ASX slips by 0.7pc as RBA’s Lowe warns of ‘very large’ contraction

Shares gave back an early surge to finish down by 0.7pc as the dollar lifted on the RBA’s suggestion it could taper back bond buying.

David Rogers and Melissa Yeo

36 min read

6:17AMApril 07, 2020.

Updated 4:51PMApril 07, 2020

A New York hospital struggles with the coronavirus outbreak. Picture: AFP

ASX dips as Lowe warns of ‘very large’ contraction
RBA flags slowing of bond buying
Tabcorp stands down 700 employees
Oil Search seeks $1.16bn
Big miners best poised to maintain payouts

That’s it for the Trading Day blog for Tuesday, April 7. Australian stocks opened sharply higher after global markets soared overnight but swiftly gave up those gains to finish lower by 0.65 per cent at 5252.3.

Reports some of the world’s worst-hit countries were experiencing falling coronavirus death rates had helped overnight but is being looked through by local investors, with capital raisings and business shut downs still front of mind.

Australia’s Reserve Bank board kept rates on hold at 0.25 per cent, and warned of a “very large economic contraction” to come in the June quarter.

4.31pm: Capital raisings in focus

Capital raisings remain a key focus for investors as several more groups weighed up their options on Tuesday.

Oil Search revealed it was seeking $1.16bn to shore up its balance sheet amid the coronavirus crisis and oil price rout, adding it was open to selling down a stake in its PNG LNG operations. Its stock remains halted at $2.73.

Elsewhere, Flight Centre shares soared as much as 16 per cent as the company resumed trading following its successful $562m capital raise. Shares were offered at $7.20 apiece – and finished Tuesday’s session higher by 0.8 per cent at $9.99.

Plumbing group Reece also pulled off a $600m raise to give it capital to pounce on opportunities which could arise during and after the coronavirus crisis. Shares were offered at $7.60 and closed down 2.2 per cent at $8.50.

Southern Cross completed a $149m placement and institutional raise, but its deeply discounted offer price of 9c prompted a share slide – the stock closing down 30 per cent to 11.5c as one of the worst performers for the session.

Here’s the biggest movers for the day:

4.12pm: Shares slip as RBA warns of eco pain

Shares fought to hold on to gains in Tuesday’s session, but ultimately slipped lower as the Reserve Bank stopped just short of calling a recession, instead warning of a “very large economic contraction”.

A strong US lead had the market primed for a second day of gains, as offshore investors cheered a slowing of the coronavirus fatality rates in some parts of Europe and New York.

Shares lifted as much as 2.6 per cent early, to a four-day high of 5423.1, but by the close were lower by 35 points or 0.65 per cent to 5252.3.

Meanwhile, the All Ords slipped by 22 points or 0.42 per cent to 5301.3.

3.52pm: Intraday fall as companies raise cash

A sharp intraday fall in the Australian sharemarket today came as Oil Search and SCA Property joined a rapidly growing list of companies launching equity capital raisings to shore up their balance sheets.

After trading up 2.6pc then down 1.9pc today, the ASX200 is down 0.4pc at 5263 ahead of the close, having traversed another massive range of 236 points.

“Volumes are looking healthier and after a decent rally yesterday it looks like we are seeing selling into strength to bolster cash balances as the deal flow ramps up,” says RBC’s head of equities, Karen Jorristsma.

2.45pm: RBA flags tapering of bond purchases

The RBA has flagged a potential tapering of the amount of bonds it needs to buy to achieve its 0.25pc target for the 3-year ACGB yield.

In his monetary policy statement today, RBA Governor Philip Lowe noted that “markets are working more effectively than they were a few weeks ago”, partly reflecting “substantial measures undertaken by central banks”.

He added that “the Bank will continue to promote the smooth functioning of these important markets (state and federal bonds)”. But “if conditions if conditions continue to improve, though, it is likely that smaller and less frequent purchases of government bonds will be required,” Dr Lowe said.

AUDUSD rose from US61.20c to a 4-day high of US61.48c in response to this comment, while 10-year ACGB yields rose from 0.84pc to 0.884pc.

Both yield curve control and the cash rate won't be altered before "progress is being made towards the goals for full employment and inflation", I suspect YCC will go before the cash rate moves and that progress won't be forthcoming for some time to come...
— Alex Joiner (@IFM_Economist) April 7, 2020

Bridget Carter 2.38pm: Virgin calls in restructuring experts

DataRoom | Restructuring experts are believed to have been brought in to assess options for Virgin Australia, with some questioning whether US-based bondholders are examining a rescue plan.

Various sources said on Tuesday that Houlihan Lokey was working with Virgin Australia, although the US advisory firm that specialises in distressed situations did not confirm it was close to the company.

Houlihan Lokey counts former UBS restructuring expert Jim McKnight as within its Sydney ranks who has worked on some of Australia’s largest and high profile corporate collapses.

The carrier is understood to have a data room open for parties to assess potential recapitalisation options.

It comes as it was revealed by The Australian on March 31 that Virgin Australia had approached the federal government for a loan worth $1.4bn.

2.31pm: ‘Large economic contraction’ ahead: RBA

The Reserve Bank has left the official cash rate unchanged after its monthly board meeting, warning of a “very large” economic expansion and surge in jobless rate.

As widely expected by market economists, the RBA left the official cash rate at a record low of 0.25 per cent.

It comes after the RBA cut the official cash rate by 50 basis points at an emergency meeting two weeks ago, when it warned that the coronavirus pandemic was having a major impact on the economy and financial system.

“A very large economic contraction is, however, expected to be recorded in the June quarter and the unemployment rate is expected to increase to its highest level for many years,” governor Philip Lowe said.

The AUDUSD is little changed on the announcement, last trading at US61.19c.

On the economy: "A very large economic contraction is, however, expected to be recorded in the June quarter and the unemployment rate is expected to increase to its highest level for many years."
— Kyle Rodda (@KyleR_IG) April 7, 2020

2.07pm: REITs positive despite rent relief measures

Listed real estate stocks remain firmly in positive territory, despite an announcement from the government that landlords will be required to reduce rent proportionate to a business’s fall in turnover.

The sector is higher by 1.2pc as Vicinity Centres adds 3.6pc, Scentre Group rises by 2.7pc and Mirvac edges up 0.95pc.

