ASX under pressure as jobless data shows COVID-19 hit

Shares and the Aussie dollar pulled back as economists warned the jobless rate would get worse before it got better.

David Rogers and Melissa Yeo

40 min read

8:59PMMay 14, 2020

Jobs data made an impact on trading on Thursday sending markets lower by the close.

Magellan’s latest product ‘ready to go’
ASX drop largest in two weeks
Women take greater cut to work hours
Record exodus to limit bounce-back: NAB

That’s all from the Trading Day blog for Thursday, May 14. The ASX shed 1.7pc to close at daily lows as April jobs figures showed the extent of the damage of coronavirus to the economy – the jobless rate rose to 6.2pc the highest since July 2015 but limited by an “unprecedented” drop in the participation rate to 63.5pc.

A warning from US Fed chairman Jerome Powell of the risks facing the US economy added to the weakness. US futures are lower to flat – pointing to another weak night ahead.

Ben Wilmot 8.56pm: The latest business trend: Downsizing

Corporate Australia is looking to slash costs by shifting to cheaper offices and moving to sell under-used property as it comes out of the coronavirus crisis.

Major companies are gradually bringing back their workers into offices in coming weeks as businesses follow back-to-work directives issued by health authorities, but some are already planning to downsize their workspace requirements.

Thousands of staff have already been laid off due to the coronavirus crisis and some companies and government departments are readying to shift to new areas away from city centres.

The first signs have come in leasing briefs, where companies are weighing up leaving expensive city towers and taking space in newer but less expensive buildings where developers are also offering big incentives.

In one of the largest moves, Australia Post is weighing a shift from its Bourke Street headquarters and may shift to a fringe office building in Melbourne, with Medibank Private and the Commonwealth Bank also seeking new digs.

James Kirby 8.15pm: Money Cafe talks housing, big bank stocks

Wealth editor James Kirby and InvestSMART’s Alan Kohler give you this week’s Money Cafe about unemployment, housing, big bank stocks.

Don’t forget to send your own questions to James Kirby and Alan Kohler via moneycafe@theaustralian.com.au

Find all episodes of The Money Cafe and subscription links here

Jared Lynch 7.30pm: China’s barley tariff threat ‘baseless’

GrainGorp chief executive Robert Spurway says there is no basis for an 80 per cent tariff on Australian barley exports to China.

China is threatening tariffs on Australian barley, which would include a dumping margin of up to 73.6 per cent and a subsidy margin of about 6.9 per cent, following the Morrison government’s push at the World Health Assembly for a global independent probe into the origins of COVID-19.

China is pursuing an investigation of its own, in this case an anti-dumping probe of Australian barley, which its Ministry of Commerce launched in November 2018. A dumping tariff is a penalty for selling barley too cheaply, while the subsidy tariff is believed to relate to Australia’s drought support measures and diesel fuel tax rebate.

Leo Shanahan 6.47pm: $1bn BigTech news content bill ‘possible’

News Corp Australasia boss Michael Miller has welcomed Nine Entertainment chairman Peter Costello’s demand that Google and Facebook pay $600m to media companies for news content – but has said real estimates could be as high as $1bn.

Following comments from the Nine chairman on Thursday, Mr Miller also said the new code of conduct needed to be about more than just money, needing to address crucial issues such as algorithms and data sharing.

Mr Costello told Nine newspapers that by his estimates, Facebook and Google should pay Australian media companies 10 per cent of the $6bn a year the tech platforms make in online ad revenue, based on what the platforms gain from news content and searches.

Mr Miller said on Thursday he is “aligned with Mr Costello’s strong call that tech companies must pay for the news content they take and profit from”.

However, Mr Miller said Mr Costello’s calls for a $600m payment might have underestimated how much the tech companies should pay.

Glenda Korporaal, Damon Kitney 6.08pm: Bidders firm for Virgin Australia

Four serious indicative bids for Virgin Australia are expected to be lodged with its administrator on Friday, led by a consortium involving the $170bn AustralianSuper and the Ben Gray-backed private equity firm BGH firming as one of the leading bidders.

Singapore investment wealth fund Temasek, which is a 55 per cent investor in Virgin shareholder Singapore Airlines, is believed to be a funding partner of the consortium, although sources close to the AustralianSuper/BGC consortium denied on Thursday that it was an equity player in its bid.

The two other major groups are Canadian infrastructure investor Brookfield, and private equity firm Bain.

A fourth player expected to make an non binding indicative bid is expected to be Indian investor InterGlobe Enterprises (IGE), which is led by Indian billionaire Rahul Bhatia who co-founded Indian budget carrier IndiGo.

Virgin’s administrator Deloitte’s Vaughan Strawbridge, who has been overseeing the process since he was appointed on April 20, has asked interested groups to lodge non-binding, indicative bids by close of business on Friday.

Final bids for the airline, which has about $7bn in debt, are expected by June with the winning bidder expected to be announced by the end of June.

David Swan 5.35pm: Google Australia profit plunges

Google Australia reported a 74 per cent fall in profit last year, as the technology giant’s tax and operating expenses ate into its bottom line.

The group’s full-year accounts for the year to December 31, 2019, revealed a net profit of $33.9m, down from $129.5m last year.

While the company reported a lift in customer receipts to $5.2bn, increasing staff payments and a growing tax bill pulled its overall profits lower.

5.02pm: Consumer stocks take hit on jobs outlook

The major banks were the key drivers of Thursday’s market drop, but buy now, pay later stocks also felt the sting of a weak consumer outlook.

Afterpay shares fell by 4.2 per cent to $41.65, while fellow buy now, pay later stock Zip fell 5.6 per cent to $3.19 and FlexiGroup slipped 6.3 per cent to 97c.

Across the retailers, Premier Investments gave up 2.2 per cent to $15.15 as Super Retail dipped by 1.8 per cent to $6.65, Kathmandu took a 3.7 per cent hit to 90c and JB Hi-Fi dialled back by 2.4 per cent to $34.20.

Breville bucked the momentum after completing a $104m raising – shooting up by 6.7 per cent to $19.95.

Shaver Shop too pushed higher after reporting a surge in online sales to offset its store shutdowns – the stock finished up 30.2 per cent to 56c.

Here’s the biggest movers at the close:

4.25pm: Magellan’s latest product ‘ready to go’

Magellan Financial Group’s retirement income product is “pretty much ready to go” as soon as Australian financial markets return to an office environment, according to a person familiar with the matter.

At its interim results in February, the fund manager said its expectation (pre-coronavirus) was that the Magellan Retirement Fund would launch “before the end of the financial year”.

