter duration. Schools by and large remain open, and governments have expressed hope the new restrictions will be lifted within weeks.
In Europe, the pan-continental Stoxx Europe 600 rose 1.6 per cent, led by stocks in Germany and France. The gauge and the Euro Stoxx 50 failed to show prices for about an hour after markets opened Monday due to issues with index calculation, according to operator Deutsche Börse Group, in the latest technical snafu to hit European markets.
Oil prices rebounded after sinking to five-month lows last week. Futures on Brent crude, the global oil benchmark, gained 1.7pc to $US38.59 a barrel. Last week the gauge fell more than 10pc, logging its worst week since April, on concerns that renewed coronavirus restrictions would sap energy demand.
Dow Jones Newswires
7.13am: Apple to hold new launch next week
Apple will hold a virtual product launch event next Tuesday (Wednesday AEDT) that is widely expected to be focused on the company’s new line of ARM-processor based Mac computers.
This will be the third significant Apple product launch event in less than two months. On September 15, Apple held a virtual event to launch Apple Watch Series 6, Apple Watch SE, new iPads and the Fitness+ service. On October 13, the company unveiled the long-awaited iPhone 12 line-up, along with the HomePod Mini. Apple has given no indication of the topic of next week’s event, but Apple trade press widely expects that the event will focus on the Mac.
Apple first disclosed plans to switch from Intel processors to homegrown chips based on ARM designs at the Apple Worldwide Developers Conference in June. Softbank Group is in the process of selling ARM to Nvidia (NVDA).
The invitation for the event includes the line “One more thing,” an allusion to Apple events hosted by the late Steve Jobs in which he’d surprise the crowd in a final announcement with some surprise product launch or other unexpected event.
Apple last week reported that Mac sales in the September quarter surged 29% year over year to a record $9 billion, driven by growth demand from a widespread shift to working from home as a result of the COVID-19 pandemic.
Dow Jones Newswires
7.04am: Oil swings in volatile trade
Oil prices swung between gains and losses, extending a period of volatility as widening restrictions on economic activity in Europe threaten to hit demand for fuel.
US crude futures fell as much as 6pc overnight but were more recently up 1pc at $US36.15 a barrel. Prices slid 10pc last week -- their largest weekly drop since April -- and have fallen to their lowest level in five months, with the coronavirus denting travel and limiting crude consumption. They started the year above $US60 and sank to about $US40 in the northern summer.
Brent crude, the global gauge of oil prices, was recently up 1.1pc at $US38.37 a barrel.
Even though oil turned positive Monday, the big swings were reminiscent of the volatility that roiled energy markets early in the year. Analysts worry that slumping demand will combine with higher production to again oversupply the market and crash prices, prompting outsize moves in both directions.
Prices slumped last week following the introduction of new lockdown measures designed to stem the second wave of coronavirus infections in Europe. British Prime Minister Boris Johnson over the weekend set a lockdown in England starting this Thursday. That step came after France, Germany, Belgium and others recently clamped down on travel and leisure activities.
The European measures are set to shave around two million barrels a day off oil demand, said Damien Courvalin, head of energy research at Goldman Sachs. That equates to around 2% of pre-coronavirus global demand and would take European oil demand back to levels last seen in May, when much of the continent was emerging from lockdown.
Traders’ anxieties about a fall in oil demand as infection rates rise were supplemented by a cocktail of factors relating to supply and volatility around Tuesday’s U.S. election.
Many traders are bracing for more swings in riskier investments, with the memories of President Trump’s unexpected election win in 2016 still fresh.
“It’s production numbers, it’s COVID-19 numbers, it’s the election,” said Robert Montefusco, a broker at London-based commodities trading firm Sucden Financial. “There’s going to be a lot of volatility this week.”
Dow Jones
5.35am: Wall Street jumps as election looms
Major US stock indexes jumped ahead of an election that will shape the government’s response to the coronavirus pandemic and economic downturn.
The Dow Jones Industrial Average had gained 439 points, or 1.7 per cent, in midday trading, rebounding after its worst week since March. The index was up by more than 540 points in the morning before paring gains.
The S&P 500 rose 1.3 per cent, while the technology-heavy Nasdaq Composite advanced 0.4 per cent.
Former Vice President Joe Biden is leading President Trump by 10 percentage points among voters nationally, although Mr. Biden’s lead is tighter in the battleground states that are likely to decide the election, according to a new Wall Street Journal/NBC News poll.
Investors have been hoping for a definitive result in the presidential race, helping avoid a contested outcome, and clear control of the Senate and House by the same major party. That would lead to more clarity on additional stimulus packages and new legislation on health care and taxes.
