ASX adds $45bn on global optimism as miners, banks outperform

Local shares surged by 2.4pc to cement the longest winning streak since October as major banks all finished higher by more than 5pc.

David Rogers and Melissa Yeo

31 min read

8:31PMJune 09, 2020

JP Morgan says the “stars are aligning” for iron ore as China demand snaps back quicker than first thought. Picture: China Daily / Reuters.

‘Stars are aligning’ for iron ore: JP Morgan
Dollar soars to 11-month high
Wesfarmers retail picking up
GPT takes $500m hit from coronavirus

That’s all from the Trading Day blog for Tuesday, June 9. The Australian market surged by 3.3pc in the morning session but trimmed gains to 2.5pc at the close after a big night on Wall Street, with the Nasdaq hitting a new all-time high and the S & P 500 lifting 1.1 per cent, fuelled by the optimism supplied by Friday’s US jobs figures.

Locally, Wesfarmers told the market sales were strong despite rising costs, while GPT’s latest valuation detailed a $500m cut due to coronavirus.

US futures are pointing to a slight slip overnight.

Eli Greenblat 8.29pm: Virus fast-tracks ‘internet of food’

Domino’s Pizza chief executive Don Meij says the restrictions on mobility and social distancing could be in place for 18 months, with the nation’s biggest pizza chain hoping for the best but preparing for the worst when it comes to the economies in which it operates snapping back.

Domino’s, which operates in Australia, New Zealand, Japan and parts of Europe, is a strong believer in the “internet of food” as the future of retail and that the coronavirus pandemic has brought forward this reality for food and other retail.

In an operational update to the market that did not include a trading update for its recent sales performance, Mr Meij said carry-out orders were rising as some of its regions emerged from lockdowns.

“As we see markets unlocked we are seeing a rise and return of carry-out, but deliveries are remaining strong,’’ Mr Meij said.

Domino’s was forced to shut down in many of its countries, with even takeaways stopped in France and New Zealand, although this was countered by higher online orders.

While Domino’s did financially support some of its franchise owners due to the economic fallout caused by the health crisis, the company did not see any greater need to lend funds to struggling franchisees at this stage.

Nick Evans 8.03pm: Iron ore upgrades lift miners

Fortescue Metals shares briefly touched new highs of $15.25 on Tuesday and Rio Tinto again crossed the $100 mark as analysts upgraded iron ore forecasts on the back of renewed problems for Vale in Brazil.

Australian iron ore miners enjoyed a strong day on the market, with Mineral Resources touching a breakout price of $20.985, before softening to close up $1.10 at $20.79.

BHP closed up 3.6 per cent at $37.64, with Rio Tinto up 2.8 per cent at $101.37.

The surge comes amid heightened expectations of another bumper dividend season for the iron ore miners as the end of the financial year nears with iron ore again on a bull run.

The latest problems for Vale, which have seen a key mining hub worth 12 per cent of its annual production temporarily closed amid concerns the coronavirus has spread into its workforce, have pushed iron ore back above $US100 a tonne and helped analysts upgrade price forecasts for the remainder of the year.

JPMorgan lifted its iron ore forecast by 11 per cent to an average $US91 a tonne for 2020, and by 10 per cent to $US80 in 2021, saying the “stars have aligned” for Australian exporters as stronger than expected Chinese demand has matched with weak Brazilian exports, declining port stocks and lack of response from marginal producers outside Australia.

John Durie 7.36pm: Economy still faces crunch time

Bonuses and stock price gains are off the agenda, so it’s a perfect time to load up the costs ready for a 2021 financial year bounce.

The evidence is in, with signs of life in the economy and retailers bouncing back in May, but the 2020 financial year is one most executives will want to forget.

That theory would look even better if there was evidence of actual growth investment through increased capital expenditure, which as the distinct lack of lines outside the big bank lending windows shows is sadly not evident. Now is the time for some farsighted companies to draw a line in the sand and make a bold corporate statement with new investment either at home or through expansion.

Glenda Korporaal, Lachlan Moffet Gray 7.01pm: What is the fate of Virgin bond holders?

The fate of the $2bn unsecured bond holders in Virgin Australia could affect public confidence in the emerging corporate bond market in Australia, Steven Wright, a Brisbane-based director of stockbroker Morgans warned yesterday.

In an interview with The Australian, Mr Wright — whose organisation represents more than 500 mum and dad investors in Virgin bonds, now worried they could lose their investment — said thousands of retail investors in the Virgin bonds and other potential retail investors in corporate bonds were now watching how the bond holders were being treated in the sale process for the airline. “A lot of people are watching to see how the bond holders fare in the administration process,” he said.

Deloitte’s Vaughan Strawbridge, who was appointed administrator of the airline on April 21, is now in discussions with two short-listed bidders, Bain Capital and New York hedge fund Cyrus Capital.

The two bidders have to make binding offers for Virgin by June 22, with Strawbridge selecting his preferred bidder by the end of June. Creditors including bond holders will get to vote on a proposal put to them by Strawbridge at their next meeting on August 22. Mr Wright said the federal government was keen to encourage the development of a corporate bond market in Australia.

He said the success of the Virgin note raising last November was seen as an important step forward in the development of a corporate bond market for retail investors in Australia. But now that the airline had gone into administration with debts of almost $7bn, he said retail investors would be studying the fate of the unsecured bonds holders.

