ASX slips 1.9pc as investors rethink recovery rally

A 1.9pc slide in the local market cemented a 5pc two-day slide for shares, capping the market’s run of six weeks of gains.

David Rogers and Melissa Yeo

34 min read

8:46PMJune 12, 2020

A man walks past the New York Stock Exchange, where US stocks fell heavily overnight. Picture: AFP

Qantas to benefit from pent-up demand: UBS
AFL delivers audience boom for Seven
A reminder for equity bulls: Canaccord
Oil prices tumble 8pc

That’s all from Trading Day for Friday 12 June. The ASX tumbled by more than 3.4 per cent early but finished lower by a more moderate 1.9pc, adding to yesterday’s 3pc drop as investors second-guess the recovery rally.

Westpac said Austrac could widen its exploitation action against the bank, while Canaccord drew parallels to this week’s slip and the start of post-GFC bull run.

Overnight, Wall Street’s Dow Jones index lost 1800 points, or almost 7 per cent, as an increase in coronavirus cases and news of job losses punctured optimism that the US economy could recover quickly.

8.45pm: Where’s the Aussie dollar headed?

Commonwealth Bank’s Global Markets Research team notes the US dollar pared back some of it prior day’s sharp gains.

“Overstretched equity valuation and concerns over longer‑term economic scarring from the COVID‑19 crisis suggest the correction in risk assets and USD relief rallies have more legs. JPY is a great hedge in a currency portfolio to protect against sudden spikes in risk aversion.

“Still, the fundamental backdrop has not changed and will continue to underpin the uptrend in risk assets. The global economy is recovering, liquidity remains plentiful and central banks have been successful in containing financial market stress. Moreover, a second wave of coronavirus infections may not necessarily reverse the current economic recovery partly because there is unlikely to be the political appetite to reinstate economy‑wide lockdowns.

“AUD/USD has recovered above US69c after reaching a low overnight around US68c. Technically, AUD/USD remains vulnerable to a pullback towards its next two important support levels at US67.50c and US66.65c (the 200‑day moving average). We would look to start accumulating AUD/USD on weakness closer to US67.50c,” the CBA Global Markets Research team said.

“In our view, AUD/USD can edge higher to US72c by year‑end supported by broad USD weakness, resilient commodity prices, Australia’s favourable balance of payments backdrop and RBA/Fed balance sheet expansion. The RBA is tapering purchases of Australian government bonds. In contrast, the Fed continues increase its holdings of Treasury securities and agency residential and commercial mortgage‑backed securities.”

Lisa Allen 8.12pm: HomeBuilder completely baffles Harry Triguboff

Multi-billionaire property developer Harry Triguboff is among several real estate players strongly critical of the federal government’s $680m HomeBuilder stimulus package, which he claims favours house-and-land buyers over city apartment purchasers and developers.

The apartment mogul and founder of Meriton, which is building thousands of units on the eastern seaboard, says the package favours house-and-land buyers on city fringes and regional areas even though most new homes completed in Sydney are units.

“This decision completely baffles us because 68 per cent of new homes completed in Sydney are actually apartments. This is where the jobs are,” Mr Triguboff said.

In a statement to The Weekend Australian, Mr Triguboff questioned why the government was trying to manipulate the housing market by setting price caps that excluded certain areas and dwelling types. “Once again, the government has provided a stimulus which clearly discriminates between housing types,” he said.

In announcing the HomeBuilder stimulus package the government is trying to counter a predicted downturn in construction demand.

Terry McCrann 7.49pm: What Virgin bidders are fighting over

The funniest — sick — joke going around at the moment is the idea that we have two groups in an auction to buy Virgin; to take their chances on running a weak second airline against the dominant, financially strong and superbly structured and focused Qantas, into the challenges and monumental uncertainties facing airlines in the post-virus world.

In fact, the only thing they are “bidding” to buy is the right to get a range of other parties to donate their money to ensure that one of these Wall Street vultures can extract the greatest profit with the least risk and indeed the smallest financial contribution from the Virgin carcass.

The latest group who they want to put their hands in their pockets to ensure higher profits for them is you — the taxpayer.

They want the government to give them — either Bain Capital or Cyrus — another $180m or so by exclusively extending JobKeeper for Virgin Two. To have the taxpayer effectively pay the airline’s salary bill for the first six months of its life under its new owner.

The best way to understand what is going on in the auction behind closed doors is by way of this example: consider two people bidding to buy a house worth around, say $2m.

The one offering, say, $2.01m ends up winning over the other bid of, say, $2m flat. The $2.01m is paid; they own the house free and clear.

In the Virgin case the $2m “house” comes with a, say, $4m linked mortgage. It also comes with an order to spend $1m in mandatory repairs.

Clearly no one in their right mind would happily pay the $2m for the house, only to also pick up an immediate $5m liability. They’d in effect be paying $7m for a $2m asset.

John Stensholt 7.14pm: Supermarket push saves Vittoria

Coffee snobs used to mock Les Schirato for selling his Vittoria range in supermarkets, but that move — made during the last big downturn — helped to save his business during the current COVID-19 pandemic.

Schirato is Australia’s coffee king, running the $250m Vittoria Food & Beverage business that he and his family own, selling Vittoria coffee to supermarkets such as Woolworths, Coles, IGA and other independent outlets.

Until early March, Vittoria was also found everywhere from hotels and restaurants to casinos and was served in the Qantas lounge and on the airline’s flights.

That side of the business ground to a halt when the coronavirus shutdown hit Australia and the world three months ago, and Schirato was forced to draw on the lessons he learned keeping the business afloat back in the 1980s — days he thought were gone forever.