“We were obviously getting pretty close to market launch but obviously market conditions just went awry,” a source told Trading Day.

“It would have been impossible to sell on-market because you can’t go out to talk to people and that kind of thing … It’s pretty much ready to go, but it’s kind of on-hold until the world comes back to the office a bit and it’s the right environment to kind of sell a new product … its was the worst timing.”

Asked whether the new product launch might be a long way into the second half of calendar 2020, the source said: “hopefully not”.

The Australian understands that Magellan’s Australian staff are expected to mostly return to the office in July.

4.12pm: ASX drop largest in two weeks

Weakness in local jobs data for April compounded a warning from the US Fed on the possibility of an extended downturn there, sending shares to their biggest drop in two weeks.

After a skittish start, the benchmark fought to gain ground but succumbed to the negativity in the final match – finishing at daily lows of 5328.7, a 93 point or 1.72 per cent loss.

Meanwhile, the All Ords lost 96 points or 1.74 per cent to 5418.

It was the Aussie dollar though that got the biggest jolt from the data print – sliding to lows of US64.21c and finishing the local session down 0.38pc at US64.31c.

3.55pm: Women take greater cut to work hours

KPMG chief economist Brendan Rynne points out that April’s fall in hours worked has hit working women harder than men.

Commenting on the latest release, where hours worked fell 9.2pc for the month, Dr Rynne notes that the drop “has been noticeably biased against working women” – with their hours down 11.5pc, while men experienced a 7.5pc drop in hours worked.

“Surprisingly this result is not as a consequence of the difference between full-time and part-time work; women actually recorded a slightly lower decline in part time hours worked compared to men (-22.4pc versus -23.6pc). Rather the cause of the gender discrepancy lies in full time work, when men recorded a 5.9pc decline in hours worked compared to 7.1pc for women.”

ANZ senior economist Catherine Birch adds that the data likely reflects “the greater share of additional caring responsibilities that women have taken on during COVID-19”.

From my colleague @cfbirch: today's labour force data showed that the fall in the female participation rate was almost 50% larger than the fall in the male participation rate in April. @ANZ_Research #labour #jobs #COVID-19 #auseco pic.twitter.com/0xSAynoGLC
— Cherelle Murphy (@cherellemurpfry) May 14, 2020

3.42pm: Google Australia profit drops 74pc

Google Australia reported a 74 per cent profit drop last year, as its tax and operating expenses ate into its bottom line.

Releasing its full year accounts for the year to December 31, 2019, Google Australia posted a profit of $33.9m, down from $129.5m last year.

While the company reported a lift in customer receipts to $5.2bn, increasing staff payments and a growing tax bill pulled its overall profits lower.

Revenue from its advertising and other reseller arm lifted 28pc to $719m, but hardware revenue slipped 17pc to $179.1m.

3.26pm: Bank reporting season disappointing

First half results from the major banks were disappointing, with focus on capital and provisioning build as they prepare for a recession, according to UBS.

Banking analyst Jon Mott writes that COVID-19 overlays were at the lower end of expectations ranging from NAB’s $807m to Westpac’s $1.62bn but that it's the shape of the economic recovery that will likely drive performance in the short term.

“If we see a ‘V’ shape emerging, the banks are likely to start rallying back towards book value (ex CBA). However, with almost half of Australian workers on wage subsidies, 10pc of mortgages and 15pc of SME debt deferred, and rental relief for households & businesses, 4Q poses a significant risk as this ‘adrenaline hit’ ends,” Mr Mott says, warning that period will be the greatest risk for the banks.

“Given the inherent leverage in the banks, the starting point differential in provisioning or capital ratios is unlikely to be the key share price driver in coming periods.

“We believe the banks which deliver the best asset quality through the downturn will outperform. However, unlike recent cycles this is unlikely to be driven by exposure to large corporate failures, and is expected to be more broad based.”

Mr Mott sets out scenarios – if the SME sector faces the largest hit, NAB will likely see significant challenges while Westpac has the largest exposure to investment property and Commonwealth is largest in mass market retail and cards.

“ANZ has de-risked, but can it avoid a repeat of the mishaps seen in the past?” he adds.

2.58pm: Comparing local jobless drop to the US

If the Australian government adopted the same unemployment definitions as the US, our jobless rate would be at 11.7pc, not 6.2pc, according to RBC.

In a note following the release today, chief economist Su-Lin Ong writes that the government’s wage subsidy program masks weakness in the data and if adjusted for temporary lay-offs or worked zero hours, the rate would be a more staggering 11pc.

Just last week, the US reported a 14.7pc unemployment rate, the highest since the Great Depression.

“While an easing in restrictions should see a faster recovery in jobs than usual cycles, we remain cautious,” writes Ms Ong.

“The degree of job shedding, likely tepid recovery in growth amid numerous headwinds, and ongoing uncertainty around COVID-19 and the exit strategy will likely keep the labour market weak well into 2021.”

Ben Wilmot 2.54pm: Pub group taps former Valad boss

The country’s largest freehold pub owner, the ALE Property Group, has tapped former Valad chief executive Guy Farrands to head the company.

The trust is landlord to about 86 pub properties across the five states that are run by the ALH Group, set to re-open in coming weeks as coronavirus restrictions ease across the country.

Long-time chief executive Andrew Wilkinson will stand down in the first quarter of the next financial year with Mr Farrands to join ALE as a consultant later this month before moving into the top job.

The landlord is still in the midst of a 2018 rent determination process with ALH Group and has not updated the market about the coronavirus, although its holds very long term leases with ALH.

ALE last month entered into a new debt facility with a term of up to two years to refinance all its fiscal 2021 debt maturities.

Mr Farrands is currently a non-executive director of Aspen Group and was previously CFO of Viva Energy REIT until March last year.

ALE’s share register is dominated by investment house Calendonia which has a near 33 per cent stake.

Perry Williams 2.45pm: Caltex introduces shadow carbon price

Caltex has introduced a shadow carbon price for the first time as it weighs emissions exposure on its investment decisions while Ampol petrol stations are set to return to suburban Australia after a two-decade absence after shareholders backed a name change.

After an $8.8bn takeover bid was abandoned in April due to COVID-19 volatility, Caltex said it was internally testing a range of carbon scenarios as it weighs whether to restart its Lytton refinery in Brisbane later this year.

“One of the things we have done is introduced a shadow carbon price into our strategic and planning framework, and that will ensure the impacts of carbon pricing do play a role in our future decision making,” interim chief executive Matt Halliday told its annual general meeting on Thursday.