“It’s a bit of a relief rally,” Hans Olsen, chief investment officer of Fiduciary Trust Co., said of Monday’s gains. “We’re coming to the end of the election cycle, and we’re on the verge of resolving the uncertainty.”
Last week’s 5.6 per cent slide in the S&P 500 prompted some bargain shopping by investors, setting the stage for Monday’s rebound, analysts said. The broadbased index is down more than 7 per cent from the records it reached in early September, before being dragged down by a sell-off in tech stocks and jitters over the election.
“We could see some buying back, with some investors seeing this as a buying opportunity given the huge sell-off that we had last week,” said Sean Markowicz, strategist at Schroder Investment Management.
New data showed U.S. factory activity expanded at a fast clip in October. The Institute for Supply Management said its purchasing-managers index came in at 59.3 last month, beating expectations from economists polled by The Wall Street Journal, who predicted it to be 56.0. Strong demand for consumer goods and capital equipment has driven a manufacturing rebound after coronavirus-related disruptions depressed output this spring.
In Europe, the pan-continental Stoxx Europe 600 rose 1.6 per cent, led by stocks in Germany and France. The gauge and the Euro Stoxx 50 failed to show prices for about an hour after markets opened Monday due to issues with index calculation.
Dow Jones
5.30am: US manufacturing growth beats expectations
US manufacturing grew beyond expectations in October, as orders rose and employment began expanding again, according to an industry survey.
At 59.3 per cent, the Institute for Supply Management’s (ISM) manufacturing index was the highest in more than two years.
The index also marked the sixth consecutive month of growth after plunging following the business shutdowns in March of to stop the coronavirus.
While new orders led the growth with a 7.7 point increase to 67.9 per cent, employment crossed the 50-percent threshold indicating expansion for the first time since July 2019 with a reading of 53.2 per cent.
Inventories also passed the key figure, climbing 4.8 points to 51.9 per cent, ISM said.
But customers’ inventories contracted slightly to 36.7 per cent, its lowest level in more than a decade which is “considered a positive for future production,” the survey’s chair Timothy R. Fiore said.
5.28am: Walmart drops robots plan
US retail giant Walmart has ended its effort to use roving robots in store aisles to keep track of its inventory, reversing a year-long push to automate the task with the hulking machines after finding during the coronavirus pandemic that humans can help get similar results.
The retail giant has ended its contract with robotics company Bossa Nova Robotics Inc., with which it joined over the past five years to gradually add six-foot-tall inventory-scanning machines to stores. Walmart had made the robots a frequent topic of conversation at media and investor events in recent years, hoping the technology could help reduce labour costs and increase sales by making sure products are kept in stock.
Walmart ended the partnership because it found different, sometimes simpler solutions that proved just as useful, said people familiar with the situation. As more shoppers flock to online delivery and pick-up because of COVID-19 concerns, Walmart has more workers walking the aisles frequently to collect online orders, gleaning new data on inventory problems, said some of these people. The retailer is pursuing ways to use those workers to monitor product amounts and locations, as well as other automation technology, according to the people familiar with the situation.
In addition, Walmart US chief executive John Furner has concerns about how shoppers react to seeing a robot working in a store, said one of these people.
5.25am: Global markets rise ahead of election
Global equity markets moved higher after last week’s painful worldwide sell-off, with attention focused on the US presidential election and a backdrop of rising coronavirus infections across the United States and Europe.
After a hesitant start, Europe rebounded sharply as dealers shrugged off a growing number of virus lockdowns in the region, including in England, though analysts cautioned against complacency.
London finished the day with a gain of 1.4 per cent. Frankfurt and Paris each rose by around two per cent.
Oil prices turned higher after days of losses on worries about demand as traders hoped that the OPEC cartel and its allies might hold off on planned production increases.
“It’s an encouraging rebound that we are seeing -- but I am not getting carried away yet,” Oanda analyst Craig Erlam said.
“There are so many major risk events over the next few days,” he warned, adding that a contested US vote would be “the worst possible outcome”.
Asia was buoyed by upbeat Chinese PMI manufacturing data published over the weekend as the world’s second biggest economy regains strength.
“Perhaps the PMI data is giving these markets a bit of a bump, but even this is not anything to get too excited about,” Erlam said.
“Europe is going back into lockdown and it may just be a matter of time until the US follows suit.”
After months of rallying from March lows, equities were brought to a juddering halt in October as virus cases surged, forcing European governments to reimpose tough lockdown measures that plunged a tentative economic rebound into chaos.
The disease is also rampant across the US, which last week recorded a record number of infections, a further blow to President Donald Trump’s hopes of re-election on Tuesday.
AFP
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