Richard Ferguson 1.49pm: Landlords, tenants reach rent agreement

Commercial landlords will be required to reduce rent proportionate to a business’s fall in turnover in a mandatory code of conduct unveiled by Scott Morrison and the national cabinet.

Flagged last week, the Prime Minister and premiers have struck a deal with industry players which is designed to protect both landlords and tenants.

Landlords and tenants must honour leases, and rent must be reduced via waivers and lease extensions.

The code will apply for businesses who are eligible for the JobKeeper payment and have a turnover of $50m or less.

“Landlords must not terminate the lease … tenants must honour the lease,” Mr Morrison said.

“Landlords will be required to reduce rent proportionate to the decline in turnover.”

Follow our coronavirus crisis live blog for the latest

Perry Williams 1.13pm: Oil Search won’t rule out PNG selldown

Oil Search is open to selling part of its 29 per cent stake in the PNG LNG project to boost its balance sheet after receiving interest from buyers.

While the LNG producer opted for a $1.16bn equity raising, the company revealed a potential selldown in its most valuable asset was considered when it was weighing liquidity options.

Ultimately it did not proceed given the length of time a deal would have taken and the potential it would have been sold at a discount.

“We looked at that in detail and what we considered was that at the current time with the quality of that asset we weren’t going to get a return commensurate with its value,” chief executive Keiran Wulff said. “It would have taken a lot longer time to achieve. But the reality is there are some parties who have expressed interest in the asset which would require a longer term review.”

The Oil Search boss said a selldown could be considered in the future. “We’re always open to divesting part of assets for the right price.”

Bridget Carter 1.11pm: SCA raising covered at $2.16 apiece

DataRoom | Shopping Centres Australasia Property Group has its equity raising is covered at $2.16 per share.

It comes after the landlord launched an equity raising through investment bank Citi.

In a book message sent to investors, adviser Citi said the book was covered at $2.16 per share.

The landlord is raising $250m through a placement and will launch a share purchase plan to secure up to $50m.

Shares are being sold at $2.16 each, an 8.5 per cent discount to the last closing price of $2.37 on Monday.

The company that owns supermarket-anchored shopping centres and has a market value worth $2.2bn says it will use its funds to repay debt and provide balance sheet strength amid COVID-19 disruptions.

1.07pm: PolyNovo still set to double sales

Listed biotech PolyNovo says its on track to more than double full year sales, with demand for its skin graft technology continuing to surge despite hospitals across the globe facing unprecedented pressure from the coronavirus pandemic.

PolyNovo’s sales for the three months to March soared 166 per cent, compared with the same period in 2019, to $4.49m.

It comes as governments have banned elective and non-essential surgeries in hospitals to preserve resources, including personal protective equipment and intensive care beds, to care for COVID-19 infected patients.

Skin grafts, however, are often essential surgeries with PolyNovo’s NovoSorb BTM product used to treat patients with severe burns and other skin trauma as well as flesh eating diseases.

PolyNovo chief executive Paul Brennan said much of the sales increase was late in the quarter, with the month of March alone recording a 173 per cent rise to $1.76m. It follows the company recording its first $1m month in sales in December.

08/01/20 Paul Brennan is the CEO of PolyNovo which is a biotech company which has been supplying fake skin to bushfire victims, NZ volcano victims as well as leading US hospitals. Aaron Francis/The Australian

1.02pm: Shares shrug offshore rally

The local market has given up gains as much as 2.6 per cent, shrugging off the offshore rally as consumer staples and health stocks underperform.

The benchmark ASX200 pushed up to a four-day high early, but was trading flat at 5286.4 at 1pm.

Heavyweight health stocks CSL and Cochlear are key drags, down 1.6pc and 2.9pc respectively while the major banks are lower by between 0.2pc and 1.1pc.

Here’s the biggest movers at 1pm:

12.55pm: Trade surplus drops 8.8pc

Australia’s trade surplus dropped 8.8 per cent in February to a seasonally adjusted $4.36 billion, reflecting the impact of the COVID-19 pandemic. “Both exports and imports fell but not as dramatically as might have been expected,” Westpac economist Andrew Hanlan said.

Exports were down 4.7 per cent, or $1.9 billion, while imports dropped 4.3 per cent, or $1.5 billion.

Imports were down across the board as China’s coronavirus lockdown measures implemented in late January disrupted supply chains, Mr Hanlan said. Travel was down $780 million, or 14 per cent, and lump iron ore exports fell $282 million, or 13 per cent, the Australian Bureau of Statistics said on Tuesday.

AAP

Aust trade surplus fell to $4.36bn from $4.75bn.
Exports -4.7%mom with tourist exports -14.8% on the back of the travel ban from China.
Imports 4.3% on soft domestic demand.
Expect exports & imports to fall in Mar.
ANZ Mar job ads -10.3%mom consistent with falls in jobs#ausecon pic.twitter.com/vPkLmhx2is
— Shane Oliver (@ShaneOliverAMP) April 7, 2020

Ben Wilmot 12.42pm: GPT slashes valuation on virus hit

Property company GPT Group has dramatically cut the value of its wholesale shopping centre fund, and clipped the value of its office fund, in one of the first such moves by a real estate company, in a pointer to further falls across the sector.

The early move also cast a light on the listed property funds that are yet to disclose the heavy losses that are expected on its portfolios due to the coronavirus crisis.

Listed real estate investment trusts plunged in March as investors dumped stocks on fears the value of major regional malls, once a bedrock of the sector, would be shredded, and office towers would come under threat.

GPT announced that all properties in the GPT Wholesale Office Fund and the GPT Wholesale Shopping Centre Fund had been independently revalued as at March 31.

The retail fund was slugged with a negative revaluation of about $511m, representing a decline in book value of about 11 per cent.

“The reduction in retail valuations takes into account the independent valuers’ assessment of the effects of COVID-19 and is largely the result of a softening in the assumptions for market rental growth, restricted trading conditions and vacancy downtime,” GPT said.

It has a 28.5 per cent interest in the shopping centre fund.

GPT shares are still higher by 2.7pc to $3.84.

12.36pm: BlueScope cans buyback, cuts costs

BlueScope Steel has cancelled its $100m share buyback as part of a raft of measures to offset the impact of waning demand and workplace restrictions stemming from coronavirus.