Both Caltex and rival Viva Energy have indicated government support may be needed to ensure the ongoing livelihood of their refineries amid soft margins and a demand slump

Ampol branding is set to return to Australia, like this from East Gosford. Picture: Supplied.

2.01pm: Hybrids more reliable for income: Shaw

Investors seeking an income stream will increasingly look to hybrids over the major banks, according to Shaw and Partners.

Senior analyst Brett Le Mesurier points out that “banks are no longer the reliable source of dividends on ordinary shares that have been important to retail investors” and that securities with more debt characteristics can be considered in their place.

He lists three upsides for hybrids, also known as alternative tier 1 (AT1) capital instruments for banks. Hybrids:

have a higher probability of a dividend being paid than ordinary shares because they rank higher than ordinary shares from a preference perspective;
are likely to have less price appreciation than ordinary shares when the company’s performance is improving; and
may be repaid (with APRA’s consent) even though they have no maturity date

“There is precedent for Australian financial companies to continue to make payouts on hybrid securities even when there isn’t a dividend for ordinary shares,” he adds.

Gerard Cockburn 1.42pm: ME tech bungle cut redraws by 20pc

ME Bank home loan customers on average had their redraw facilities lowered by $17,000, following technical issues which automatically reduced borrowing amounts.

Fronting a House economics committee led by Liberal MP Tim Wilson, ME Bank chief executive Jamie McPhee said affected redraw accounts were on average reduced by 20 per cent.

A technical structure issue within the bank’s new system upgrade caused an automatic contraction to redraw facilities, which would reduce when a customer lowered their respective home loan balance.

ME Bank last week made a public apology in regards to the redraw reductions, which sparked ire after it provided no warning to customers that their borrowing amounts had been impacted.

Mr McPhee said the industry fund-owned bank had initially made the decision to lower customers redraw facilities in an attempt to stop customers from overcomitting to more debt.

The Australian previously reported that the Australian Prudential Regulatory Authority has been in close discussions with ME Bank, regarding teething issues of its new banking system technology.

It was also revealed the bank implemented a subcommittee to look at the redraw scheme in February, but a report was never handed to the board, and the scheme was not re-examined after economic conditions deteriorated due to the coronavirus pandemic.

1.28pm: Record exodus to limit bounce-back: NAB

NAB describes last month’s labour participation drop as “a record exodus from the workforce”, pointing out the 594,000 drop in employment is the biggest monthly fall in the post WWII period.

The decline saw the employment-to-population ratio fall to 59.6pc, which is the lowest level since 2003, the bank’s markets economist Kaixin Owyong writes.

She adds that the total hours worked is the best measure of the hit to the economy, with detailed data showing that of those still employed in April, 6pc to 7pc worked zero hours.

“We imagine that, like NAB, the RBA will have been taken aback at the record exodus of the workforce and rely on total hours worked instead to best measure the record hit to household income,” Ms Oywong says.

“This hit will limit the bounce-back in spending and activity as the economy recovers, even with the dramatic increase in government assistance.

“Today’s massive drop in participation may also limit the ultimate peak in measured unemployment, although weekly unemployment benefits data point to more job losses after the April labour force survey was polled and many people may return to the workforce as states ease health restrictions.”

Max Maddison 1.19pm: Online boom lifts Shaver Shop 40pc

Shaver Shop shares have ballooned by almost 40 per cent, after the company reported online sales growth of 387 per cent during the lockdown period.

Despite ditching its financial guidance in late-March, the personal grooming retailer said the growth in online shopping had more than offset the material sales decline experienced due to the closure of its physical store network.

Across the last six weeks spanning from April 1 to May 10, the retailer saw a staggering increase in online sales growth: up 171 per cent since the start of the year, and 102 per cent for the financial year to date.

Even factoring in the precipitous decline in physical retail sales, like for like sales still increased by 12.2 per cent for the financial year to date. Total sales growth increased by 14.3 per cent across the same period.

SSG shares are higher by 35 per cent to 58c – after hitting highs of 64.5c earlier in the session.

1.02pm: Shares hold near daily lows

While market focus has been on labour data, the sharemarket has been holding losses around 1pc, near its daily lows.

At 1pm, the benchmark ASX200 is lower by 48 points or 0.89 per cent to 5373.7, with losses across all sectors bar materials and utilities.

GrainCorp is outperforming after swinging back to profit in the first half, while Breville too is higher after completing a capital raising.

Here’s the biggest movers at 1pm:

12.54pm: CommSec more optimistic on jobs drop

CommSec chief economist, Craig James, puts a positive spin on the fall in labour force participation that drove the smaller-than-expected rise in the unemployment rate.

“The fact that the jobless rate rose to 6.2 per cent and not 8.2 per cent is very positive,” he says.

“It shows that those on the sidelines are confident of returning to their jobs. The longer that an unemployed person stays out of work, the harder it is for that person to eventually find work.

“The great hope is that the job losses were only temporary and that the reopening of the economy is indeed successful.”

Still, he says the best way to describe the impact of COVID-19 on the job market is in terms of the number of hours worked.

“Hours worked slumped by a record 9.2 per cent, and that accords with expectations that the economy will contract 10 per cent in the first half of 2020,” Mr James says.

12.37pm: Jobless beat ‘not good news’: EY

EY Chief Economist Jo Masters says the fact that Australia’s unemployment rate was lower than expected in April simply because of less people looking for work, means it is “not good news”.

Moreover, the data “confirmed just how dire conditions are in the jobs market” – with nearly 600 million Australians losing their job and almost half a million leaving the workforce – and it’s “likely to get worse before it gets better, despite easing of restrictions,” she says.

“While the lower participation rate cushioned the rise in the unemployment rate, which jumped to 6.2 per cent, well below expectations of 8.3 per cent, this figure is not good news given it is driven by people leaving the workforce.

“Indeed, this data suggests getting people back to jobs will be even more challenging as they will first need to be enticed back into the workforce, and then find a job.”

12.28pm: Jobless rate to climb further: Capital Eco

Capital Economics expects the unemployment rate to “climb further” following the ABS figures showing a 594,000 fall in employment in April while unemployment rate rose from 5.2 per cent to 6.2 per cent.

Capital Economics senior Australia economist Marcel Thieliant notes the ABS’ weekly payroll jobs and wages showed that employment fell by another 1.6 per cent between the reference period for the April labour force survey and April 18.

“Admittedly, the gradual reopening of the economy after the lockdown will provide job opportunities for those who lost their jobs in recent weeks, particularly in the hardest-hit sectors such as accommodation & food services and arts & recreation services,” he says.

“However, that reopening will be a gradual process and not everyone who lost their job during the lockdown will immediately find a new one.