Cliona o’Dowd 6.51pm: Lack of alternatives driving ASX

Momentum is the No 1 factor driving the sharemarket rally as investors pile into equities in the absence of a worthwhile alternative, Cyan Investment Management director Dean Fergie said.

Despite the market rocketing 35 per cent since its March lows, and amid fears of a potential second wave of COVID-19 battering the nation, Mr Fergie still sees an opportunity for investors to make “some very, very good returns” in the near term.

“We’re cognisant that there could be headwinds around the corner, but on the same note, there’s clearly a lot of momentum in the market … it just seems like it could have a sell-off but it might not have that sell-off until it goes another 20 per cent,” Mr Fergie told The Australian.

James Kirby 6.31pm: Tech stocks red hot

The ASX is warming up, but technology stocks - now usefully assembled inside the ASX All Tech Index (XTX) - are red hot.

An accelerated move to an online economy mandated by the recent lockdowns have put a rocket under a range of tech-related companies.

Not just the tech titans of the US, but a swag of locally listed stocks that are capturing the confidence suddenly washing through global markets despite a very poor picture in terms of economic fundamentals.

The All Tech Index launched - at 2000 points - on February 24 when the entire global market began to sink.

The index sputtered into life and promptly went into a sharp decline. By March 23 - close to the bottom of the market - it had dropped by a heart stopping 41 per cent.

Today it is back in positive territory. The All Tech is up by more than 3 per cent from its first day and in common with NASDAQ - its Wall Street peer - it is at a record high.

Robyn Ironside 6.04pm: Jefferies: Qantas to be leaner post pandemic

Qantas is expected to emerge from the COVID-19 crisis a much leaner operation with about half of its current workforce and a greatly reduced cost base in response to much weaker demand.

Detailed equity research by investment bank Jefferies forecast staff costs for the Qantas Group to shrink to just over $2bn in the 2021 financial year, from $4.2bn in 2019.

Expenditure on fuel, aircraft and marketing were also tipped to be slashed in a move that could see Qantas return to profit in 2021 after a net loss of around $200m in 2020.

Perry Williams 5.36pm: UAC Energy Infigen offer ‘not hostile’

The company behind a $777m takeover offer for Infigen Energy has indicated it could settle for holding a strategic stake in the renewables developer should it fail to win over shareholders for its proposed buyout.

UAC Energy has lobbed an 80c a share offer and acquired 13 per cent of Infigen’s shares but needs to win over major investor The Childrens Investment Fund Management or receive a recommendation from the clean energy operator’s board to land its target.

However, the Philippines-backed UAC said it was open to different scenarios as it works to stack up a deal and Infigen should not regard it as a hostile bidder.

Cliona O’Dowd 5.07pm: NAB personal private banking touch

The average high net worth individual doesn’t know who their private banker is, if they even have one, JBWere chief executive Justin Greiner has found after two decades in the wealth industry.

The relationship deficit is one of the gaps in the underserved private wealth segment that NAB is attempting to remedy by combining its private bank, nabtrade trading platform and JBWere wealth management operations as part of Ross McEwan’s shake-up of the business.

“Ross has been very clear about how important this sector is and how he wants to make sure that we work as quickly as possible to be able to address the needs of high net worth Australians. So yeah, there’s no time to waste,” Greiner says of the move to bring together the three businesses he is now leading.

4.48pm: Bank adds 5pc+

The bank rally is showing no signs of slowing down, the sector was the best performing with a 4.8 per cent jump, led by a 6.2 per cent lift in ANZ to $21 while Westpac added 5.8 per cent to $19.88. NAB gained 5.08 per cent to $20.47 and Commonwealth Bank put on 5.1 per cent to $72.20.

Major miners also were key in the market jump, as JP Morgan lifted its iron ore forecasts for the year by 10 per cent. BHP added 3.6 per cent to $37.64 as Rio Tinto gained 2.8 per cent to $101.37 and Fortescue hit a record high of $15.25 early before settling to a gain of 2.3 per cent at $14.87.

Here’s the biggest

movers at the close:

4.11am: Shares power to 2.4pc gain

Local shares powered higher on Tuesday to add $45bn in market value and take the recent win streak to six days, as traders cheered global moves toward reopening the economy.

The lead from Wall Street was particularly strong after the long weekend, following better than expected payrolls which sent all US benchmark’s into the positive for the year and the Nasdaq to new record highs.

An early jump as much as 3.3 per cent set a new three month high for the ASX200 at 6198.6 but the index closed up a more moderate 146 points or 2.44 per cent to 6144.9, marking its longest streak since October.

Ben Wilmot 3.04pm: Logistics key for Charter Hall post-pandemic

The acquisitive Charter Hall is continuing its post crisis surge and has picked up a $115m logistics property in western Sydney, adding to its $40bn property funds empire.

The company believes the logistics sector will come through the widespread resetting of values best as consumers shift to buying more online, and broker JP Morgan on Tuesday called out the demand for industrial and long leased assets in the wake of the coronavirus crisis.

The broker said Charter Hall had 12 vehicles able to deploy capital, helping to counter any asset value declines in offices and shopping centres.

Just last week a Charter Hall fund and Allianz acquired Aldi’s logistics assets in a sale and lease back deal for $648m and the company has now struck again in Sydney.