In an update this afternoon, BlueScope said it had bought $34.4m shares since February 24 as part of its on-market buyback, but would now cancel the program and was unlikely to initiate further buybacks until business conditions improved.

That was alongside rescheduling its North Star expansion project, reducing capital expenditure by $40m and ceasing non-essential spending.

“In most countries in which we operate, to date steelmaking, including its supply chain, has been viewed as an essential service and allowed to continue to operate safely … BlueScope’s sites have low employee density, with a high degree of automation enabling sites to be operated with minimum employees in attendance,” it said, adding that operations in Malaysia and India have temporarily closed while its NZ operations had been shut down since March 25 in line with the government’s hard-line restrictions.

BSL last traded down 3.96pc to $9.94.

12.11pm: Cochlear cuts exec, board pay

Cochlear has today announced a suite of pay cuts as much as 30pc as it grapples with coronavirus uncertainty.

All non-executive directors will take a 30pc cut to their fees for an initial period of three months, while chief and president Dig Howitt will give up 30pc of his base salary – roughly $50,000 annualised as calculated from his fixed remuneration received last year.

Senior executives will have their pay reduced by 20pc for the same period.

The announcement comes after the group raised $880m in an upsized raising two weeks ago and as it noted that cuts to elective surgery would be only temporary.

“We expect that most of the delayed surgeries should progress once hospitals resume normal operations. Following the capital raising in March, we have strengthened our balance sheet and liquidity position, which significantly enhances our ability to emerge strongly from the uncertain impact, and the expected temporary decline in demand, caused by COVID-19.”

COH last traded down 2.7pc to $186.14.

Bridget Carter 12.05pm: Private equity loses interest in Caltex

DataRoom | A raft of private equity firms were understood to have approached Alimentation Couche-Tard about jointly bidding for Caltex, but since the onset of the coronavirus crisis, it is understood that they have now turned their attention to recapitalisation opportunities in the market.

Sources say that at least one – potentially a handful – of major buyout funds discussed working with Couche-Tard on a deal for the fuel retailer and refiner, but came to the conclusion that the Canadian group was best placed to make an acquisition.

Kohlberg Kravis Roberts was one name mentioned, although the thinking is that it has now moved on from Caltex, while other groups such as Brookfield, Blackstone, TPG Capital and The Carlyle Group had all apparently considered the opportunity.

The understanding is that now funds are fully focused on deals where they can take stakes in companies desperately in search of cash.

The opportunity is to offer funding with conditions attached where they can secure equity, known as Private Investment in Public Equity or PIPE transactions.

Caltex offered a trading update to the market on Monday, but it did not make mention of where matters stand with its suitor Couche-Tard that had offered $8.8bn or $35.25 per share for the company in February.

CTX shares last up 0.73pc to $24.69.

11.46am: 66pc of Aussie business report virus hit

Two thirds of Australian businesses have already reported a reduction in turnover or cashflow as a results of COVID-19, according to a survey by the ABS.

The second survey released today reported nearly half of businesses had made changes to their workforce arrangements including temporarily reducing or increasing staff working hours, changing the location where staff worked or staff being placed on leave.

Two in five businesses (38pc) have changed how they deliver their products or services, including shifting to online services. Over a third of businesses have renegotiated their lease and rental arrangements and a quarter have deferred loan repayments.

Staff members at The Strand in Townsville report the tourist strip is a “ghost town”. Picture: Dean Martin.

11.45am: Shares fading to just 0.5pc lift

Is this going to be another one of those nasty reversal days?

Australia’s S&P/ASX 200 share index has pared a 2.6pc opening gain to just 0.5pc before midday.

It comes as S&P 500 futures turn down 0.2pc after rising 0.9pc in early trading.

Perhaps the market was getting carried away with tentative signs of slowing coronavirus deaths and infections in Europe and the US.

11.55am: These miners at risk of dividend cuts

UBS analyst Glyn Lawcock notes that the coronavirus pandemic is not only driving a contraction of global economic activity and demand for commodities, it’s also creating mobility restrictions that are creating operational challenges impacting production for some miners.

With boards therefore expected to exercise greater caution when deciding dividend payments, Mr Lawcock has highlighted the miners where he sees risks of dividend cuts.

He has removed forecast dividend payments for Northern Star (already deferred), Western Areas and OZ Minerals for August.

He has also cut his August dividend forecast for Newcrest to US7.5cps – half of its policy of paying a minimum of US15cps, while also expecting Regis to cut its dividend to 8cps from 15cps.

“By moving to the bottom of published policy bands, we have also trimmed dividend expectations for BHP, Fortescue, Whitehaven and Coronado Resources,” Mr Lawcock says.

“We note this is an early move and that the ultimate dividend decision will be made in August with the benefit of hindsight on January half year cash flows.”

Lilly Vitorovich 11.41am: Southern Cross drops 20pc

Shares in Southern Cross Media are tumbling by more than 20 per cent this morning, after returning to trade from a two week halt to finalise a deeply discounted $149m raise.

The television and radio broadcaster says the share placement at 0.09c a share, attracted “strong demand”, and the institutional entitlement offer had a take up rate of about 92 per cent.

The retail component of the entitlement offer is expected to raise a further $19.5m before costs. It is set to open on April 15 and close on April 27.

Southern Cross directors and senior leadership team members, who are shareholders, plan to participate in the retail component of the entitlement offer by taking up their pro rata entitlement for new shares.

SXL shares are lower by 21pc to 13c.

11.35am: ANZ job ads down 10pc

ANZ’s survey of job ads has hinted at the pain to come for Australia’s jobless rate – with March ads down 10.3 per cent from the previous month.

February’s figure was revised up to a 1.2pc lift from 0.7pc previously reported.

#ANZ Australian Job Ads dropped 10% in March, the largest monthly decline since the GFC. Most of the fall occurred over the second half of the month as Australian COVID-19 cases escalated, restrictions on movement tightened, and shutdowns of non-essential services broadened. pic.twitter.com/EvS2PB1mWs
— ANZ_Research (@ANZ_Research) April 7, 2020

People queue outside Centrelink in Nundah, Brisbane. Picture: AAP Image/Claudia Baxter.