“Those who weren’t looking for a job during the lockdown and still can’t find one now will be counted as unemployed. The labour force participation rate will rise further if the government reintroduces the requirement that JobSeeker recipients search for work in order to receive benefits”.

Social distancing enforced as people move inside the Centrelink office in Nundah, Brisbane. Picture: AAP Image/ Claudia Baxter.

12.16pm: Underlying jobless rate closer to 10pc

While the unemployment rate was much lower than expected, it masked a sharp fall in employment that’s expected to worsen in coming months.

April’s 6.2pc unemployment rate “doesn’t do justice to the economic destruction”, says Indeed economist Callum Pickering.

And the fact that employment fell by 594,300 but unemployment jumped by only 104,300 people “obviously doesn’t pass the pub test”.

“Due to methodology, which doesn’t always sit well with reality, 489,800 people simply left the Australian labour force in April,” he says.

“Had the size of the labour force held steady, with everyone losing employment shifting to unemployment, then the unemployment rate would have spiked to 9.6 per cent.”

12.05pm: 2.7m unemployed or on less hours

Looking deeper into today’s labour data release, total hours worked fell by around 9.2 per cent over the month.

The ABS points out that 2.7 million people or about 1 in 5 people employed in March either left employment or had their hours reduced between March and April.

As a result, the number of underemployed people also rose sharply (up 603,300 people, to a total of 1.8 million people), and the underemployment rate rose to a record high 13.7 per cent (up 4.9 percentage points).

The underutilisation rate, which combines the unemployment and underemployment rates, also rose to a record high of 19.9 per cent.

11.40am: $A dives on jobless data

The Aussie dollar has dropped by more than 20 basis points after the release of the latest jobs data which showed Aussies pulled out of the labour market at an unprecedented rate.

Ahead of the release, AUDUSD was at US64.55c – but a sharp drop has the currency trading at US64.33c – a five day low.

Australia's participation rate - that is the share of the working age population either employed or seeking employment - fell to 63.5% in April. That's the lowest level since September 2004 #ausbiz #auspol @IndeedAU pic.twitter.com/K0wzm9b0X4
— Callam Pickering (@CallamPickering) May 14, 2020

11.31am: Low participation limits jobless rise

Australia’s unemployment rate rose to 6.2pc in April – the highest since July 2015 – from 5.2pc in March.

The jobless rate was much lower than the 8.2pc expected by economists because the labour force participation rate dived to a 15-year low of 63.5pc vs 65.3pc expected.

Employment actually fell 594,300 vs 575,000 expected, so was actually worse than expected.

Full-time jobs dived 220,500, while part-time jobs fell 373,800.

“The large drop in employment did not translate into a similar sized rise in the number of unemployed people because around 489,800 people left the labour force,” stated Bjorn Jarvis, head of labour statistics at the ABS.

“This means there was a high number of people without a job who didn’t or couldn’t actively look for work or weren’t available for work.”

Ben Wilmot 11.20am: Charter Hall shakes off virus hit

Property funds group Charter Hall says it has marshalled billions of dollars from its local and offshore pension backers that it can deploy as it looks to expand in logistics and offices.

The company’s model was rocked by the coronavirus crisis as its ability to keep rapidly growing its $40bn empire, that also spans retail, petrol stations and even agriculture, came under threat.

But it has since struck major logistics deals, raised equity for two listed trusts, and is chasing the Aldi distribution centre portfolio, which it is favoured to pick up for close to $700m.

The company said it had reviewed the impacts from COVID-19 and reaffirmed its fiscal 2020 earnings guidance for about 40 per cent post-tax operating earnings per security growth on fiscal 2019.

Despite some superannuation funds facing liquidity pressures, Charter Hall said its capital partners remain committed to their existing investments and were looking for new opportunities to deploy additional capital.

CHC last traded up 0.7pc to $7.35.

11.10am: Labour data will be ‘horrendous’: Westpac

Australian labour-force data for April are due at 11.30am AEST, but be prepared because it won’t be pretty.

Bloomberg’s consensus estimate is for a 8.2 per cent unemployment rate. That would be the highest since the early 1990s recession, when the unemployment rate reached 11.2pc.

The figure is based on consensus estimates of a 575,000 fall in jobs and 65.3 per cent participation rate.

However, the effect of the coronavirus pandemic on the participation rate is highly uncertain.

“It will be horrendous but there is a significant degree of uncertainty regarding just how horrendous,” writes Westpac’s Justin Smirk.

“Hours worked and underemployment will be the better indicators of the magnitude of the COVID-19 shock.”

Gerard Cockburn 10.47am: Industry Super reveals inaccurate modelling

Industry Super Australia has revealed its calculations of the long term impact of the early release of superannuation scheme were originally different to that which it uses for the calculation of future balances at retirement, and only changed last week.

The House economics committee led by Liberal MP Tim Wilson, questioned the industry fund’s initial modelling of early release of superannuation, with the fund revealing its calculations had not been based on generic fund assumptions.

ISA’s initial modelling received a slew of public backlash, after it publicly advertised members should not access the coronavirus early release of super scheme.

ISA advertised a $20,000 withdrawal through the scheme by a 30-year old would result in a long term loss of $100,000 at retirement. Mr Wilson said the claims were much higher than the calculations made by the government and the Grattan Institute.

The industry fund told the committee its underlying assumptions regarding early release of super were changed last week on its website. It noted its initial assumptions were still in line with the Productivity Commission and ASIC standards.

ISA chief executive Bernie Dean said the scheme implemented by the government had up-ended how the superannuation industry operates and noted the fund supported the planned increase in superannuation guarantee payments, which are scheduled for next year.

No data yet on how many people have lost #insurance cover but @IndustrySuper deputy CEO @MattLindenTweet reveals 5% of early access claims resulted in balances falling to zero so far, across the whole sector. He expects a "modest" impact on fees #COVID19Aus
— Australian Banking Daily (@BankingDailyAU) May 14, 2020

Lachlan Moffet Gray 10.43am: QLD’s Virgin an ‘election stunt’: Dutton

Home Affairs Minister Peter Dutton has continued to criticise the Queensland state government over their bid to purchase Virgin Australia, saying he believes it is an election stunt.

Declaring that as a Queenslander he is entitled to comment on Queensland matters, Mr Dutton said that the Palaszczuk Labor government is “in the midst of an election stunt and they are putting at risk millions of dollars in some phony bid they know is not going to be successful, just because they want to be patriotic”.

“They have named it Operation Maroon, just a silly way the spin doctors have come up a glib line for them to be running in Queensland media,” he said.

“I think it is a political stunt. I don’t think they can seriously believe that they are a genuine bidder.”