“Overnight we lost all our food services business, pubs, clubs, casinos, hotels and restaurants, Qantas. So many closed up and we were not getting paid as well,” Schirato tells The Weekend Australian. “It was literally half our business gone straight away. There’s no doubt I drew on some of my previous experiences … and my son actually started listening to me as well.

“But all the millennials have learned a lot in this period, a lot more than you can teach.”

Schirato is joking when he refers to 38-year-old Rolando that way, though his son had only just been born when Schirato was trying to save the business in the early 80s during a credit squeeze. It was debt laden and Schirato would have dinner at the factory every night for almost a decade working to save Vittoria, paying back the banks and also slowly buying out other shareholders.

Tim Boreham 6.51pm: What now for co-working space stocks?

In the new era of germ awareness, co-working spaces have transformed from a booming sector to a public health hazard.

Exalted as a creative collaborative zone in the industry’s millennial-friendly jargon, the humble tea room is now maligned as a potential virus super spreader.

The lockdown conditions have not augured well for the office sector overall, but have been particularly virulent for the co-working (or flexible) space providers. While traditional tenants are tied to a long lease, most co-working tenants are on rolling arrangements and free to leave without penalty. Overseas, the giant of the sector, WeWork (now called the We Company), never managed to list on the sharemarket and the bonds of the battered one-time unicorn are trading at around 40c in the dollar.

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James Kirby 6.16pm: Bumbling regulators hurt SMSFs

You have to wonder sometimes if the regulators in Canberra really have it in for independent investors. There may not be an official policy approach to scare people away from doing their own investing, but at times it sure seems like it.

Here we are in the middle of a bruising year for markets and we have either had a most unfortunate string of misunderstandings or else the powers that be are doing all they can to make self-managed super funds look unattractive.

If we are to take government agencies at their word, doing your own super is very expensive and extraordinarily time consuming. Worse still, we are led to believe SMSF operators are trailing behind the bigger funds in their amateur attempts to invest successfully.

Among the million-plus investors in SMSFs it’s that last suggestion — that they are worse investors than the armies of AMP or AustralianSuper — which probably hurts the most.

The Australian Prudential Regulatory Authority has just released a batch of data for the three months to March 31 — it puts forward how each type of super investor did over the quarter. On average, says APRA, super investments fell by 7.7 per cent over the quarter, but SMSF investors did the worst, losing 9.4 per cent.

Is that so? How did they get the figures so quickly from all those “mum and dad” funds who do their numbers annually?

Perry Williams 5.57pm: John Holland loss brings job cuts

The contractor building Melbourne’s trouble-plagued $6.7bn West Gate Tunnel will axe up to 200 jobs and restructure the business after grappling with a sizeable annual loss.

John Holland, wholly owned by the China state-run China Communications Construction Company, plans to shed the roles from its corporate offices after plunging to a $77m loss in the 2019 financial year.

A new major projects division has been created for infrastructure developments over $1.5bn that include the West Gate Tunnel contract and $11bn Metro Tunnel in Melbourne along with Sydney’s Metro City harbour rail facility.

Smaller infrastructure deals, previously split into three separate state-based units, will be merged into a single national business while there will be a review of its ongoing investment in Southeast Asia.

Challenges in the construction industry have been compounded by the COVID-19 pandemic, the contractor said.

“After reporting a loss in 2019, we took steps to address our profitability that included a hiring and wage freeze, the cancellation of executive bonuses, and a more strategic approach to the projects we bid for,” John Holland chief executive Joe Barr said.

4.35pm: Banks drag, travel takes hit

Banks were the key drag in the market – Westpac fell 3.3 per cent to $17.89 as it told the market Austrac was widening the scope of its Federal Court action.

Commonwealth Bank fell 1.6 per cent to $67.32 as NAB lost 2.5 per cent to $18.59 and ANZ closed down 2.8 per cent to $18.92.

Developments from the national cabinet helped travel stocks to pare their losses in afternoon trading, as South Australia and Queensland set out plans to reopen their borders.

Flight Centre had been down by 12 per cent during the day but finished the session down a more moderate 5.3 per cent at $14.30 as Webjet slid 5.5 per cent to $3.95 and Corporate Travel fell 5.7 per cent to $12.71.

Qantas lost 3 per cent to $4.49 and Sydney Airport dipped by 2.4 per cent to $6.46.

Here’s the biggest movers at the close:

4.11pm: ASX slides 1.9pc

More than $92bn was wiped off the local market in a two day “reality check” as investors recalibrated their expectations of a V-shaped recovery.

A 7 per cent slide on Wall Street set Australian stocks up for a rocky session, sending the benchmark ASX200 down by 3.4 per cent at its worst, before recovering somewhat to close out the session down 113 points or 1.89 per cent to 5847.8.

The drop cements a 5 per cent decline for the week, the first weekly decline in seven weeks.

3.45pm: Beijing reports first case in weeks

China reported the first local transmission in Beijing in weeks on Friday after the capital has been gradually reopening during a sharp decline in cases.

Six other new cases were Chinese citizens arriving from abroad, the National Health Commission said in its daily report. No new deaths were reported and just 65 people remain in treatment, while another 104 are in isolation being monitored after having tested positive for the virus while showing no symptoms. One other person was listed as a suspected case after displaying other signs they may be infected.

China has reported 4,634 deaths from COVID-19, a figure that has been static for weeks, among 83,064 total cases since the virus was first detected in the central Chinese industrial city of Wuhan.

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3.02pm: Shares to snap weekly winning run

With just under an hour left of the week’s trade, the ASX is on track to snap its run of six weekly gains.