11.18am: How to best forecast bank dividends: UBS

UBS analyst Jon Mott has cut his EPS and DPS forecasts for the major banks by an average of 35pc and 31pc respectively, saying he expects their bad debt provisions to rise.

Still, he keeps a Neutral rating on the sector, noting that determination of the overlay required at the interim results starting on April 30 is “challenging”.

“If a bank is seen to provide too little for bad debts and not cut dividends sufficiently, the market may perceive the bank as imprudent,” he notes.

“However, if it is seen to be providing too much and cutting dividends too far, the market may be equally as shocked.”

In his view the best indicator for an ‘unbiased’ estimate is the market itself. ANZ for example, is currently trading near $16 a share, despite having paid $1.60 in dividends last year, implying a massive 10pc dividend yield.

“Clearly the market does not believe its dividend is sustainable,” Mott warns. “We estimate the market is pricing in a 6.0-6.5 per cent yield, which would indicate an expected dividend of $1.00 for FY20 (implying an interim div of 50c).

“Additionally, we believe it may be prudent for the regulators and banks to agree on the range of modelled economic scenarios to ensure consistency across the industry and help maintain financial stability.”

Bridget Carter 11.10am: Strong indications of Oil Search demand

DataRoom | Oil Search advisers say that strong indications of demand have been received for its $1.16bn equity raising from a group of wall-crossed shareholders before the deal was launched on Tuesday.

The company will raise $760m through a fully underwritten institutional placement and through a partially underwritten 1 for 8 accelerated pro-rata non-renounceable entitlement offer to net about $400m.

Shares are being sold at $2.10 each, which is a 23.1 per cent discount to the last closing price of $2.73.

Working on the raise is Goldman Sachs and Macquarie Capital.

In a book message sent to investors, Oil Search advisers said that the retail component of the $400m non-renounceable entitlement offer is not underwritten. Abu Dhabi’s oil company Mubadala, which currently has a 12.89 per cent stake in Oil Search and is its largest shareholder, will not participate in the raise.

“Strong indications of demand have been received from a group of wall-crossed shareholders prior to launch,” the book message said.

11.03am: Nikkei soars more than 3pc

Tokyo’s key Nikkei 225 index opened more than three per cent higher on Tuesday, extending rallies on Wall Street as some of the world’s worst-hit countries reported falling coronavirus death rates.

The benchmark Nikkei 225 index rose 3.07 per cent or 570.11 points to 19,146.41 in early trade, while the broader Topix index was up 2.75 per cent or 37.80 points at 1,414.10.

“Tokyo stocks are seen rising backed by surges in the US market, after the death toll in New York State turned to a decline and the number of new deaths are being curbed in Italy and Spain,” Toshiyuki Kanayama, senior market analyst at Monex, said in a commentary.

AFP

10.54am: SCA Property seeking $300m

SCA Property Group is the latest to tap the market, this morning launching a $300m equity raising to support the company as it feels the pressure from coronavirus lockdowns.

The group reiterated that its centres were anchored by supermarket tenants, accounting for 48pc of its gross rental income, citing their resilience during the current downturn, and adding that the broad government stimulus “should benefit our small business tenants and their customers”.

It said the raising would provide capital to secure quality assets at competitive prices over the next 6 to 12 months.

“With over $550 million in cash and undrawn facilities following the Equity Raising, we will be in a position to act quickly as earnings accretive opportunities arise,” the group said.

On its assistance to tenants, the group said it was still assessing its options.

“While no abatements have been agreed as yet, we will consider requests on a case-by-case basis once March sales figures are made available, with adjustments able to take several

forms including rental deferrals or abatements. The impact on our FY20 earnings from any

rent lost from these tenants is expected to be partially offset by increases in percentage rent from our anchor tenants, interest expense savings and cost savings.”

The raise is offering shares at $2.16 apiece, an 8.5pc discount from their last closing price of $2.36.

Jared Lynch 10.24am: Tabcorp stands down 700 employees

Tabcorp is standing down more than 700 employees and moving full time workers to eight day fortnights in an effort to combat the coronavirus-led shutdowns of hotels, clubs, TAB agencies and sport events.

Chief executive David Attenborough said the company was exploring its eligibility for the Federal Government’s $130bn Job Keeper wage subsidy, which provides $1500 per worker a fortnight and is expected to pass parliament this week

“Our focus is on retaining jobs for the long term,” he said.

“This continues to be a very challenging time for our people, businesses, partners and the community.

“We are committed to working proactively and collaboratively with all our stakeholders so that we can collectively emerge from the COVID-19 period as strongly as possible.”

Tabcorp said the 700 workers will be stood down until June 20 and would continue to access their accrued leave entitlements.

TAH last traded up 8.15pc to $2.92.

A bar manager clears out of the bar fridge at the Notting Hill Pub in Melbourne. Picture: Asanka Ratnayake/Getty Images.

10.12am: Shares edge up for second day

The local market is firmly higher for a second day, after a rally on offshore markets fuelled by slowing coronavirus fatality rates.

Australia’s S&P/ASX 200 opened up 2.6pc at 3-week high of 5423.1 as expected based on overnight futures.

But S&P 500 futures are up 0.7pc and WTI crude futures are up 3.4pc in early trading, giving hope of further upside in Australian shares today.

Consumer discretionary stocks are leading the charge, up 4pc, while consumer staples and utilities are pulling back.

Computershare rose 10pc despite cutting its EPS guidance by 20pc, while Afterpay rose 9pc and Nearmap rose 11pc. Flight Centre rose 22pc after Jefferies upgraded to Buy and Aristocrat rose 8.5pc.

Nick Evans 10.08am: Big miners best poised to maintain payouts

Ongoing strength in the iron ore price and low debt levels means Australia’s biggest miners should be among the few local corporate giants in a position to maintain dividend levels, according to Macquarie analysts.

In a client note Macquarie said that, despite falling base metals prices weighing on BHP, Rio Tinto and South32, with the iron ore price still hovering around $US80 a tonne the Pilbara’s heavyweights should be still delivering strong cash flows from their operations, underpinning their dividend yield.

“Given the strong free cash flow yields on our forecasts and at spot prices, we believe the iron ore miners should continue to pay healthy dividends,” the client note said.