Mr Dutton said the alternative – that the bid is genuine – is “that they’ve decided as a state government to buy an airline in the midst of a pandemic.”

Read more: Dutton slams QLD Virgin bid

Jared Lynch 10.42am: GrainCorp sale, demerger spurs profit

GrainCorp’s sale of its Australian bulk liquid terminals and demerger of United Malt have swung the agribusiness giant back into profit.

The group reported a net profit of $388m in the six months to March 31 versus a $59m loss the prior corresponding period.

Managing director and chief executive Robert Spurway said the result reflected a successful repositioning of GrainCorp’s portfolio, which included the sale of its Australian bulk liquid terminals business and demerger of United Malt.

Despite battling three years of drought on Australia’s east coast, Mr Spurway said the business was performing well, reporting an underlying net profit of $55m.

GrainCorp’s Wimmera site. Picture: Supplied.

Bridget Carter 10.25am: GrainCorp spin-off raising $165m

DataRoom | GrainCorp spin-off United Malt is raising $165m, $140m of which is through a placement and the remainder through a share purchase plan.

Shares are being sold at $3.80 each to pay down debt, an 11.4 per cent discount to the company’s last traded price of $4.29.

Investment bank Macquarie Capital is working on the raise.

10.12am: Bank reversal sends ASX down 1.4pc

The ASX is sharply lower to start Thursday’s session, after the US Fed warned more stimulus could be required to support the US economy.

At the open, the benchmark ASX200 is lower by 72 points or 1.33 per cent to 5349 – after hitting 5345.9.

The early fall was a little more than indicated by overnight futures.

Sectors are broadly conforming to a risk-off scenario, with Energy, Financials and Tech underperforming, while Utilities, Communications and Health Care are outperforming.

But the Real Estate sector is getting hit by sharp falls in mall operators Scentre Group down and Unibail-Rodamco-Westfield – down 3.5pc and 6.5pc respectively – suggesting there’s some renewed anxiety about coronavirus.

Commonwealth Bank is swiftly giving up yesterday’s gains. The bank is the worst performing of the financials – down 2.9pc as the rest of the majors trade down by between 2pc and 2.2pc.

Jared Lynch 9.53am: Coles extends direct-to-farm milk deal

Supermarket giant Coles is bypassing dairy processors to buy milk directly from farmers in South Australia and Western Australia after a successful rollout in Victoria and NSW.

Under the new sourcing model for its private label range Coles will set the farmgate price, which it says will be guaranteed, rather than the average price processors signal at the start of each dairy season.

The big supermarket chains have had a notoriously prickly relationship with farmers, which erupted on Australia Day in 2011, when Coles slashed the price of its private label milk to $1 a litre, with its competitors quickly following.

Coles and its rivals have since stopped the deep discounting that farmers said devalued their hard-earned product and are quickly moving to make amends – more than nine years on – amid an exodus of farmers from the industry, while those who have stayed on have battled drought and bushfires.

Under the new sourcing model, Coles offers a farmgate price directly to farmers, and pays dairy processors to process and bottle the milk under a toll processing agreement. Coles has toll processing arrangements for milk sourced directly from farmers in SA and WA with Lion Dairy and Drinks, Brownes Dairy and Lactalis Australia.

Queensland dairy farmers protest inside a Coles supermarket store last year. Picture: Dan Peled.

9.47am: Offshore weakness to send ASX lower

Australian shares face another test of support after sharp falls in offshore markets.

Overnight futures relative to fair value suggest the S&P/ASX 200 will open down 1pc at 5368 points and BHP ADR’s suggest the resources-sector heavyweight will fall 1pc.

That follows a 1.8pc fall in the S&P 500 to 2820 after a retest of the 4th May trough near 2800, with the former 50pc retracement of the Feb-April fall seemingly offering support at 2793.

Risk aversion rose after Fed Chair Jay Powell said the economic outlook was “highly uncertain”, downside risks were “significant” and the virus “raises concerns of long-term economic harm”.

He also said more policy measures may be needed, but on the possibility of negative US rates he added that “it’s not something we’re considering”.

S&P 500 futures are up 0.4pc this morning, suggesting the Australian share market won’t fall as much as indicated by overnight futures.

It’s also worth considering that US and global sharemarket valuations may be more dependent on central bank policy than the economic outlook.

April jobs data are due at 11.30am AEST with a 575,000 fall in jobs and 8.2pc jobless rate expected due to shutdowns.

Ben Wilmot 9.37am: Viva REIT severs ties with namesake

Petrol station owner Viva Energy REIT has taken control of its own destiny by moving to cut management ties with energy company Viva Energy.

The $1.8bn real estate investment trust said it had internalised its management functions in the wake of Viva Energy in February selling its 35.5 per cent stake in the trust.

“The existing management arrangements do not provide Viva Energy REIT with a right to terminate, other than in limited circumstances. Accordingly, the Internalisation provides a clear framework for management to be transitioned to Viva Energy REIT, while ensuring stability and certainty for Viva Energy REIT securityholders,” the company said.

The trust is the country’s largest listed REIT owning solely service station and convenience properties and has been relatively insulated from the coronavirus.

The REIT, that was advised by E&P Corporate Advisory, had been considered a potential target for the acquisitive Charter Hall before the crisis struck.

VVR last traded at $2.33.

9.24am: Forrests rebrand Minderoo

Billionaire Andrew ‘Twiggy’ and Nicola Forrest have rebranded their private commercial group from Minderoo Group to Tattarang.

The family’s philanthropic entity Minderoo will remain, but its commercial entity – which owns a 36 per cent stake in Fortescue – will be renamed effective immediately.

In a statement to the ASX, the Forrests said the name was after Andrew’s mothers “fiery but caring stallion” owned during the 1950s.

“For us, Tattarang signifies the unique bond of trust that is formed between a rider and their horse, and the seriousness each party invests in caring for and protecting the other,” the couple said.

Andrew and Nicola Forrest have renamed their private investment group Tattarang. Picture: Colin Murty/ The Australian.

9.12am: Breville raises $94m

Kitchen appliance maker Breville will return to trade this morning after raising $94m in an institutional placement to maintain its financial position during the downturn.

The placement was priced at $17 apiece, and was reported to have generated “significant interest” according to the company.

Eligible shareholders who bid up to their pro-rata share of new shares were allocated their full bids, with the balance split across shareholders “with investment strategies that Breville believes are aligned with its business”.

“We see the success of the Placement as a clear endorsement of Breville’s strong and resilient business and our long-term growth strategy, focusing on product development and international expansion,” chief Jim Clayton said.