Trading levels at 3pm point to a 2.6pc weekly loss for the shortened week – with optimism on Tuesday sapped by a more than 5pc two day drop.

At these levels, the ASX is 18pc off its record highs, but still higher by 28pc from its March trough.

ASX last down 2pc to 5839.4.

David Swan 2.52pm: WAAAX wanes, Afterpay fights back

Australia’s technology market darlings, its so-called ‘WAAAX’ stocks, have broadly slipped in line with the rest of the market, except for Afterpay which has rallied by 10 per cent.

Logistics software provider WiseTech Global, which has suffered a horror 12 months following a short-seller attack from Chinese outfit J Capital Research, has dropped 2.6 per cent to $21.33, far from its high last September of $38.09.

AI specialist Appen is relatively unscathed, down just 0.7 per cent to $29.60, while electronics design software maker Altium has fallen 1.67 per cent to $33.61. New Zealand-based cloud accounting software maker Xero is down 1 per cent to $83.91.

The one positive ‘WAAAX’ performer is buy now, pay later provider Afterpay, which tumbled as low as $47.76 on Friday but rallied back by 10 per cent.

It’s now up 0.3 per cent for the day, to $52.24 per share. Investors will be hoping the company’s recently announced partnership with Chinese tech giant Tencent will translate to a lucrative push into Asia.

2.41pm: Corporate Travel better than Webjet: MS

Morgan Stanley argues that Webjet’s valuation premium to Corporate Travel is unwarranted, with the latter its preference in any sector recovery.

Equity analyst James Bales sets out six reasons for his preference:

Corporate Travel has not had the same level of business stress and has not needed to raise capital, but its market cap and enterprise value divergence with Webjet is between 30pc to 60pc, which he argues is not warranted
With cash burn of $6m a month, Corporate Travel is better placed than Webjet’s $15m a month
Webjet derives 60pc of bookings from a price comparison tool which could be hit amid any deterioration in Virgin
Webjet’s B2B offering is almost entirely international, while Corporate Travel is 60pc domestic focused
Corporate Travel has a direct relationship with the end customer
Corporate Travel has access to capital and a long tail of potential targets, while Webjet recently completed a large equity raise to alleviate liquidity risks

He has an underweight rating and $3.30 price target on Webjet.

2.20pm: Seven Group upbeat but no guidance

Kerry Stokes’ diversified Seven Group says that COVID-19 has had an “unprecedented impact on advertising market” at Seven West Media, while its industrial investments were better placed to ride out the pandemic.

The group said the majority of its WesTrac and Coates Hire customers were operating in essential industries, so activity levels have remained high, while Beach Energy performance was underpinned by strong East Coast gas demand.

It said it was well placed financially, with $616m in cash and existing committed undrawn facilities while a new $430m US private place provided “strength and flexibility to pursue the right opportunities”.

Still, it said it would not provide guidance due to the “uncertainty of current and ongoing COVID-19 measures”.

SVW last traded up 2.8pc to $17.49.

1.46pm: Travel names bounce as borders reopen

Heavy selling of travel stocks has abated somewhat as the government lays out plans to ease further restrictions and reopen most state borders.

Queensland this afternoon said it would probably be reopened to interstate travel from July 10, while South Australia is set to ease its border restrictions from July 20.

Flight Centre had been down as much as 12pc earlier, and is now trading off by 5pc, as Webjet trims losses to 5.5pc and Qantas is down 2.6pc.

1.32pm: A reminder for equity bulls: Canaccord

Canaccord portfolio strategist Tony Dwyer has reassured equity bulls the drivers underlying the recent recovery remain intact, drawing parallels to the start of the post-GFC bull market.

Back in 2009, the S&P 500 dipped 8.5pc after rising 43pc from the GFC low of 666 points, after its 10-week rate of change hit a similar level to that seen earlier this week.

“The market was due for consolidation and there is nothing taking place over the past few sessions to change our plan to add exposure as the market pulls back,” Mr Dwyer says.

“We have long advocated following the Fed because it prints the money, and we see no reason to change our view following the June FOMC meeting.”

He reminds investors of the three macro factors that caused the move off the low, saying they still remain in place:

The Fed has clearly stated it will support risk until it achieves the two mandates of full employment and 2 per cent core inflation
We are much closer to a vaccine for COVID-19
And signs the worst of the economic shutdown remain behind us

“The market was set up for a period of consolidation and this economic recovery has a long and choppy road ahead, but we stand ready to take advantage of it when the ‘risk-on’ signs re-emerge,” he says.

“We should know the correction is nearing an end when the macro indicators point to a return to ‘risk-on’ that is marked by higher long-term US Treasury yields, renewed strength in corporates, a weaker US dollar and gold, and the “economic reopening” trade again begins to outperform.”

1.17pm: Qantas to benefit from pent up demand: UBS

Australia’s demand for domestic travel could exceed investor expectations as savings build and leave entitlements grow, according to UBS.

The broker notes that while corporate travel is expected to remain subdued, leisure travel is tipped for a swift pick up once border restrictions ease thanks to pent up demand and lack of other options.

In a forecast for a “domestic only” Qantas, analyst Matt Ryan sees domestic revenue to be down 50pc relative to FY19, but still deliver $450m in profit before tax for the group and a cash flow positive outcome.

He notes that the national carrier is likely to pick up market share from Virgin, adding to its already 65pc share of leisure travel.

“Qantas is likely to exit the pandemic in a stronger position without raising equity and in a rational market structure” Mr Ryan says.