“The 12-month forward yield is 3 per cent for S32, 7 per cent for BHP, 8 per cent for Rio and 14 per cent for Fortescue. These screen well versus other sectors, with the ASX100 average forward yield being 5 per cent.”

BHP will also have taken a big hit from the tumbling oil price, Macquarie analysts said, and has the biggest debt position of the big miners – with gearing levels at 20 per cent, compared to net gearing of 5 per cent for Fortescue and 7 per cent for Rio – but the strength of its Pilbara iron ore portfolio still made the company an attractive proposition.

“Earnings upgrade momentum remains robust for FMG, RIO and BHP driven by buoyant iron ore prices, which offsets weakness in other commodity prices,” Macquarie said.

“The medium-term outlook for S32, at spot prices, has weakened recently, driven by the decline in alumina prices. The majors with iron ore exposure should continue to pay healthy dividends, with yields well above those offered in other sectors and above that of the ASX100 on average.”

A BHP freight train carrying Australian iron ore to port. Picture: Ian Waldie / Bloomberg.

10.03am: Will Sydney Airport raise equity?

Citi analyst Suraja Nebhani says investors are asking if Sydney Airport will need to raise equity.

While it has a “reasonable runway from a liquidity perspective” he says “cash flow covenants could be a point of concern” amid extended travel restrictions.

“We believe that in a scenario of a prolonged period of travel restrictions – more than 6 months – Sydney Airport could need to raise capital,” Mr Nebhani says.

“While it might have a number of options to raise capital, we believe that an equity raising may be more viable than asset sales in current conditions.”

The usual rule is “raise when you can, not when you have to”. Recent price action suggests the market is looking for a raising from Sydney Airport.

SYD last at $5.19.

9.56am: Southern Cross completes $149m raise

Southern Cross has completed a $149m placement and institutional raise, with a retail component set to add a further $19.5m.

Announcing the completion this morning, the radio production group said it had received strong demand, with a take up rate by eligible institutional shareholders of approximately 92pc.

Shares were offered at a heavily discounted rate of 9c apiece – SXL last traded at 16.5c.

Jared Lynch 9.51am: Reece pulls off $600m raise

Plumbing giant Reece has successfully tapped the market to raise $600m to bolster its balance sheet so it can capitalise on the need for greater sanitation amid the global coronavirus pandemic.

The company, which has retail stores across Australia, New Zealand and for the past two years, the US, announced on Tuesday it had completed the institutional offer of the capital raising, which chief executive Peter Wilson said was a strong endorsement of the company’s strategy.

Reece’s pitch comprised the slogan ‘doctors cure, plumbers prevent’ and Mr Wilson said the company aimed to fortify itself so it can take advantage of the opportunities arising during the COVID-19 crisis and in the virus’ aftermath.

Reece conducted a fully underwritten institutional placement and three-for-55 entitlement offer, which together raised about $600m. The entitlement offer secured more than 99 per cent take up from eligible shareholders, raising $42m at an offer price of $7.60.

Mr Wilson said the placement attracted significant demand from new and existing institutional shareholders and more than 48.3 million new shares will be issued.

Read more: Reece Plumbing raising $600m

9.44am: Shares to lift on global optimism

Australia’s sharemarket looks set to benefit from further global optimism about the coronavirus pandemic but markets are increasingly at risk of underestimating the economic damage from the pandemic.

Overnight futures relative to fair value suggest the ASX200 will open up 2.6pc at a 3-week high of 5425 points. A close at 5455.24 or above would put the ASX200 back in a bull market defined as a rise of at least 20pc from the daily closing-basis trough.

The S&P 500 rose 7pc to a 4-week high close of 2663.7, which was 3pc more than indicated by futures at the Sydney close.

That followed further falls in new infections and deaths in Europe and the US. Spain had its lowest new cases in a fortnight and less deaths for a fourth day running. New cases and deaths in Italy continued to fall and in New York, Governor Andrew Cuomo said the state’s virus-related death rate had been effectively flat for two days.

While some European countries are starting to ease restrictions, NAB’s senior FX strategist Rodrigo Catril notes they will still continue to have extreme economic lockdowns.

“Also the risk of a second virus outbreak should not be underestimated,” he says. “Asian countries, such as Japan and Singapore, that have been successful in containing COVID-19 are now re introducing some restrictions as the risk of a new round of infection rises.

“So the conclusion then is that an uplift in containment measures is great news, but in all likelihood, the removal of containment measures will be very slow and the full economic impact remains unknown.”

Meanwhile, Australian companies continue to cut or withdraw their earnings guidance with Computershare and Tabcorp the latest to do so.

9.34am: Wage subsidies lift consumer confidence

Consumer confidence posted a jump of 10 per cent last week, rebounding from its record lows in a likely endorsement of the government’s $130bn wage subsidy package.

The print for the week came in at 71.9, up 10.1pc while current economic conditions was up a massive 24.6 per cent – though still 50pc below its level just six weeks ago.

Current financial conditions gained 8.8pc while future financial conditions rose 11.4pc.

“Better news about the flattening of the ‘pandemic curve’ may also have contributed. The bounce needs to be kept in perspective – confidence is still around the lows seen in 1990 during the last recession,” ANZ head of Australian economics David Plank said.

“So consumers can hardly be said to be cheerful or ready to spend. But it is nice to be commenting on some better news.”

ANZ-Roy Morgan Australian Consumer Confidence: Strong bounce from the record low is an endorsement of the Governmentâ€™s wage subsidy policy. But consumers still worried and not in a mood to spend. @roymorganonline @DavidPlank12 #ausecon #ausretail pic.twitter.com/OYNh3vAWgS
— ANZ_Research (@ANZ_Research) April 6, 2020

9.25am: What’s impressing analysts, what’s not

AusNet raised to Outperform – Macquarie
BHP PLC raised to Buy – Investec
BlueScope cut to Hold – Morningstar
Coles Group raised to Overweight – Morgan Stanley
Flight Centre target price cut 45pc to $12.50 – Citi
Flight Centre raised to Buy – Jefferies
Magellan Financial raised to Neutral – JP Morgan
Megaport raised to Buy – UBS
Metcash cut to Equal-weight – Morgan Stanley
Reece raised to Neutral – Citi
Santos raised to Overweight – Morgan Stanley

9.16am: Flight Centre raises $562m

Embattled travel agent Flight Centre will recommence trade this morning after raising $562m in a placement and entitlement offer, as part of a widescale coronavirus crisis plan to keep the struggling retailer afloat.