In the latest deal, the unlisted Charter Hall Prime Industrial Fund and Charter Hall Direct Industrial Fund No. 4 bought the property from the Kador Group via an off-market transaction. Read more: Charter Hall backs logistics sector

2.28pm: Afterpay flat as market rallies

Afterpay, the market’s best performing stock year-to-date, is flat today despite a 2.7pc rise in the S & P/ASX 200.

The buy now, pay later pioneer is up 73pc year to date. It’s also the best performer over 3 months, with a 87pc gain.

Helped by customer growth and Tencent’s decision to take a 5pc stake – now worth about $400m more – Afterpay shares rose more than 6 fold from a March 23rd low of $8.01.

If it closes lower today, it would mark the first three-day fall in almost 3 months. A 3.3pc fall in the past two days and further retreat from a record high of $53.81 comes despite Friday’s a 26pc increase in target price to $65 a share by Bell Potter – the most bullish broker and also a joint lead manager in the IPO.

On Friday, founder Nick Molnar told The Australian the crisis has indirectly helped Afterpay by supercharging a shift to online purchasing.

Good news is no longer pushing the share price up, which may be a sign of a pullback or further underperformance.

After hitting an almost 5-month low of 1.2pc late last month, the percentage of stock sold short hit a 3-week high of 2.7pc last Monday. Initial chart support lies at $50.00 and potential uptrend line support comes in today at $49.00.

APT last traded at $50.65.

2.10pm: Cathay Pacific to get $5.5bn bailout

Hong Kong airline Cathay Pacific is set to receive a $HK30bn ($5.54n) bail out from its government, the first time the government has directly injected money into a private company, according to the South China Morning Post.

Trading in shares for Cathay Pacific – and its two biggest shareholders Air China and Swire – was suspended earlier today head of an expected announcement.

It comes as Cathay, Hong Kong’s flagship carrier, battles a devastating slump in business sparked by the global coronavirus pandemic. Like many airlines hammered by the crisis, the carrier has seen passenger numbers all but evaporate in recent months leaving most of Cathay’s fleet sitting on the tarmac and the company haemorrhaging cash.

AFP

A Cathay Dragon passenger aeroplane takes off as Cathay Pacific aircraft are seen parked on the tarmac at Hong Kong's Chek Lap Kok International Airport. Picture: Anthony Wallace / AFP.

2.02pm: Qantas well poised for recovery: Jefferies

Early signs are positive for a return of Qantas flight demand, according to Jefferies, who lifts its target price on the stock by more than 40pc.

Bloomberg reports that analyst Anthony Moulder notes the national carrier is likely to benefit from the return to air travel, helped by its strong loyalty unit as Virgin Australia remains in voluntary administration.

“On the basis that the domestic market will remain rational, and Qantas’s international businesses will return with an improved cost base and product, we believe Qantas remains well positioned for the recovery,” Mr Moulder says.

It comes as Jetstar today reported a resumption of domestic flights within New Zealand from July 1, and amid reports the airline will receive more financial aid from the government.

Jefferies has a buy rating on the stock and a $6.20 price target from $4.40 earlier.

QAN last traded up 5.6pc.

1.45pm: JPMorgan lifts iron ore forecasts

JPMorgan lifts its iron ore forecasts by 11pc to $US91/tonne for the year, and 10pc to $80/t in 2021, sayings the “stars are aligned” with strong Chinese demand, lacklustre Brazilian exports, declining port stocks and lack of marginal suppy response.

Analyst Lyndon Fagan notes the commodity continues to surprise to the upside, with prices up more than 10pc year to date.

He upgrades his growth forecasts for China’s steel production to 1.2pc, from earlier 1.5pc, based on stronger-than-expected output in April, bigger stimulus and promising demand recovery.

JP Morgan prefers Rio Tinto to BHP while Fortescue has a higher risk-reward.

The news is likely contributing to a surge in the bulk miners in today’s session – BHP up by 3.9pc, Rio Tinto by 3.4pc and Fortescue higher by 2.9pc.

Patrick Commins 1.29pm: COVID-19 assistance by the numbers

For those keeping count, in today’s COVID committee hearing we also had some updates from the ATO on the latest numbers around fiscal stimulus measures:

– As of midnight Thursday, June 4, the ATO has delivered $12.96bn in JobKeeper payments to 872,482 businesses. These now cover about 3.3 million employees, “and we expect all these numbers to continue to grow over coming weeks and months,” ATP boss Chris Jordan said.

– ATO has applied $13.38bn in cash flow boost payments to 708,000 businesses

– There have been 2 million applications for early release of super totalling $13.5bn from superannuation funds.

Gerard Cockburn 1.22pm: APRA reveals COVID-19 hit to banks

Australia’s banking sector profits have taken a hit as the economic downturn sparked by coronavirus continues to drag down financial performance.

Figures released by the Australian Prudential Regulation Authority shows the banking sector booked a net profit for the March quarter of $29.4bn, a 14.1 per cent fall compared to the same quarter in 2019.

While profits took a hit, financial incumbents were able to boost the loan book portfolios, with new owner occupier loans increasing to $64.5bn, a 19.2 per cent rise over the period.