“We have upgraded our earnings assumptions to account for an earlier than expected domestic recovery, market share gains and the extension of Government subsidies. We now forecast underlying PBT of -$485m in FY21, +$655m in FY22 and +$1,475m in FY23.”

UBS upgrades its target price to $5.50 per share, from $4.65 with a Buy rating.

QAN last traded down 3.6pc to $4.47.

Qantas, Virgin and Jetstar jets grounded at Avalon airport during the COVID-19 pandemic. Picture: Aaron Francis/The Australian.

1.01pm: TPG leads as shares bounce from lows

The ASX has halved its daily losses but remains heavily in the red across all sectors as investors think twice about the recent recovery rally.

At 1pm, the ASX200 is off by 112 points or 1.88 per cent to 5848.5 after previously dropping as much as 3.4pc.

Energy and banks are doing the most damage, but the quarterly rebalance on the top 200 index is hurting Pilbara Minerals, Unibail Rodamco Westfield and Estia Health the most.

On the upside, TPG is lifting after the telco told shareholders it was expecting to pay out between 4.9c and 5.2c as a special dividend before the implementation of its merger with Vodafone.

Here’s the biggest movers at lunch:

12.42pm: City Chic to prey on distressed rivals: MS

Womenswear retailer City Chic could benefit from financial distress in some of its key competitors, according to Morgan Stanley.

Equity analyst Joseph Michael notes reports that US group Ascena Retail is considering filing for bankruptcy, and “City Chic’s long term industry position could improve” as a consequence.

While he forecasts the chain to focus more on growing their online presence, Mr Michael adds that City Chich may look to be opportunistic by bolstering their balance sheet for further M&A.

The broker names the stock as a “key tactical idea” with an overweight rating and $2.75 price target, noting its bull case valuation is as much as $3.50 a share.

CCX last traded down 2pc at $2.50.

12.25pm: ASX halves intraday fall

Australia’s sharemarket has halved its intraday fall in volatile trading Friday, down just 1.7pc at 6960.60 after falling 3.4pc to a 2-week low of 5756.5.

The rebound came as S&P 500 futures extended their intraday rise to 1.1pc.

Energy and Financials remain the weakest sectors, with Woodside down 5pc and Westpac down 3.5pc.

Consumer Staples and Health Care are strongest, with Coles up 0.2pc and CSL flat.

Paul Garvey 12.20pm: Rio chief apologises for heritage blast

Rio Tinto chief executive JS Jacques has publicly apologised for the company’s destruction of 46,000-year-old Aboriginal heritage sites after a parliamentary inquiry into the affair was confirmed.

Labor on Thursday successfully moved for an inquiry into Rio Tinto’s destruction of the Juukan Gorge caves last month, which has drawn global condemnation of the miner and sparked intense scrutiny of Aboriginal heritage rules and practices.

Mr Jacques, who up until now has been silent on the crisis, said in a statement on Friday that the company would “fully co-operate” with the inquiry by the Joint Standing Committee on Northern Australia while also supporting the WA’s government’s reform of the contentious Aboriginal Heritage Act that cleared the path for the caves’ destruction.

“We are committed to engaging with the rest of the industry, Traditional Owner Groups, and federal and state governments across a number of areas relating to cultural heritage approvals and processes, and the broad contribution of the resources sector to Australia,” he said.

But the Chamber of Minerals and Energy of Western Australia, a mining lobby group of which Rio Tinto is a member, was less receptive to the inquiry, arguing that the move would “dilute” the WA government’s own efforts to reform the relevant legislation

Protesters are seen during a rally outside the Rio Tinto office in Perth earlier this week. Picture: AAP Image/Richard Wainwright.

11.54am: Westpac lifts $A forecasts

The outlook is looking brighter for the Australian dollar, so says Westpac, who lifts its year-end forecast for the currency to US72c.

Even as it comes under the pump in Friday’s trade, chief economist Bill Evans writes that the recent confidence boost, strength in iron ore and commitments from central banks to boost liquidity have convinced him to lift his targets – to US72c by the end of 2020 and US76c by the end of 2021.

With RBA forecasts based on US64c, he adds that “there are risks to their growth and inflation outlook”.

AUDUSD last down 0.5pc to US68.21c.

11.50am: This won’t end well: Lucerne

Lucerne Alternative Investments portfolio manager, Jerome Lander, warns that central banks have caused “moral hazard” among investors amid ongoing economic risk and that its only time before “asset bubbles implode”.

Recent dramatic market moves are a “reminder that notwithstanding market bubble friendly central banks, volatility remains alongside real risk from COVID-19, fragile economies and fraught politics”.

The economic risk from the coronavirus outbreak is becoming evident as the pandemic worsens in some emerging markets and as numerous US states report “alarming continuing second waves” of infection.

“Market action has been unusual and dramatic to say the least, and more typical of a late stage and euphoric bull market than the early stages of a recovery from recession,” he notes.

“Central banks have created and continue to create much moral hazard and short-termism among investors. This won’t end well as asset bubbles eventually implode endogenously, and financial markets can become stressed regardless.”

With medium and longer term real economic prospects now “very modest” many “zombie companies” will go bankrupt or have little earnings growth given nothing fundamentally has been fixed, other than their access to money.

“Non-risk seeking and prudent investors will look to diversify their portfolios into non-moral hazard dependent investments including carefully selected alternatives,” he says.

11.34am: $A hits two-week low

The Australian dollar has been caught up in the renewed risk aversion that has emerged in global markets post-FOMC meeting.

AUDUSD fell 0.8pc to a 2-week low of US68.00c, making it the worst-performing G10 currency so far today.