Both the placement and 1 for 1.74 entitlement offer were completed with shares offered at $7.20 apiece, and will be followed by a retail entitlement offer to raise $138m.

“The suite of initiatives announced yesterday, including the equity raising, will enable Flight Centre to trade through this period of disruption to the global travel industry, while continuing to deliver exceptional service to our corporate and leisure customers,” chief Graham Turner said.

FLT last traded on March 19 at $9.91 apiece.

Flight Centre’s flagship stores in Sydney's CBD on George St. Picture: Britta Campion / The Australian.

9.05am: Oil Search seeking $1.16bn

Oil Search is looking for as much as $1.16bn in its latest capital raise, to strengthen its balance sheet after twin blows of the oil rout and coronavirus uncertainty.

The stock went into a trading halt yesterday, with speculation they would raise as much as $1bn.

This morning, the group said it was looking to raise up to $US700m, equivalent to $1.16bn, “so that Oil Search can withstand a prolonged period of low oil prices”.

Shares are offered at $2.10 apiece, representing a 23.1pc discount to its last closing price.

Alongside the raise, the company said it was suspending or deferring discretionary activities and executing primary cost reduction measures, including salary cuts, headcount reductions in Sydney and Anchorage and discretionary spending cuts.

8.54am: Low rates prompt new Computershare warning

The collapse in global interest rates draws another profit warning from share registry group Computershare which says FY20 earnings per share are expected to be down 20 per cent on the same time last year.

Mid-last month Computershare was tipping earnings to be down 15 per cent on the year. Remember Computershare generates “margin income” from funds sitting in its trust accounts. “The latest interest rate cuts were earlier than we anticipated. Coupled with reduced transactional revenues and foreclosure suspensions, earnings will be impacted,” Computershare CEO Stuart Irving says.

“While some of the transactional volumes are more challenging to predict in this environment, there are a number of opportunities in other parts of the group, and our strategies to build strong businesses with solid long-term growth prospects are intact,” he says.

CPU shares last traded at $10.16.

8.35am: QBE names new international head

QBE Insurance says Jason Harris has been appointed CEO, International, succeeding Richard Pryce, who intends to retire at the end of this year.

The role reports to group CEO Pat Regan, who said Mr Pryce had enjoyed a long and distinguished career in insurance over a 35-year period, including seven years leading QBE’s European operations and more recently the operations in Asia.

Mr Harris joins QBE from AXA, where he was in charge of global property and casualty.

8.15am: Gold jumps

Gold prices surged over 2.0 per cent to a more than three-week high on expectations of global stimulus measures to counter the economic damage caused by the outbreak of the novel coronavirus.

Spot gold was up 2.3 per cent at $US1,653.35 per ounce, having hit its highest level since March 11 at $US1,655.69 earlier in the session.

US gold futures settled 2.9 per cent higher at $US1,693.90.

“Physical demand continues to dominate and support gold prices. Massive amounts of stimulus are effectively diluting currencies so gold demand is coming from all directions,” said Phil Streible, chief market strategist at Blue Line Futures in Chicago.

Reuters

7.58am: Copper rises

Copper has risen, supported by a slowdown in the death toll from coronavirus in some European countries and falling inventories, though fears of recession continued to weigh on prices.

Benchmark copper on the London Metal Exchange was up 1.1 per cent at $US4,891 a tonne.

Its 1.0 per cent rise last week on positive factory data from top consumer China snapped a six-week losing streak.

Reuters

7.55am: Airbnb raises $US1bn

Airbnb said it has raised $US1 billion in funding from private-equity firms Silver Lake and Sixth Street Partners as the company struggles with the decimation of the travel and hospitality industry due to the coronavirus pandemic.

The San Francisco-based start-up said the funding will be a combination of debt and equity, and is meant to support Airbnb’s long-term work, including its network of hosts and stakeholders.

The homesharing giant said about $US5 million will go toward a Superhost relief fund, which will provide grants for a combined total of around $US15 million to hosts who rent out their own home and need help paying their rent or mortgage, as well as for hosts who offer a variety of experiences — such as classes, tours and outings — and are dealing with hardships.

Airbnb is struggling with the impact of the pandemic. Picture: AFP

Dow Jones

7.35am: RBA to assess QE

The Reserve Bank board will consider whether its bond-buying program needs tweaking when it holds its first monetary policy meeting since unveiling a historic suite of stimulus measures to combat the impact of the coronavirus pandemic.

Board members decided at a March 18 emergency meeting that Australia’s economy would likely shrink in the March and June quarters – and potentially longer – and therefore the cash rate needed to be cut to a record low 0.25 per cent. The RBA’s first out-of-cycle meeting since 1997 also deployed a range of quantitative easing measures in a bid to cushion the economic pain brought by the COVID-19 pandemic.

Westpac’s economists are among those who do not expect the RBA to touch the cash rate on Tuesday as board members have already signalled it will likely remain lower bound “for some time”.

“As such, the focus of RBA meetings will be on how the board assesses its QE measures and whether they may require adjusting,” Westpac said in a note.

“For April we do not anticipate this requiring any adjustments.”

The RBA reduced the cash rate to 0.5 per cent at the bank’s regular March board meeting and has cut it by 1.25 percentage points since last June in a bid to stimulate the flagging Australian economy.

The widely anticipated March 18 emergency cut meant the central bank also pulled the trigger on its first-ever quantitative easing program to boost cash supply and encourage lending and investment.

Tuesday’s monetary policy decision will be announced at 2.30pm (AEST).

AAP

7.30am: ASX set to surge at open

The Australian sharemarket is tipped to continue its strong start to the week after the major US indices surged more than 7.0 per cent each on a drop in New York’s daily coronavirus death toll.

At 7am (AEST) the SPI200 futures contract was up 124 points, or 2.45 per cent, at 5,397.0 points, suggesting local stocks will rise again at the start of trade.