Investment loans grew 23 per cent compared to March 2019 to $27.9bn

The industry’s total assets grew by 16.1 per cent to $5.6 trillion ($5,600.2bn), while total provisions at the end of March increased by 18.1 per cent to $14.6bn.

APRA said the full extent of the damage was yet to be experienced.

“Despite reduced profitability, bank financial positions remained sound due to strong capital levels and support through various policy measures,” the regulator said. “There were some early declines in capital and asset quality as a result of COVID-19, however the full scale of these impacts will only be seen in the coming quarters.”

1.02pm: Travel names soar as restart edges closer

Local shares are holding higher by 2.4 per cent at lunchtime, as banks and energy buoy the market.

At 1pm, the benchmark is higher by 141.3 or 2.4 per cent at 6140.

The major banks are all up by between 4.4pc and 5.7pc while CSL is the key drag – off by 2.3pc.

Travel names are outperforming on further hope of easing restrictions – Flight Centre is one of the market’s best performers, up 11.2pc while Qantas adds 5.3pc and Sydney Airport rises by 8.2pc.

Ben Wilmot 12.44pm: Scentre, Stockland may need more equity: MS

The stock market is implying shopping centre giant Scentre and developer Stockland may need to tap investors for equity as they deal with the coronavirus crisis, according to Morgan Stanley.

The gearing inferred by their price to net tangible asset ratios were either close to their boards’ targets, or at a level that investors may find uncomfortable, the bank’s property analysts said.

Morgan Stanley said eight of the 14 companies it covers are trading at below their stated net tangible asset backing, most notably retail pure-plays Scentre, Vicinity Centres, Charter Hall Retail REIT and SCA Property Group.

Office and diversified REITs including Stockland, Mirvac, Dexus and GPT are also at discounts but the real focus is on companies where the market is effectively implying that book values could be marked down by 20-30 per cent.

If that were to happen in reality, Stockland would be close to breaching its gearing target, whilst Scentre may find itself at a level that investors may find uncomfortable, Morgan Stanley said.

On its reckoning Scentre is trading at 0.56 Price/NTA ratio, which means the equity market is only valuing its $40bn portfolio at $28bn. If book values were marked down by 20-30 per cent, it estimated Scentre’s gearing would increase from 34 per cent currently to almost 50 per cent.

“Whilst this is still below the company’s gearing covenant of 65 per cent, we would imagine that the financial markets may find 50 per cent gearing a little too leveraged, and may expect Scentre to source additional equity, lower payout ratio, or divest assets – bearing in mind Scentre still owns 100 per cent of its trophy assets,” Morgan Stanley said.

SCG last traded up 6.4pc to $2.68 while SGP is up by 1.8pc to $4.03.

Lilly Vitorovich 12.17pm: Seven West cheers Big Brother launch

Shares in Seven West Media are jumping by 18.5 per cent at midday, as the group cheers the success of the launch of its Big Brother reality show.

Programming boss Angus Ross said he was “thrilled” with the launch which exceeded expectations.

Last night’s eviction episode of Big Brother, which now pits housemates against each other in a way similar to rival reality format Survivor, was the most popular entertainment show on TV on Monday night, beating cooking competition MasterChef on Network Ten and singing competition The Voice on Nine

Mr Ross said the reality show and Seven’s broader content-led growth strategy is about attracting viewers aged between 25 and 54, which is “key” for its advertisers, which include online retail giant Amazon.

SWM shares are up by 18.5pc to 16c.

Don't be the only one with nothing to contribute on Zoom this morning. Last night's Big Brother was a rollercoaster ride from start to finish. Catch up on @7plus. #BBAU https://t.co/PXqe5R0mtq pic.twitter.com/g432SY4KSf
— Big Brother AU (@bigbrother_au) June 8, 2020

12.00pm: May job ads edge higher: ANZ

The worst of the jobs downturn is over, with job ads edged higher in the past month, according to ANZ.

In March and April, job ads dropped by an unprecedented 58pc but that weakness is now behind us, according to senior economist Catherine Birch.

Job ads for May edged up a marginal 0.5pc, to be down 59.8pc for the year.

“The week-to-week movements are more promising, with job ads improving steadily during May, from a low point at the beginning of the month,” Ms Birch reports.

“This is consistent with the gradual rollback of COVID-19 restrictions, which has allowed some businesses to reopen, extend trading hours or increase activity and is seeing a recovery in household spending.”

She tips another net employment loss for May but a period of “rapid improvement” from mid year.

The unprecedented 58% fall in ANZ Australian Job Ads in March-April ended in May, with a 0.5% m/m rise in the monthly average. The week-to-week movements are more promising, with job ads improving steadily from a low point at the beginning of the month. #ausecon #auspol @cfbirch pic.twitter.com/iQC5jazkKu
— ANZ_Research (@ANZ_Research) June 9, 2020

Ben Wilmot 11.56am: Singaporean picks up QLD housing sites

Singapore listed Ho Bee Land has broken the drought in residential site sales picking up a project in the Ripley growth area, a major corridor on Brisbane’s outskirts, and another on the Sunshine Coast.

The company’s units, HB Doncaster Pty Ltd and HB QLD Pty Ltd, separately acquired the sites for a total for $23.5m, and they could yield about 665 lots.