The US dollar index has risen by just 0.2pc, and spot gold and US Treasuries weakened slightly.

But risk aversion is evident in the strength of the Japanese yen. USD/JPY and AUD/JPY both fell 1pc this morning.

Eli Greenblat 11.27am: Retail gives back recovery gains

Retailers have been dragged down along with the rest of the market following the rout on Wall Street with many of the recent gains now lost as investors push the sell button.

Myer shares are down 6.7 per cent to 24.7 cents having recently traded above 40 cents.

Super Retail Group is down 4.4 per cent to $7.84, JB Hi-Fi, which has an upbeat trading update on Thursday is down 1.3 per cent to $39.68, Harvey Norman is down 3.2 per cent to $3.57.

Bunnings owner Wesfarmers is down 0.3 per cent to $42.42 while in the supermarkets, Woolworths is down 0.2 per cent to $36.71 and Coles is perhaps the best placed, trading unchanged at $15.83.

Outdoor adventure wear retailer Kathmandu is down 6 per cent to $1.02 and Solomon Lew’s Premier Investments is down 7 per cent to $15.20.

Joyce Moullakis 11.19am: Westpac reveals further Austrac issues

In another blow to Westpac, the bank has made clear it was dealing with further issues beyond those covered in an explosive case against the bank by Austrac.

In a statement on Friday, Westpac noted it had made additional reports to Austrac following the start of Federal Court action in November by the regulator. That case alleged 23 million breaches of the law, the bulk of which the bank has admitted to.

The additional threshold transaction reports – that were not reported to Austrac – were disclosed in Westpac’s half-year results. The bank also conducted a “lookback” of files in December, which saw it disclose more suspicious matter reports to Austrac “in relation to potential child exploitation”.

“Westpac has now been informed by Austrac that it is further investigating these matters and has notified Westpac it may amend its statement of claim to include allegations arising from these investigations,” the bank said in the statement.

“Austrac has requested further information from Westpac on these matters, including in relation to the TTR issues and 272 customers, many of which were the subject of SMRs (suspicious matter reports) previously filed as part of the lookback. Further updates on this matter will be provided as required.”

WBC last down 5.3pc to $17.52.

11.09am: Qantas, Webjet hit as selling accelerates

Australia’s S&P/ASX 200 is extending its decline in the second hour or grade, falling 3.4pc to a 2-week low of 5756.5, on track for its biggest two-day fall since this bull market began three months ago.

It came as S&P 500 futures more than halved an early gain to 0.3pc.

Westpac is down 6pc, with no reaction to news that Austrac may amend its statement of claim to include allegations arising from investigations.

Travel names, which had been making a recovery earlier this week, are holding lower by double-digits on concerns restrictions may not be eased as soon as thought.

Flight Centre is off by 12pc, Webjet by 13pc and Qantas by 8pc.

Travel names such as Sydney Airport are taking a hit on fears of a second wave. Picture: Nikki Short.

Bridget Carter 10.52am: Arrow, Cerberus build property fund

DataRoom | Arrow Capital Partners has launched a new $1bn fund to invest in industrial property with a partner that is believed to be private equity firm Cerberus Capital Management.

It comes after the pair have already made some smaller investments in the Australian finance sector and last year formed a joint venture to manage EUR2bn of European industrial assets.

After managing real estate in Europe and the Asia Pacific region, Arrow Capital Partners is now launching the SIRE (Strategic Industrial Real Estate) Australia fund.

On its acquisition list will be core, core plus industrial and logistics assets yielding more than 5 per cent as well as vacant land with lease potential and land to accommodate a build to own strategy.

The fund will focus on urban infill locations across Australia’s major eastern seaboard markets and strategic transport hubs that are benefiting from structural trends in urbanisation and e-commerce growth.

10.47am: 99pc of stocks in the red

The stockmarket drop is leaving no sector untouched, with only 2 of the top 200 stocks managing a gain in early trade.

As the benchmark ASX200 trades lower by 2.98pc, just Infigen and Spark Infrastructure have bucked the negativity, albeit with only mild gains.

Banks are serving the biggest blow to the market – Commonwealth is off by 3.7pc as Westpac trades down by 5.6pc, ANZ down by 5.2pc and NAB lower by 4.9pc.

On the broad All Ordinaries, just 11 stocks are trading lower as the index drops 3.2pc.

Gerard Cockburn 10.37am: S&P warns of ongoing bank risk

S&P Global Ratings says its outlook for the Australian banking sector remains negative, as ongoing economic risks will impact longer term profitability.

The ratings group has downgraded its outlook for banks globally as a result of the coronavirus pandemic, but said negative fallout to the sector will be limited compared to other corporates due to stronger liquidity positions.

It noted the negative ratings have been prompted by deteriorating economic conditions sparked by COVID-19, particularly in relation to oil price shocks experienced through the period.

“The vast majority of bank downgrades to date have occurred in jurisdictions in which the oil shock also contributed materially to our expectation of weakened operating conditions for banks or on the back of other sovereign rating actions,” S&P Global said.

Its analysts noted current quarter results will shed more light on the pandemic’s impact upon financial performance.

10.29am: US futures offers some support

A rebound in US futures is helping to offset some of the heavy losses in the Australian market today, after Wall Street fell about twice as much as expected on Thursday.

The S&P/ASX 200 fell 2.9pc to an almost two-week low of 5785.1 in early trade before paring its fall to 2.47pc at 5813.

US futures are rising by 0.7pc early to make back some of Thursday’s 5.9pc fall in the US benchmark.

But in potentially negative news for Wall Street, Houston area officials said they were “getting close” to reimposing stay-at-home orders.