The S&P/ASX200 benchmark index finished Monday up 219.3 points, or 4.33 per cent, to 5,286.8, while the All Ordinaries index rose 216.7 points, or 4.24 per cent, to 5,323.6 points.

The rally snapped a two-day losing streak, with the ASX200 closing at its best level since March 17.

Global markets jumped overnight as coronavirus-related deaths showed signs of slowing in certain major cities.

The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite added more than 7.0 per cent each after a decline in the daily death toll in New York, the country’s biggest coronavirus hot spot.

US officials had earlier braced the country for a dire week, with the death toll topping 10,000.

Meanwhile, oil prices have tumbled again due to a delay in talks between Saudi Arabia and Russia to cut supply.

The Australian dollar was buying US60.88 cents at 7am (AEDT), up from US60.50 cents at the close of markets on Monday.

AAP

7.20am: Carnival soars on Saudi stake

Carnival Corp shares rose 20pc after Saudi Arabia’s sovereign-wealth fund disclosed an 8.2% stake in the world’s largest cruise operator.

The Public Investment Fund’s purchase of 43.51 million shares came as the coronavirus pandemic has put the company’s sailings to a halt. The fund has invested in Uber, Tesla, Penske Media and Lucid Motors, according to FactSet. Based on Carnival’s closing price on Friday of $US8.49, the Saudi stake is valued at $US369.4 million.

The stock rise is the company’s largest percentage increase on record, according to Dow Jones Market Data. Shares in Carnival gained $US1.72 to $US10.21 on Tuesday. The stock has fallen about 79pc so far this year.

Carnival and other cruise lines have sought to preserve liquidity as revenue dries up.

Carnival Australia’s The Ruby Princess, docked at Port Kembla. A criminal investigation will examine how it was allowed to disembark passengers with coronavirus symptoms in Sydney. Picture: AAP

Dow Jones

6.45am: Oil slides after summit delay

Oil prices fell, paring some of their recent rebound after a virtual summit for producers to discuss supply cuts was postponed to later in the week.

US crude futures dropped 8pc to $26.08 a barrel on the New York Mercantile Exchange, coming off their largest one-week percentage advance ever. After tumbling to an 18-year low, prices soared late last week after President Trump said that Russia and Saudi Arabia were close to reaching a deal to curb supply. Even with that rebound, they are down about 57% for the year.

On Monday, Brent crude, the global gauge of oil prices, slid 3.1pc to $US33.05 a barrel on the Intercontinental Exchange.

Dow Jones

6.10am: Dow surges more than 1600 points

US stocks rallied as investors cheered early signs that lockdowns in the US and Europe may be helping slow the coronavirus pandemic, even as Americans brace for another difficult week.

Major indexes in the US opened sharply higher, held relatively steady for most of the day and then soared in the final 10 minutes of the trading session. A late surge in tech stocks, including Visa, Microsoft and Apple, turbocharged the gains: the Dow Jones Industrial Average ended the session up more than 1600 points.

All 30 stocks in the index climbed, as did all 11 sectors in the S&P 500. Beaten-down retail and travel stocks were among the biggest gainers.

The blue-chip index rose 7.7pc on the day, although it is still down more than 20pc this year.

The Dow finished the day with its 12th consecutive move of at least 1pc higher or lower, the longest such streak since March 2009, and its 28th consecutive move up or down at least 0.5pc, according to Dow Jones Market Data. A streak like that last occurred in October 1931 during the Great Depression when the Dow rose or fell at least 0.5pc on 33 consecutive trading days.

The S&P 500 climbed 7pc, led by the utilities sector, which rose 7.9pc, followed by the materials and consumer-discretionary groups, both up more than 7.5pc.

The tech-rich Nasdaq jumped 7.3 per cent.

After yesterday’s 4.3pc lift, Australian stocks are tipped to open higher. At 6.00am (AEST) the SPI future sindex was up 125 points, or 2.3 per cent.

The Australian dollar was higher, at US60.88c.

New York Governor Andrew Cuomo said the number of daily deaths from COVID-19, the pneumonia-like disease caused by the virus, have been “effectively flat” in his state for the past two days, suggesting social-distancing measures have proved effective. The number of daily hospitalisation, intubations and people in intensive care units is also down.

Health authorities have warned that new models show the number of cases is likely to reach a new high in coming days.

“Everyone is just desperate for good pieces of news,” said Peter Cecchini, chief market strategist at Cantor Fitzgerald. “It doesn’t necessarily reflect anything fundamental. Nothing’s changed.”

Indeed, with volatility in the market as elevated as it has been lately, he said, Monday’s swings are typical.

A woman walks past the New York Stock Exchange. Picture: AFP

At least one-quarter of the US economy has gone idle as authorities curtailed travel and activity, an analysis conducted for The Wall Street Journal showed.

JPMorgan Chase Chief Executive James Dimon said in his annual letter that he expects “a bad recession.” The country wasn’t prepared for a pandemic, but “we can and should be more prepared for what comes next.”

Oil markets struggled to find their footing. Major oil-producing nations are preparing to meet Thursday to discuss how to address the global glut in supply.

West Texas Intermediate crude, the US oil benchmark, fell 6.5pc to $US26.51 a barrel. An emergency summit to discuss global production cuts was pushed back from Monday to later in the week amid continued tensions between Saudi Arabia and Russia. Investors are growing increasingly concerned that a failure to cut output may result in the world running out of storage space for excess crude. Limiting production may also not be enough to offset the drop in demand.

The pan-continental Stoxx Europe 600 index gained 3.7pc. In Asia-Pacific markets, Australia’s benchmark S&P/ASX 200 index closed up 4.3pc. Japan’s Nikkei 225 rose 4.2pc. Markets in mainland China were closed for a holiday.

Dow Jones

5.45am: Boris Johnson moved to intensive care

British Prime Minister Boris Johnson was moved to the intensive care unit of a London hospital after his coronavirus symptoms worsened, just a day after he was admitted for what were said to be routine tests Johnson was admitted to St. Thomas’ Hospital late Sunday, 10 days after he was diagnosed with COVID-19.

“Over the course of this afternoon, the condition of the Prime Minister has worsened and, on the advice of his medical team, he has been moved to the Intensive Care Unit at the hospital,” his office said in a statement.