One of the properties in Ripley comprises a 47.41ha site in the Ripley Valley Priority Development Area and can accommodate about 570 residential lots. That parcel cost about $14.5m.

The other in Bli Bli, Queensland, is an 8.98ha site that is the final two stages of the Parklakes 2 development on Queensland’s Sunshine Coast. The site has received all the required development permits and will yield 95 residential lots and cost $9m.

11.33am: Business uncertainty still high: NAB

Australian business uncertainty remains high despite a further broadbased improvement in NAB’s monthly business survey as coronavirus restrictions ease.

Business confidence recovered to a net balance of -20 points in May from -45 points in April. Business conditions recovered to -24 points from -34 points in April.

The Employment sub-component of business conditions lagged with a recovery to -31 points from -34 points.

Forward indicators including capital expenditure, capacity utilisation also remained weak, NAB warned.

NAB survey shows a large rebound in business conditions and confidence, still at very weak levels but should continue to improve as restrictions are lifted #ausbiz pic.twitter.com/8VcFLpdAH1
— Alex Joiner (@IFM_Economist) June 9, 2020

Gerard Cockburn 11.27am: Super withdrawals top $13.5bn

Billions of dollars continues to be leached from the country’s super funds as almost two million Aussies draw down on their retirement savings.

Latest figures released by the Australian Prudential Regulation Authority show $13.5bn has been drained from the country’s near $3 trillion retirement pool, from members requesting hardship payments due to COVID-19.

As at May 31, 1.96 million Australians had lodged withdrawals requests with the Australian Taxation Office, for an average payment of $7,473.

The early release of super scheme was implemented by the federal government in April, as a support measure to assist Australians who have been affected by the economic downturn induced by the pandemic.

People that have become unemployed or experienced a reduction in working hours are able to access up to $10,000 this current financial year and the 2021 financial year.

11.18am: Travel names take off

Further progress toward the lifting of travel restrictions across the country has prompted a lift in listed travel names.

Flight Centre shares are up by 10.6pc to as much as $17.04 in morning trade – marking a premium of 136 per cent from shares offered in its retail entitlement offer just last month.

Webjet shares are up by 9.1pc to $4.90 while Corporate Travel is higher by 6.9pc to $14.22.

Reports of financial assistance for Qantas is lifting the airline’s shares by 6.3pc to $4.92.

11.05am: ASX200 stretches valuation

A record-high PE valuation and record-low dividend yield argues for profit taking and rotation to value in the Australian share market.

But at the same time, unprecedented monetary and fiscal stimulus suggests valuations should remain relatively high.

The S & P/ASX 200 share index is up 2.6pc at 6154 after rising 3.3pc to a 3-month high of 6198.6 in early trading.

The 12-month forward PE is trading near 20 times and the 12-month dividend yield is near 3.3 times.

The Industrials ex-Financials forward PE is trading near 28 times.

10.47am: Economic outlook improving: Westpac

Australia is headed toward a recession, but the outlook is a little better than feared, so says Westpac chief economist Bill Evans.

After last week’s GDP showed a 0.3pc slip for the March quarter, he trims his June quarter forecasts to a drop of 7pc, from earlier 8.5pc.

Mr Evans attributes the change to an earlier than expected easing of some restrictions, tipping the economy to return to growth of 1.5pc in the third quarter and lift by 2pc by the fourth quarter.

“Through the year the economy is now forecast to contract by 4pc with a contraction of 7.3pc in H1 and growth of 3.5pc in H2. The growth profile in Q3 and Q4 has been revised from -0.6pc and +5.2pc to reflect the earlier than anticipated easing of restrictions,” he says.

Ben Wilmot 10.41am: GPT takes $500m hit from coronavirus

Diversified property company the GPT Group has become one of the first listed companies to reveal dramatic falls in the value of its shopping centre portfolio, taking a near $500m hit due to the coronavirus crisis.

Shopping malls are in crisis as major retail chains refuse to pay rent for the period when their stores were closed and many have flagged strategies to dramatically slash their spaces in the face of an economic recession.

Many smaller retailers, who are protected by the Morrison government’s leasing code, are also unwilling or unable to pay rent for the period in which they were closed.

GPT had its seven directly held retail assets independently valued, cutting their book value by $476.7m, or about 8.8 per cent against their value at the end of last December.

Melbourne’s Highpoint Shopping Centre, in which GPT has a direct 16.7 per cent interest, was down by 13.6 per cent – with GPT’s slice off by $56.5m – indicating that even super regional malls will be hit by the impact of the pandemic.

GPT last up 7.9pc to $4.58

GPT has slashed the value of its Highpoint Shopping Centre. Picture: Mark Stewart.

10.29am: Iron ore boosts ASX to 3-month high

Australia’s S & P/ASX 200 share index jumped 3.3pc to a 3-month high of 6198.6 in early trading, following a 3.8pc rise in the S & P 500 during the Queen’s Birthday long weekend.

Value and cyclical sectors including Energy, Financials, Real Estate, Materials and Consumer Discretionary are leading broadbased gains while defensive and growth sectors including Health Care, Tech, Communications, Utilities and Consumer Staples are lagging behind.

The four major banks are exceptionally strong again with NAB, Westpac and ANZ rising more than 6 per cent and Virgin Money up 14pc in early trading.