Falls in the Australian market were led by Energy, Financials and Technology, with Woodside down 7pc, Westpac down 5.1pc and Afterpay down 8pc.

A rebound in US futures is offering some support as the ASX drops. Picture: Johannes Eisele. / AFP.

John Stensholt 10.19am: AFL audience biggest in 10 years

Seven West Media enjoyed a ratings bonanza with Thursday night’s return of the AFL, recording its highest audience for a prime-time football match in 10 years.

The draw between Collingwood and Richmond averaged 1 million viewers in metropolitan markets on the main 7 channel and 7mate, with Seven claiming more people watched the game in Melbourne than tuned into the NRL on its rival channel 9 across the country.

Collingwood’s round 9 match against Geelong in 2010 was the last time a regular season AFL match on free-to-air drew such a big audience.

Thursday night’s game, which included a thrilling finishing that resulted in the game being drawn, was watched by 668,000 people in Melbourne alone and overall the ratings were up 58pc on the same game last year and 25pc more than the AFL’s opening round this year in March, after which the league was shut down due to COVID-19.

Seven on Thursday evening clinched a $87m reduction in its costs, about $70m of it is for rights, to its AFL contract, for the next three seasons in a deal struck minutes before opening bounce of Collingwood versus Richmond.

The AFL officially announced this morning that Seven’s revised five-year deal for 2020-2024 was for $730 million or an average of $146 million per year for free to air rights.

“The AFL and Seven are a core part of each other’s DNA, and we are delighted to have not only reached a revised agreement for the current contract term, but to have extended our relationship for a further two seasons,” Seven’s chief executive James Warburton said.

SWM last traded down 9.7pc to 14c.

Read more: Contract discounts cost AFL $150m

The return of AFL last night was a ratings boost for Seven West. Picture: AAP Image/Michael Dodge.

10.11am: Shares drop 3pc

The local market is seeing red across all sectors at the open, after a battering on Wall Street.

At the open, shares are off by 170 points or 2.9 per cent to 5790.

Energy is the worst hit after a 8pc dive in oil prices overnight, while banks are winding back the rally of the past few weeks.

Perry Williams 10.01am: Santos’ Narrabri project faces final hurdle

The fate of Santos’ controversial $3.6bn Narrabri coal seam gas project rests with the Independent Planning Commission after the NSW Department of Planning approved the proposal after a three-year process.

The Narrabri project, which could supply half the state’s gas needs, has been recommended by the department despite significant community concerns over the long-term effect on water supplies and contamination of agricultural land.

Narrabri would help ease a forecast 2024 gas shortfall for domestic users on the east coast and lower gas prices while also supporting the development of gas-fired power stations in NSW to help move away from coal-fired power plants, the Department of Planning concluded.

The final hurdle for Narrabri requires sign-off from the Independent Planning Commission with the body having 12 weeks to make a decision and subject to more accountability after a review by the state’s Productivity Commission earlier this year.

9.46am: ASX headed for another 3pc tumble

Australia’s share market faces its second consecutive fall of around 3pc based on overnight futures though a slight 0.5pc lift in US futures this morning may encourage buying on dips.

Certainly the 6pc fall in the S&P 500 overnight was more than expected and enough to spark profit taking from those who went with the bullish trend of the past three months.

But the prevailing sentiment among traders was arguably more bearish than bullish before Fed chair Powell’s “reality check” on the economic outlook and renewed concern about the virus.

Thus there may be a tug of war after an opening fall today as position squaring from traders soaks up selling from investors anxious to lock in some profit.

As for the increasing infection rates in some US states, US Treasury Secretary Mnuchin said “we can’t shut down the economy again”.

In Australia, where the federal government is pushing for a faster reopening, the outcome of tests on protesters in the next two weeks is a binary risk for the markets.

Also, the Fed is still doing $US4bn a day of QE, the ECB is doing about $US5bn a day and the Fed said “over coming months” it will continue its QE “at least at the current pace”.

The Fed probably can’t immediately increase QE in response to a one-day fall in markets, since that would risk signalling that something ugly is brewing beneath the surface.

But if it gets to the point where S&P 500 falls are significantly tightening US financial conditions again, that could give the Fed a reason to increase QE.

Ben Wilmot 9.31am: Investec progressing buy out plans

The future of the Investec Australia Property Fund is becoming clearer as it looks to break free from the South African bank that now manages the dual-listed trust that has a $1bn portfolio.

The trust on Wednesday said it had begun talks with Investec, that runs it, in order to buy out its management platform.

On Thursday evening, one of its substantial shareholders – the South African REIT Investec Property Fund – sold a $63m stake at a price of $1.15 per share, a 6.1 per cent discount to the last close.

The book for the block selldown of about 55.15m shares, conducted by Macquarie, closed oversubscribed, with bidding for both ASX and JSE lines of stock.

As a result, 11m shares were crossed on JSE at ZAR1,390 per share (about $1.18), and about 44.15m shares will be crossed on ASX at $1.15 per share before market open this morning.

The stock is expected to commence trading on ASX at the market open today.

The deal showed strong demand for yield stocks particularly those in property companies invested in office and industrial assets, that have been relatively insulated from the coronavirus crisis.

9.16am: Markets snap after extreme stretch: Weston

Pepperstone head of research Chris Weston has warned of pain to come in today’s session after the battering of US markets, noting market fundaments are the key concern.

Past second wave fears and the US Fed’s economic projections, he says “the reality of the situation is a market that has been pushed to a limit, where the participation in the rally has become ever more concentrated and poor breadth is absolutely the key issue here”.