BRG last traded at $18.70.

Breville CEO Jim Clayton. Picture: John Feder/The Australian.

9.09am: What’s on the broker radar?

Ainsworth Game Technology cut to Neutral – Macquarie
Altium cut to Neutral – UBS
AusNet Services cut to Neutral – UBS
BHP raised to Buy – UBS
CSR raised to Overweight – Wilsons
Elders cut to Underweight – WIlsons
Imugene rated new Speculative Buy – Bell Potter
Integral Diagnostics raised to Buy – Ord Minnett
James Hardie GDRs raised to Outperform – Credit Suisse
Kogan cut to Neutral – Credit Suisse
Stockland raised to Outperform – Credit Suisse

David Swan 8.59am: NBN narrows losses, nears completion

The NBN is continuing to edge closer towards completion, with the government-owned company building the network lifting average revenue per user and posting narrowing losses in what will be one of its last quarterly results before an expected privatisation.

On Thursday morning NBN Co posted total revenue of $2.8bn for the nine months to March 31 2020, up 38 per cent on the same time a year earlier.

Operating expenses were down from $1.65bn to $1.556bn, while total earnings before interest, taxes, depreciation and amortisation (EBITDA) was a loss of $732m, compared with a $808m loss a year earlier.

One of the network’s crucial metrics, monthly average revenue per user (ARPU), is up to $45 compared with $44 a year earlier, which chief executive Stephen Rue said was a result of Australians purchasing plans at higher speeds. NBN Co’s target is to reach an ARPU of $51 by FY22.

The company said it had reached 7 million connected premises, two months ahead of its target. More than 11.2 million premises are ‘ready to connect’.

Eli Greenblat 8.45am: Treasury taps Dulux exec for strategy

Treasury Wine Estates has appointed the former chief financial officer of paints group Dulux, Stuart Boxer, in the newly created role of chief strategy and corporate development officer.

Mr Boxer will be based in Treasury Wine’s Melbourne office, with responsibility for leading key strategic business programs.

“In this role, Mr Boxer will lead TWE’s strategic business planning and drive priority growth, transformation and business improvement initiatives, the commercial investment strategy as well as mergers and acquisitions (M&A),” Treasury Wine said.

Mr Boxer was previously at DuluxGroup where he was CFO and executive general manager strategy.

Treasury Wine announced earlier this year a plan to investigate the potential demerger of its Penfolds wine business from its commercial wines.

8.28am: Rio looking to recruit 300

As Australia’s jobless rate soars in the pandemic, Rio Tinto says it has 300 positions available in its West Australian iron ore operations.

Workers it is looking to hire as it expands in the Pilbara include excavator and truck operators and maintenance staff. The roles are a mix of fly-in fly-out, and residential positions.

Rio Tinto says it’s hiring around 160 apprentices, graduates and Aboriginal trainees, up 25 per cent from last year, while the company’s medical provider for COVID-19 screening at Perth Airport has recently hired more than 100 staff, including out-of-work nurses.

Ben Wilmot 8.22am: Stockland ‘better than expected’

Property developer and investor Stockland was faring slightly ahead of expectations but metrics it posted on Wednesday did not fully reflect the impacts of the coronavirus, analysts Jefferies said.

It said the virus had hit the company’s retail and residential units but its retail unit had performed better than they had expected.

Stockland benefits from having a more regionally-located portfolio with no luxury, minimal tourist spend and only 31 per cent of sales from specialty stores. While foot traffic was down 40 per cent as the virus hit, three quarters of stores by rent are now trading. While March trading was weak, it was better than rival mall owners.

More than 75 per cent of Stockland’s earnings come from its residential, retail and retirement units and Jefferies said it expects earnings and cashflow to be weak.

While Stockland’s balance sheet would face pressure an equity raise was unlikely, the analyst said.

8.12am: Xero swings to profit

Xero has swung to a maiden $NZ3.3 million full-year profit, but warned coronavirus will weigh on its fiscal 2021 performance.

The Auckland-based cloud accounting software provider said Thursday that revenue for the 12 months through March rose by 30 per cent to $NZ718.2 million, from $NZ552.8 million a year earlier. Xero made a $NZ27.1 million net loss in 2019.

Xero said it added 467,000 subscribers over the year for a total 2.285 million but warned COVID-19 reduced annualised monthly recurring revenue growth in March. It said the pandemic’s impact will be reflected in its fiscal 2021 results and declined to give any outlook, although it does not anticipate significant changes to its long-term strategy.

Shares in ASX-listed Xero last traded at $83.77, up 4.7pc in 2020.

Dow Jones Newswires

7.50am: Oil falls

Oil prices fell about 2 per cent overnight despite the first decline in US crude inventories since January, as the US Federal Reserve chairman stoked demand fears with a warning the economy would take many months to recover from the coronavirus pandemic.

Oil had rallied on optimism that slumping fuel demand would recover, while producers have slashed production to cut the mounting supply glut during the pandemic.

But crude slid along with other risk assets like stocks on Wednesday due to the government signals that a rebound may take awhile.

Global benchmark Brent crude settled down 79 cents, or 2.6 per cent at $US29.19 a barrel. West Texas Intermediate crude futures, the US benchmark, settled down 49 cents, or 1.9 per cent at $US25.29 a barrel.

Reuters

7.40am: ASX to slip after Fed’s warning

Shares on the Australian market are expected to be down in early trade after the US Federal Reserve chairman warned of extended economic weakness from the coronavirus pandemic.

At 7.10am (AEST) the SPI 200 futures contract was down 58 points, or 1.07 per cent, to 5,366, indicating a loss in early trade.

Chairman Jerome Powell pledged to use the US central bank’s power as needed, but called for Congress to agree on additional fiscal support.

Shawn Cruz, manager of trader strategy at TD Ameritrade in Jersey City, New Jersey, said: “He’s saying if you want to avoid a slow recovery and long-term economic damage you need a strong fiscal response, effectively placing that responsibility back over to governments instead of central banks”.

The Dow Jones Industrial Average fell 516.81 points, or 2.17 per cent, to 23,247.97, the S&P 500 lost 50.12 points, or 1.75 per cent, to 2,820 and the Nasdaq Composite dropped 139.38 points, or 1.55 per cent, to 8,863.17.

In Australia on Wednesday, the benchmark S&P/ASX200 index closed up 18.9 points, or 0.35 cent, at 5,421.9 points.

The All Ordinaries closed up 16.4 points, or 0.3 per cent, at 5,513.7 points.

One Australian dollar was buying US64.56 cents at 7.10am (AEST), down from US64.79 cents at the close of trade on Wednesday.