Iron ore miners are also very strong with BHP, Rio Tinto and Fortescue Metals rising more than 4pc as iron ore futures surged to $US104 a tonne.

10.21am: Dollar soars to 11-month high

AUD/USD is up 0.3pc to 0.7038 after rising to 0.7041, its highest point since July 22nd 2019.

It comes amid a further weakening in the US dollar against the major currencies and reduced demand for safe havens amid faster-than-expected US economic recovery.

AUD/USD is currently the third-best performing G10 currency today.

Westpac currency strategist Sean Callow writes that asset managers have slashed their net shorts on the local currency, now at their least bearish since January.

A$ rose about 2.5c over week to 2 June, closing 0.6897. This matches real money on CME who slashed A$ net shorts from -18.8k contracts to -6.7k, their least bearish stance since 7 Jan. But leveraged funds extended net shorts from -14.3k to -21.3k, most bearish stance since 7 Jan pic.twitter.com/5aWyy8UD4m
— Sean Callow (@seandcallow) June 9, 2020

10.11am: Shares surge 3.3pc

The local market is surging more than 3.2 per cent in opening trade, to catch up with record breaking US trade over the long weekend.

At the open, shares are up by 197 points or 3.28 per cent to 6195.2.

10.04am: CSL buys biotech Vitaeris

Biotechnology giant CSL has bought Canadian clinical-stage biotechnology company Vitaeris for its research into treating the leading cause of rejection for transplanted kidneys.

CSL has worked with Vitaeris since 2017 on the phase III program to investigate how an antibody called clazakizumab treats a naturally-occurring inflammatory gene, which causes the body to reject many transplanted kidneys. The Aussie company had the option to acquire Vitaeris as part of the strategic partnership.

CSL said the cost of the acquisition was modest and would not change its profit guidance.

AAP

9.48am: Catch up gains to send ASX up 2pc+

Australian’s sharemarket is set to rise more than 2 per cent to catch up with a 3.8pc lift in the S & P500 since Friday, when US jobs data surged well beyond expectations.

ASX 200 futures relative to fair value suggest the ASX will rise 2.3 per cent to 6137 points and, combined with falling volatility, could hurt short sellers and increase the fear of missing out on Australian shares, potentially triggering sharp gains.

The shift from growth/defensives to value/cyclicals and the outperformance of small caps versus large caps looks set to continue, based on Wall Street.

Further bolstering US sharemarket sentiment overnight was an improved NY Fed survey of US consumer expectations and an broadening of the Feds’ Main Street lending program.

A 5.7pc rise in WTI crude gave an added boost to Wall Street on Friday after the OPEC+ group agreed Saturday to extend production cuts, though crude dipped 3.4pc overnight after Saudi Arabia said it would end voluntary cuts after June.

Iron ore prices have also surged by a total of 5.5pc to $US104 a tonne since Friday, boosting BHP’s ADR’s equivalent closing price to $37.52 or 3.3pc above Friday’s local close for BHP.

The big event this week is the outcome of Wednesday’s FOMC meeting, at which the Fed will probably say more support is needed, potentially sending Wall Street higher.

The main event domestically today is the release of NAB’s monthly business survey at 1130 AEST.

9.42am: The chart outlook for shares

The index faces chart resistance at 6132 points from the 61.8 per cent Fibonacci retracement of the Feb-Mar bear market. If it closes above that point today, it could soon test its 200-day moving average at 6327, with support potentially emerging at 6000.

The S & P/ASX 200 is currently down 10pc year to date and 20pc below its record high, while the S & P 500 is up 0.1pc year to date and 5pc below its record high.

9.39am: Childcare subsidiary cuts won’t hurt G8

Childcare operator G8 Education has reassured investors the cut to childcare subsidies next month won’t hurt its bottom line, even as its occupancy is less than 70 per cent.

The sector has been propped up by government support during the coronavirus shutdown, with relief payments provided for furloughed workers but the payments will come to an end on July 12, with normal child care subsidies to resume thereafter.

The group said occupancy was currently around 65pc, but physical attendance was near 50pc as some parents continue to keep children at home. Still, it said that was an improvement from attendance of 30pc in April.

In a note to the market, G8 said it would receive a transition payment from the government for the period through to September 27 to help families going back to work.

“The revised government support packages announced today are structured such that G8 expects to be in no worse a position relative to the prior support measures, even at more subdued occupancy levels than current,” G8 says.

“G8 also confirms that total cost savings are in line with the target outlined in the Investor

Presentation released on 9 April 2020.”

Dee Behan and her son Max (2) at their home at St Peters, Sydney. Picture: John Feder/The Australian.

Gerard Cockburn 9.00am: Wesfarmers retail picking up

Wesfarmers retail sales momentum is picking up as consumer foot traffic in shopping centres is starts to recover – the retail conglomerate today reporting growth for both its Bunnings and Officeworks chains.

Bunnings total sales grew 19.2 per cent in the second half, compared to the same period in 2019 while Officeworks sales have risen 27.8 for the same period.

Wesfarmers said foot traffic in Kmart and Target stores is showing signs of improvement, as shoppers are starting to return to shopping malls, following the COVID-19 shutdown.

“Despite this improvement, weekly sales performance remains highly variable as customer shopping patterns adjust and competitor clearance activity continues,” Wesfarmers said.