“We’d seen sector rotation after rotation, all the signs of a healthy market, but with the clear benefit of hindsight, we’d got to a point where the elastic band had just been primed a little too far.”

He notes a surge in the volatility index, and heightened turnover in US markets, saying the question is whether second wave fears will be sustained “in which case we need to consider what exactly that looks like and how markets could be affected – or is this just another buying opportunity”.

'Trading from Casa del Westy' - volatility hits us square in the jaw like a wet kipper. Some blame 2nd wave fears, others the Fed taking a V off the table, perhaps, but the market moves were extended & the sound you heard was the elastic band being snapped hard. A view of prices pic.twitter.com/7N2dutMDop
— Chris Weston (@ChrisWeston_PS) June 11, 2020

9.06am: What’s on the broker radar?

Bapcor raised to Buy – Morningstar
Charter Hall raised to Hold – Morningstar
JB Hi-Fi cut to Underperform – Credit Suisse
JB Hi-FI raised to Overweight – JP Morgan
Webjet cut to Underweight – Morgan Stanley

8.57am: TPG to pay 50c special dividend

Ahead of the final hurdle to TPG’s merger with Vodafone, the telco has set out plans to reward current shareholders with a special dividend.

TPG today said it expected to pay a dividend in the range of 49c to 52c per share held, ahead of the final implementation of the deal, to be completed later this month.

Shareholders are banned from physically attending the extraordinary general meeting to clear the deal on June 24, but can participate online.

The deal had previously been held up after the two parties took the competition regulator to court over its decision to block the deal.

TPG Executive Chairman David Teoh leaves Federal Court in Melbourne. Picture: David Geraghty, The Australian.

8.52am: Incitec Pivot SPP raises $58m

Incitec Pivot has raised $57.5m in its share purchase plan, after the completion of a $600m placement last month.

Shares were offered at $2 apiece, the proceeds of which will be used to strengthen its balance sheet and liquidity position.

“We are pleased with the strong support we have received from retail and institutional shareholders, indicating their confidence in IPL’s business and its long-term strategy,” chief Jeanne Johns said.

IPL last traded at $2.04.

Bridget Carter 8.47am: Investec Property block trade oversubscribed

DataRoom | Investec Australia Property Fund’s block trade through Macquarie Capital has closed over subscribed.

Shares were sold in the fund, which is also listed in Johannesburg, for $1.15 each on the Australian Securities Exchange.

The price was a 6.1 per cent discount to the last closing price of $1.225 on June 11.

On offer was 55.1m shares equating to 9 per cent of shares on issue worth $63m.

It comes after the fund announced plans this week for an internalisation.

8.40am: Mesoblast, Centuria to join top 200

Mesoblast’s coronavirus treatment trials spurred a more than four-fold surge in the stock over the past few months, and has cemented the biotech company’s position in the benchmark top 200 stocks.

In the latest S&P Dow Jones rebalancing, Mesobolast, along with Centuria Industrial REIT, Megaport, Omni Bridgeway and Perseus Mining, have joined the ASX200.

It comes as Estia Health, HUB24, Jumbo Interactive, Mayne Pharma, Pilbara Minerals and Pinnacle Investments get the boot.

In the market’s top 20 stocks, Amcor has been replaced by Aristocrat while A2 joins the top 50 in the place of AMP.

8.02am: Oil prices tumble overnight

Oil prices tumbled by about 8% a barrel overnight, fuelled by renewed concerns about demand destruction as new cases of coronavirus tick up globally, while crude inventories hit a record in the United States.

US coronavirus cases surpassed 2 million on Wednesday, according to a Reuters tally, and new infections are rising slightly after five weeks of declines. While most states have loosened restrictions on movement that shackled demand, fuel consumption remains 20% below typical levels, as consumers remain cautious.

Brent crude futures fell $US3.18, or 7.6 per cent, to settle at $US38.55 a barrel. US West Texas Intermediate (WTI) crude fell $US3.26, or 8.2 per cent, to settle at $US36.34 a barrel. Brent and WTI posted their worst daily drops since April 21 and 27, respectively.

Reuters

7.58am: EU to hit Amazon with antitrust action

The European Union is planning formal antitrust charges against Amazon.com over its treatment of third-party sellers, according to people familiar with the matter, expanding the bloc’s efforts to rein in the alleged abuses of power by a handful of large US technology companies.

The charges – the EU’s first set of formal antitrust accusations against the company – could officially be filed as early as next week or the week after, one of the people said. The European Commission, the bloc’s top antitrust regulator, has been honing its case, and the case team has been circulating a draft of the charge sheet for a couple of months, another person said.

The formal charges, which would come at the same time as Amazon and other tech firms face increased scrutiny in the US, would be the commission’s latest step in a nearly two-year probe into Amazon’s alleged mistreatment of sellers that use its platform. The charges – called a statement of objections – stem from Amazon’s dual role as a marketplace operator and a seller of its own products, the people said. In them, the EU accuses Amazon of scooping up data from third-party sellers and using that information to compete against them, for instance by launching similar products.

Amazon declined to comment. It has previously disputed that it abuses its power and size and said that retailers commonly sell their own private-label brands.

A decision by the commission on whether Amazon broke competition laws is expected to take at least another year. If the company is found in violation, the commission can force Amazon to change business practices and fine it as much as 10% of its annual global revenue – or as much as $28 billion based on 2019 figures.

Amazon can challenge any such decision in an EU court.

Dow Jones Newswires

7.19am: ASX to drop 3%

Shares are expected to drop early in trading on the Australian market after US investors continued to respond to negative economic projections from the Federal Reserve.