AAP

7.20am: Qld Virgin bid ‘laughable’

A political row has broken out over Queensland’s plan to bid for troubled airline Virgin Australia, with Peter Dutton branding it “laughable”.

The Home Affairs Minister tweeted: “Premier Palaszczuk has almost bankrupted Queensland and now in the middle of a crisis they want to buy an airline. It is laughable. She ‘leads’ a government which is corrupt and chaotic.”

The Queensland government is considering a move to try to rescue its struggling tourism industry and keep the carrier, with its thousands of jobs, flying and headquartered in Brisbane.

New state Treasurer Cameron Dick has told the government’s investment arm, Queensland Investment Corporation, to look at buying into Virgin, which went into voluntary administration last month with $7bn in debts.

Mr Dick said the investment “could take the form of a direct equity stake, a loan, guarantee or other financial incentives”.

Lachlan Moffet Gray 7.09am: BuzzFeed to quit Australia

Online content juggernaut BuzzFeed has announced it will cease news production in Australia and the UK “both for economic and strategic reasons,” diverting resources towards the US market.

Founded in 2006 by Jonah Peretti, the company became famous as an online content aggregator before growing in popularity for its highly-shareable “listacle” articles and viral content.

In the last decade it has become a global media company with news operations that have at times rivalled traditional media companies.

In a statement, a representative for the company said: “both for economic and strategic reasons, we are going to focus on news that hits big in the United States during this difficult period.”

“Therefore, we will notify staff in the UK and Australia that we are not planning to cover local news in those countries.

“We will be consulting with employees on our plans regarding furloughs and stand-downs in these regions.”

The company will retain some employees who cover news with a global audience: social and celebrity news, as well as investigative pieces.

BuzzFeed launched its UK operations in 2013 and arrived in Australia the following year during a time of global expansion for the company.

6.10am: Wall St tumbles after Fed warning

US stocks fell after Federal Reserve Chairman Jerome Powell said further stimulus could be needed to support the economy’s recovery from the coronavirus-induced contraction.

The S&P 500 dropped 1.8 per cent, extending Tuesday’s loss of more than 2 per cent. The Dow Jones Industrial Average lost 2.2 per cent, or 500 points, and the Nasdaq Composite slipped 1.6 per cent.

After yesterday’s gains, the ASX is set to open firmly lower. At 6am (AEST) the SPI futures index was down 64 points, or 1.2 per cent.

The US declines were broad, with all 11 sectors of the S&P 500 in the red.

Investors have been eagerly seeking any clues about the potential length and severity of the economic downturn. In a speech, Mr Powell revealed growing alarm about the path ahead, describing the outlook as “highly uncertain and subject to significant downside risks.”

“Additional fiscal support could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he said.

Meanwhile, economists surveyed by The Wall Street Journal predicted the US contraction caused by efforts to contain the coronavirus will be larger than previously anticipated. The economists expect gross domestic product to shrink 6.6 per cent this year, measured from the fourth quarter of 2019.

Evidence is growing of the damage already sustained by businesses. A gauge of U.S. business prices posted its largest decrease on record in April as the pandemic curtailed economic activity.

Major U.S. stock indexes have been held up in part by strong investor demand for shares of big tech companies. The S&P 500 has cut its declines for the year to 13 per cent, buoyed by a 28 per cent jump in Amazon and a 13 per cent increase in Microsoft. Some investors say the outperformance of megacap stocks is masking weakness in the broader stock market.

As the economic outlook darkened, the economically sensitive energy, financial and industrial sectors were among the weakest performers in the S&P 500 on Wednesday. Energy stocks fell 4.5 per cent, while the financial and industrial groups fell at least 2.8 per cent.

Tensions between the U.S. and China added to the nerves among some investors, who worry new frictions between the two largest economies could exacerbate the global downturn.

In Europe, the benchmark Stoxx Europe 600 fell 1.9 per cent. Benchmarks in Asia ended the day mixed. India’s S&P BSE Sensex index jumped 2.2 per cent after Prime Minister Narendra Modi outlined an economic relief package.

Dow Jones Newswires

6.00am: Hopeful signs in job ad figures

Seek says new job ads posted in April were down 65.6 per cent, year-on-year, and 49.9 per cent lower month-on-month.

The figures were released ahead of Thursday’s official jobs data, which are expected to show a sharp rise in the number of jobless.

However Seek says job ads in the first two weeks of May show a marginal improvement, suggesting the jobs market may have turned a corner

New South Wales and Victoria continued to be hardest hit in April, with job advertising down 52.4 per cent and 56.3 per cent respectively compared to March 2020.

5.47am: Tesla dispute may be over

It appears the dispute between Tesla and San Francisco Bay Area authorities over the reopening of a factory in the face of shutdown orders is coming to an end.

The Alameda County Public Health Department announced on Twitter late Tuesday that the Fremont, California, plant will be able to go beyond basic operations this week and start making vehicles Monday – as long as it delivers on worker safety precautions that it agreed to.

It wasn’t clear from a news release whether Tesla would face any punishment for reopening last Monday in defiance of county orders.

The release said Fremont police would verify whether Tesla was holding up its part of the agreement. The deal requires that public health indicators have to remain stable or improve for the factory to stay open.

5.44am: Stocks slump on second wave fears

Fears of a second coronavirus wave and downbeat comments by the head of the US Federal Reserve helped push stocks lower.

Wall Street’s main indices slid after Fed chief Jerome Powell said the US economic recovery may be slower than desired in the aftermath of the pandemic, but should rebound “substantially” once the outbreak is reined in.

As the shutdowns drag on, they could cause “lasting damage” to the US economy and more policies may be needed to deal with that possibility, including spending beyond the nearly $3 trillion already approved by Congress, he warned.

Chris Beauchamp, chief market analyst at online trading firm IG, said that “while Jerome Powell hinted at more measures to support the US economy, his warning about the speed of the recovery has sapped bullish sentiment.”

Edward Moya at online currency trading firm Oanda said Powell’s “downbeat remarks … burst the risk appetite balloon for many investors.”

European stocks were also being mauled over concerns of a second wave of virus infections.

The recent optimism that has flowed through markets — helped by trillions of dollars in worldwide stimulus and central bank backstopping — has been given a jolt by data showing fresh outbreaks in South Korea, China and Germany.

“Traders remain worried about the possibility of COVID-19 cases rising again as governments ease their restrictions in relation to the lockdowns,” said market analyst David Madden at CMC Markets UK.