It also flagged the volatile demand for certain products in its Kmart stores has resulted in some product availability issues. Kmart sales growth is up 4.1 per cent for the current second half of the financial year, while Target stores have seen a decline in sales of 1.8 per cent.

8.50am: What’s impressing analysts?

Adbri restarted at Neutral: GS
Auswide Bank raised to Buy: Bell Potter
Bendigo & Adelaide raised to Overweight: JPM
BlueScope raised to Buy: GS
Boral restarted at Neutral: GS
BWP Trust raised to Overweight: JPM
CSR restarted at Sell: GS
Charter Hall Long WALE raised to Overweight: JPM
GWA Group restarted at Neutral: GS
Healius raised to Outperform: Macquarie
Infigen cut to Sector Perform: RBC
James Hardie restarted at Buy: GS
Worley raised to Outperform: Credit Suisse
Zip Co cut to Neutral: UBS

8.42am: ASX primed for early gains

Investors are likely to see early gains on the Australian share market after a surprisingly upbeat US jobs report drove recovery hopes on Wall Street. The local SPI 200 futures contract was higher by 41 points, or 0.67 per cent, to 6,138.0 at 0800 AEST on Tuesday, indicating gains in share values early. Overnight, the Nasdaq closed at a record high, becoming the first of the major US indexes to confirm a new bull market, while the Dow and S & P 500 also jumped on expectations for a swift recovery from a coronavirus-driven downturn. A closely-watched monthly jobs report on Friday showed an unexpected fall in the unemployment rate, bolstering views that the worst of the economic damage from the virus outbreak was over.

The Dow Jones Industrial Average rose 1.7 per cent, to 27,572.44, the S & P 500 gained 1.20 per cent, to 3,232.39 and the Nasdaq Composite added 1.13 per cent, to 9,924.75.

Meanwhile, the Australian dollar touched its highest level since July last year after hitting 70 US cents late on Friday.

It was still buying 70.16 US cents at 0800 AEST, up from Friday’s close of 70.02 US cents.

AAP

8.35am: Instant asset write-offs extended

The federal government’s $150,000 instant asset write-off scheme will be extended until the end of the year.

Treasurer Josh Frydenberg says the extension will cost $300 million and is expected to help about 3.5 million businesses.

“(They) will be able to go and buy equipment or machinery, other materials for their business – up to $150,000 – and write it off straight away,” he told Sky News on Tuesday.

“They can buy a pizza oven, they can buy a coffee machine, they can buy a new truck, a new tractor – they can buy new materials for their business.” Mr Frydenberg hopes it will encourage businesses to grow and invest as they prepare to emerge from the coronavirus pandemic.

“For a number of businesses it is very tough, but businesses aren’t just looking at today, they’re looking at tomorrow,” he said.

The instant asset write-off, which took effect in March, applies to businesses with annual turnovers of up to $500 million, up from $50 million. Businesses can benefit from the instant asset write-off multiple times.

AAP

7.10am: Energy stocks jump on OPEC cuts

Shares in US energy companies jumped overnight after an agreement by major oil producing nations over the weekend to extend production cuts.

The new deal, struck on Saturday by the Organisation of the Petroleum Exporting Countries and its allies, calls for 23 countries to collectively reduce output by 9.6 million barrels a day until the end of July, amending and extending a historic agreement sealed in April. But Libya on Saturday restarted production at its largest oilfield, while Mexico refused to continue with output curbs. American oil producers are also turning the oil taps back on, and US benchmark oil prices ended the session 3.4 per cent lower.

BP said it is cutting thousands of jobs, accelerating existing plans to reshape the company after the coronavirus pandemic’s crushing impact on oil prices. The move is one of the first and most drastic from the oil industry, which is expected to shed staff after crude prices hit their lowest level in decades in April, amid pandemic-driven stay-at-home policies that parked vehicles and curbed economic activity. BP plans to cut nearly 10,000 jobs, or 14 per cent of its workforce, and freeze pay increases for senior level managers as it seeks to strengthen its finances, the company said Monday.

Dow Jones Newswires

6.53am: Infratil raising $NZ300m

NZ infrastructure group Infratil plans to raise $NZ300 million through a fully underwritten $NZ250m institutional placement and an approximately $NZ50m share purchase plan.

The funds will be used to provide balance sheet flexibility and provide money for growth opportunities, the company said a statement to New Zealand’s stock exchange. The company’s shares have been placed in a trading halt in Australia and New Zealand to facilitate the raising.

The new funds give the company $NZ514m in total liquidity.

UBS New Zealand is acting as sole lead manager and underwriter.

6.25am: Nasdaq hits all time high

Wall Street indices powered higher on Monday as investors bet on the economy’s continued ability to recover from the coronavirus pandemic, with the Nasdaq reaching a new record close.

The tech-rich index gained 1.1 per cent to finish the session at 9,924.74, more than 100 points above its previous peak in February.

The benchmark Dow Jones Industrial Average gained 1.7 per cent to close at 27,572.44, while the broadbased S & P 500 rose 1.2 per cent to 3,232.39, erasing its losses for the year.

It was a dramatic recovery for US stocks following a bruising March that saw indices plunge in value as businesses across the United States shut down to stop the spread of COVID-19.

Investors have been buoyed by state moves to reopen their economies and a return of demand in key sectors.