The local SPI 200 futures contract was down by 181 points, or 3.04 per cent, to 5,775.0 at 7am AEST on Friday, indicating losses in share values early. US investors continued selling stock after the US Federal Reserve on Wednesday released its first pandemic-era economic outlook, after which Chair Jerome Powell warned of a “long road” to recovery.

All three major US stock indexes lost well over 5 per cent, posting their worst one-day percentage drops since March 16, when markets were sent into free fall by the abrupt economic lockdowns put in place to contain the pandemic. In Australia on Thursday, the market ended seven consecutive days of gains. The benchmark S&P/ASX200 index closed down 187.8 points, or 3.05 per cent, at 5,960.6 points, while the broader All Ordinaries index closed down 189.8 points, or 3.03 per cent lower, at 6,079.5.

The Australian dollar was buying 68.54 US cents at 7am AEST. That was lower from 69.27 US cents at the close of trade on Thursday.

6.13am: Wall Street smashed as virus cases rise

The Dow Jones industrials lost more than 1,800 points, nearly 7%, as increases in coronavirus cases deflated optimism that the economy could recover quickly from its worst crisis in decades. The pullback on Thursday comes after the market has been screeching higher for more than two months at a pace that many sceptics say was overdone and didn’t reflect the dire state of the economy. A day earlier, the Federal Reserve said the road back to recovery would be long. Bond yields fell sharply, a sign of increasing caution among investors. Crude oil prices sank 8 per cent.

Many market watchers have been saying that a scorching comeback in the market since late March was overdone and didn’t reflect the dire state of the economy. The S & P 500 rallied 44.5% between late March and Monday.

The selling comes as coronavirus cases rise in the U.S., with some of the increase likely tied to the reopening of businesses and the lifting of stay-at- home orders. Cases are rising in nearly half the states, according to an Associated Press analysis, a worrying trend that could intensify as people return to work and venture out during the summer.

Investor optimism for a speedy recovery in the economy was also dimmed by the Federal Reserve, which warned Wednesday that the road to recovery from the worst downturn in decades would be long and vowed to keep rates low for the foreseeable future.

6.06am: US virus cases still rising

US states are rolling back lockdowns, but the coronavirus isn’t done with America.

Cases are rising in nearly half the states, according to an Associated Press analysis, a worrying trend that could intensify as people return to work and venture out during the summer.

In Arizona, hospitals have been told to prepare for the worst. Texas has more hospitalised COVID-19 patients than at any time before. And the governor of North Carolina said recent jumps caused him to rethink plans to reopen schools or businesses.

There is no single reason for the surges. In some cases, more testing has revealed more cases. In others, local outbreaks are big enough to push statewide tallies higher. But experts think at least some are due to lifting stay-at-home orders, school and business closures, and other restrictions put in place during the spring to stem the virus’s spread.

The increase in infections pulled stocks down sharply Thursday on Wall Street, dragging the Dow Jones Industrial Average more than 1,500 points lower and placing the S & P 500 on track for its worst day in nearly three months. The infections dampened recent optimism that the reopening of businesses would drive a relatively quick economic recovery.

The virus is also gradually fanning out.

5.55am: US job losses hit 44.2 million

Total US lay-offs caused by the coronavirus pandemic reached 44.2 million even as businesses try to reopen, and analysts warn of continuing damage to the world’s largest economy as COVID-19 shows few signs of abating.

Wall Street stocks plunged Thursday, reversing recent momentum as traders became spooked by resurgent cases of the virus in parts of the country and new Labor Department data showed another 1.54 million workers filed for unemployment benefits last week.

The massive lay-offs have become routine since shutdowns to stop the coronavirus from spreading began in mid-March, reaching their peak later that month and declining since.

Some workers are back on the job as states reopen, but the total for the week ended June 6 is still well above any figure seen during the global financial crisis in 2008, even though it fell 355,000 from the prior week.

Rubeela Farooqi of High Frequency Economics said the data shows the US economy is clearly not back to normal.

“States and businesses have reopened, but activity remains restricted and subdued, which will likely result in ongoing lay-offs over coming weeks,” she said in an analysis.

COVID-19 remains a stubborn threat in the United States, which continues to record around 20,000 new cases every day with few signs of reduction. States like Texas and North Carolina are seeing more patients hospitalised with the virus than a month ago.

AFP

5.50am: Microsoft stops cop facial recognition

Microsoft has become the third big tech company this week to say it won’t sell its facial recognition software to police, following similar moves by Amazon and IBM.

Microsoft’s president and chief counsel, Brad Smith, announced the decision and called on Congress to regulate the technology during a Washington Post video event on Thursday.

“We’ve decided we will not sell facial recognition technology to police departments in the United States until we have a national law in place, grounded in human rights, that will govern this technology,” Smith said. The trio of tech giants is stepping back from law-enforcement use of systems that have faced criticism for incorrectly identifying people with darker skin. Ongoing protests following the death of George Floyd have focused attention on racial injustice in the U.S. and how police use technology to track people. But while all three companies are known for their work in developing artificial intelligence, including face recognition software, none is a major player in selling such technology to police. Smith said Thursday that Microsoft currently doesn’t sell its face recognition software to any U.S. police departments. He didn’t say if that includes federal law enforcement agencies or police forces outside the U.S.

Several other companies that are less well known dominate the market for government facial recognition contracts in the U.S., including Tokyo-based NEC and the European companies Idemia and Gemalto.

Microsoft, Amazon and IBM are calling on Congress to set national rules over how police use facial recognition – something that’s now being considered as part of a police reform package sparked by the protests following Floyd’s death.

AFP