In the eurozone, Paris slumped by 2.9 per cent and Frankfurt by 2.6 per cent. Meanwhile, London’s benchmark FTSE 100 index shed 1.5 per cent as official data showed the British economy contracted by 2.0 per cent in the first quarter on the back of the COVID-19 outbreak.

That was the worst quarterly slump since the depths of the global financial crisis in 2008, although the figure was better than analysts’ expectations of a 2.5-per cent contraction.

Oil prices popped higher after data showed a surprise drop in US crude reserves, a signal that producers are reducing the oversupply in the market. However, they fell back after investors realised the data also showed very weak processing by refineries, an indication that demand by consumers has yet to pick up.

AFP

5.40am: Chanel lifting prices

French luxury house Chanel says it is increasing prices on its handbags and some small leather goods worldwide to take into account a rise in the cost of raw materials amid the coronavirus pandemic.

In an emailed statement responding to a Reuters query, Chanel said the price increases in euros ranged between 5.0 per cent and 17 per cent. “The price adjustments only regard Chanel’s iconic handbags, 11.12 and 2.55, as well as Boy, Gabrielle, Chanel 19 bags and certain small leather goods,” it said.

“These adjustments are made while ensuring that we avoid excessive price differentials between countries, in line with our commitments regarding price harmonisation.” Online speculation of Chanel price hikes prompted face-masked shoppers to line up as early as 5am outside a Chanel store in the South Korean capital Seoul.

Reuters

5.39am: Norway fund puts BHP on notice

Norway’s $US1 trillion ($A1.5 trillion) wealth fund is excluding some of the world’s biggest commodities firms from its portfolio, including Glencore and Anglo American, because of their use and production of coal.

Underlining the growing role of climate considerations for long-term investors, the fund is also excluding German utility RWE, South African petrochemicals firm Sasol and Dutch company AGL Energy over their use of coal.

Norway’s parliament agreed in June 2019 to toughen existing limits on coal investments by the world’s largest fund by excluding firms that mined more than 20 million tonnes of coal a year or generated more than 10 gigawatts of power from coal.

At the end of 2019, the fund held stocks worth $US1.6 billion in such companies, according to fund data.

Wednesday’s announcement, made in a statement issued by the fund, is the first to show the tougher rules being applied.

The fund, set up in 1996 to save Norway’s oil and gas revenues for future generations and which now holds about 1.5 per cent of globally listed shares, sells holdings before announcing any exclusions to avoid excessive market moves. The fund put another set of companies – BHP, Uniper, Enel and Vistra Energy – under observation for possible exclusion later if they did not address their use or production of coal.

Reuters

5.32am: Fed warns sustained recession possible

US Federal Reserve Chair Jerome Powell is warning of the threat of a prolonged recession resulting from the viral outbreak and is urging Congress and the White House to act further to prevent long-lasting economic damage.

The Fed and Congress have taken far-reaching steps to try to counter what is likely to be a severe downturn resulting from the widespread shutdown of the US economy.

But Powell warns that there still could be widespread bankruptcies among small business and extended unemployment for many people.

“Deeper and longer recessions can leave behind lasting damage to the productive capacity of the economy,” the chairman says in prepared remarks before an online discussion with the Peterson Institute for International Economics. “Avoidable household and business insolvencies can weigh on growth for years to come.”

The US government “ought to do what we can to avoid these outcomes, and that may require additional policy measures,” Powell says.

He says the Fed will “continue to use our tools to their fullest” until the viral outbreak subsides but gives no hint of what the Fed’s next steps might be.

Powell repeated his previous warnings that the Fed can lend money to solvent companies to help carry them through the crisis. But a longer downturn could threaten to bankrupt previously healthy companies without more help from the government.

Greater support from government spending or tax policies “could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he says.

Federal Reserve Board Chairman Jerome Powell. Picture: AFP

5.28am: UK slumps at fastest pace since 2008

Britain’s economy shrank in the first quarter at the fastest pace since the global financial crisis as the country went into coronavirus lockdown, data showed, prompting the government to warn of a “significant” recession.

Gross domestic product — the combined value of produced goods and services in the UK economy — contracted by two per cent in the January-March period after zero growth in the three months to December, the Office for National Statistics (ONS) said.

The nation’s second-quarter contraction is meanwhile expected to be far steeper than the first.

In more grim news, UK output dived by a record 5.8 per cent in March from the previous month. Britain implemented its COVID-19 lockdown — which is only just starting to be eased — on March 23.

“A recession is defined technically as two quarters of decline in GDP. We’ve seen one here with only a few days of impact from the virus,” finance minister Rishi Sunak said in response to the gloomy data.

“So it is now very likely that the UK economy will face a significant recession this year and we are in the middle of that as we speak.”

Chancellor of the Exchequer, Rishi Sunak. Picture: Getty Images

AFP

5.25am: OPEC sees oil market rebalancing

The rebalancing of the oil market is underway and will accelerate, the OPEC cartel said, days after some of its members voluntarily increased their production cuts.

The world oil market was thrown into disarray earlier this year as lockdown measures imposed by governments to slow the spread of the coronavirus led to plunge in demand just as crude producers had been stepping up output in a war for market share.

Prices tumbled, with the price of the benchmark US oil futures contract briefly plunging below zero.

But OPEC and its allies have agreed on major cuts in production, by 9.7 million barrels per day, and the cartel believes an improvement is on the horizon.

“The speedy supply adjustments in addressing the current acute imbalance in the global oil market has already started showing positive response, with rebalancing expected to pick up faster in the coming quarters,” OPEC said in its monthly report.

The collapse in oil prices — the main international benchmark has fallen by half since the start of the year — is leading some producers to shut down wells and the cartel now expects non-OPEC production to decline by 3.5 million barrels per day this year.

It believes the worst drop in demand will be recorded in the current April-June quarter.

The easing of restrictions and the massive stimulus programs adopted by governments could now help the market bounce back.

OPEC said it now expects daily demand in 2020 to drop by some 8.5 million barrels per day from last year’s level, which is a roughly 8.5 per cent drop.

AFP

5.20am: France puts cork in champagne sales

The French champagne industry’s trade body suspended early sales of the iconic sparkling wine in an effort to support prices and deal with a huge stock overhang made worse by the coronavirus pandemic.

Champagne is traditionally a drink for celebrations and gatherings but the coronavirus lockdown orders in much of the world have put a major dent in sales, with lost revenues so far estimated at 1.7 billion euros ($US1.8 billion).

With producers having sold around 100 million fewer bottles so far this year, or about a third of the annual total last year, many are in sore need of cash.

The Comite Champagne that regulates the industry banned until June 8 the pre-sale of bottles that are still in the fermentation process to prevent retail prices from falling steeply.