Maris Ogg, portfolio manager at Tower Bridge Adviser, said markets are “running high on people’s expectation that we actually started a new bull cycle, that the economic cycle will have been revitalised by the downturn. It’s probably realistic.” Yet Wall Street’s new-found health has not been reflected across the US economy at large: the unemployment rate is at 13.3 per cent and nonpartisan research organisation National Bureau of Economic Research said Monday the US economy entered a recession in February.

But between the investors who are holding back in case the recovery falters and trillions of dollars in liquidity from the Federal Reserve, Ogg said markets are primed to increase. “The path of least resistance is still up,” she said.

United Airlines gained 14.8 per cent and American Airlines 9.3 per cent after both carriers announced last week they will increase flights amid rising demand for travel.

Carnival Cruise Line rose 15.8 per cent as it moved closer to its restart of limited operations from August

AFP

6.24am: Fed expands lending

The Federal Reserve said on Monday it will expand lending terms for its incipient program to extend loans to small and midsize businesses in a bid to reach more firms hit by the coronavirus-driven economic shock.

The Fed lowered the minimum loan amount and raised the maximum loan limit under its Main Street Lending Program. It also extended loan terms to five years from four years and will allow businesses to defer principal payments for the first two years of the loan, instead of just the first year.

“Supporting small and midsized businesses so they are ready to reopen and rehire workers will help foster a broadbased economic recovery,” Fed Chairman Jerome Powell said in a statement. “I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period.” Under the Main Street program, the Fed is preparing to lend directly to middle-market businesses, filling a hole left by the government’s economic-crisis relief efforts, and it is shaping up to be one of the trickiest things it has ever done.

The risk for the Fed is that it goes where the central bank has rarely ventured and that not many businesses seek help, creating both financial and political headaches.

Under the Fed’s middle-market program, a company would get a loan from a bank, which would then sell up to 95% of the debt to the Fed. This leaves the bank with less additional debt on its books and free to make more loans to other borrowers.

With the midsize business program, a key challenge is setting the terms so the Fed doesn’t become a dumping ground for bad loans – but not so onerous that companies don’t want to participate.

Dow Jones Newswires

6.20am: US expansion ended in Feb

The slow and steady recovery from the financial crisis was America’s longest stretch of more-or-less uninterrupted growth ever recorded. Now it’s officially over.

The National Bureau of Economic Research announced on Monday that the U.S. economy reached “a peak in monthly economic activity” in February, which “marks the end of the expansion that began in June 2009 and the beginning of a recession.” That shouldn’t be news to anyone, given the unprecedented collapse in jobs, production, and spending over the past few months, but the NBER has been the self-appointed chronicler of American business cycles since 1929.

Moreover, the speed of the announcement was unusually fast. The NBER’s Business Cycle Dating Committee typically takes far longer to announce turning points in the business cycle. (Data during normal downturns are often tricky to interpret in real time and are often revised.) It wasn’t until December 2008 that the NBER agreed the economy had peaked in December 2007, for example. The NBER waited until the end of April 1991 – which turned out to be after the early 1990s downturn had already ended – to conclude the economy had topped out in July 1990.

The really interesting question isn’t when the latest downturn started, nor even when it will end (if things go right, the bottom may already have passed) but when the U.S. gets back to where it was. That’s not something the NBER tracks, but most analysts expect it could take years. That would be a disaster, especially for the tens of millions of Americans who had only just gotten their finances in decent shape after the last downturn.

Dow Jones Newswires

Glenda Korporaal 6.10am: China investment in Australia tumbles

Chinese investment in Australia plummeted by more than 60 per cent last year to $3.4bn, as Beijing shifted capital towards developing nations that have signed up to Xi Jinping’s signature Belt and Road Initiative.

A new report reveals that despite record trade between the two countries, Chinese investment in Australia in 2019 was at its lowest annual level since its 2010 fall from boomtime heights, two years after Chinese minerals and energy sector deals brought in more than $20bn.

The investment dive is part of a broader trend of falling Chinese investment in Western countries such as the US and Canada, as Beijing directs capital flows to reinforce its strategic interests elsewhere in the world.

It came amid stricter Chinese government controls over outward investment, and tougher treatment by Australia’s Foreign Investment Review Board of bids by Chinese companies, particularly state-owned enterprises.

The report by KPMG and the University of Sydney predates last week’s announcement by the Morrison government of a new foreign national security test for all offshore bids for sensitive assets, which could further choke investment flows from Chinese companies.

Read more

David Rogers 6.06am US jobs will drive FOMO

Friday’s massively better-than-expected US jobs data and subsequent jump on Wall Street and fall in volatility will hurt short-sellers and add to the fear of missing out on Australian shares.

With the S & P 500 soaring 2.6 per cent and the VIX volatility index falling to late-February levels, Australia’s S & P/ASX 200 was set to make a new three-month high above 6100 points.

Focus will then turn to Wednesday’s Federal Reserve meeting, where the Fed is likely to err on the side of caution, repeating that the economy needs continued support despite the surprisingly strong jobs data and a huge bounce in crude oil from $US15 to $US40 a barrel since the last meeting.

Although US employment growth beat expectations by a staggering 10 million, US unemployment is still very high, albeit caused by an artificial halt to employment that’s ending sooner than expected

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