Downing St, said Johnson was conscious and does not require ventilation at the moment, but was in the intensive care unit in case he needed it later. It said Johnson has asked Foreign Secretary Dominic Raab to deputise for him. Hours earlier, Johnson tweeted that he was in good spirits after spending a night in hospital.

British PM Boris Johnson, in a photo released by Downing Street on April 3. Picture: AFP

5.40am: Fed to aid small businesses

The Federal Reserve said in a brief announcement that it would support the government’s $US349 billion small business lending program, which had a rocky start Friday.

The Fed said Monday that it will purchase loans that banks make to small businesses as part of the program, which is carried out by banks and the Small Business Administration and was set up under the $US2.2 trillion economic relief package. The loans can be forgiven if they are spent on payroll, to encourage firms to keep paying their employees or rehire workers they may have recently laid off.

By purchasing the loans, the Fed would create an incentive for the banks to engage in more lending. Buying the loans should free up more cash for banks to lend. Otherwise, when banks make a loan, they are typically required to hold some cash in reserve in the case of default.

The Fed’s two-sentence announcement said that further details will be provided this week.

5.35am: EU to agree rescue plan

EU countries are nearing an economic rescue plan for European countries worst hit by the coronavirus outbreak, sources said on Monday, but not at the level of ambition called for by Italy and Spain.

The EU’s 27 finance ministers are to meet for a videoconference on Tuesday, where a deal to use the eurozone’s 410-billion-euro bailout fund was expected to be agreed.

However, with deep divisions between the rich northern countries and those in the south with heavy debt, ministers were expected to sideline a proposal to issue “coronabonds” which would pool borrowing among EU nations to fight the crisis.

A group of states including European heavyweights Italy, France and Spain has been imploring Germany, Austria and the Netherlands for common debt instruments to cushion the economic impact of the virus.

But conservative politicians in the north fear the plans would mean the eventual sharing of all sovereign debts and their taxpayers footing the bill for supposed southern profligacy.

AFP

5.30am: Austrian, Czech officials to ease virus measures

Austria and the Czech Republic said they plan to relax some restrictions imposed because of the coronavirus starting after Easter, getting ahead of their European counterparts as they announced proposals that would begin a slow return to normal life.

The Austrian government said it aims to allow shops shuttered because of the pandemic to reopen in phases beginning in just over a week. But Chancellor Sebastian Kurz cautioned that authorities could activate the “emergency brake” if infections accelerate once more.

In the Czech Republic, the head of the government’s crisis committee, Interior Minister Jan Hamacek, said he is proposing to scrap a ban on Czechs travelling abroad starting April 14. He said border checks that were introduced to contain the virus would remain in place and people would be allowed to travel only under rules that have yet to be finalised.

Currently, Czechs are barred from leaving the country and foreigners from entering it.

5.25am: Stocks surge on virus hopes

Global equity markets strongly rebounded as some of the world’s worst-hit countries reported falling coronavirus death rates, while oil prices sank after a meeting of top producers was delayed.

“Global equities are soaring higher as early signs suggest curve flattening is happening in Europe and that US could be a couple weeks behind them,” said Edward Moya, an analyst at OANDA.

Key eurozone markets were five per cent or more higher at the close. “Investors are shrugging off the pessimism,” said AvaTrade analyst Naeem Aslam. “They are focused on more optimistic things: the slowing death rate caused by coronavirus. Italy, Spain, France, and Germany have all seen declining numbers.”

On Wall Street, the Dow Jones index also posted strong gains in the late New York morning, winning more than 1000 points over Friday’s close.

After news of slowing death cases in Europe, US investor optimism was also fuelled by “early signs that the virus’ intensity in the epicentre of New York may be hitting an apex,” said analysts at Charles Schwab.

London gains were capped by a stronger pound, apparently little affected by news that British Prime Minister Boris Johnson was hospitalised for precautionary tests after suffering “persistent” coronavirus symptoms for ten days.

But even as traders were feeling more optimistic, European governments were reaching for superlatives to describe the economic damage of the pandemic.

The French finance minister said his country was headed for its worst recession since World War II, while German leader Angela Merkel said the virus outbreak was the biggest challenge ever for the European Union.

“The coronavirus may trigger annual GDP declines among the worst seen in the last 100 years,” analysts at Oxford Economics said.

London ended up 3.1pc, Frankfurt soared 5.8pc and Paris rose 4.6pc.

AFP

5.25am: Another SeaWorld CEO resigns

SeaWorld Entertainment’s chief executive has resigned only five months into his job, becoming the third leader of the US theme park company to depart in just over two years, according to a company filing.

Sergio Rivera cited his disagreement with the board of directors’ involvement in decision-making at the company, according to a filing with the U.S. Securities and Exchange Commission.

His predecessor, Gustavo “Gus” Antorcha, cited a similar reason for his leaving last September. Rivera handed in his resignation Saturday. He was named the CEO of the company last November.

SeaWorld Orlando in Orlando, Florida. Picture: AP

5.22am: Russian inflation accelerates

Russia’s inflation rate rose to 2.5 per cent in March, official statistics showed Monday, reversing a months-long trend of slowing increases in consumer prices and an early indication of the impact of a crash in the value of the ruble and the coronavirus pandemic.

The year-on-year inflation rate ticked up in March from 2.3 per cent the month before, mostly due to an increase in food prices, according to the state statistics agency.

Russians started to stockpile food in March amid the coronavirus pandemic, which hit Russia shortly after oil prices and its currency the ruble slumped as a result of a collapse in talks between Russia and the OPEC cartel.

AFP

5.15am: Debenhams collapses … again

British department store chain Debenhams is set to declare bankruptcy for the second time in a year, the group said, amid a coronavirus lockdown that has ravaged the nation’s retailers.

Debenhams, whose history dates back to the late eighteenth century, said in a statement that it will file for bankruptcy and appoint administrators FRP to run the company, whose 142 department stores in Britain have been shut since the lockdown was declared last month.

The retailer, whose 22,000 employees are mostly on Britain’s so-called furlough scheme under which the government pays 80 per cent of salaries at virus-hit businesses, added bankruptcy would wipe out debt before management buys it back.

Debenhams had already fallen into administration around one year ago in the face of fierce online competition and Brexit uncertainty — but Britain has since left the European Union, on January 31.

AFP