Late-night Washington deal sends ASX up in final minutes

The S&P/ASX 200 picked itself up from 4845 points at the close bell to close at 4998.1 points, the highest level in nine session. The late surge coincided with breaking news from Washington, at 4pm Sydney time, that Senate leaders and the Trump administration had reached an agreement to pass a $US2 trillion stimulus package.

The index gained 5.5 per cent for the day, reaching its high points at 10.30am and 4.15pm. Combined with Monday’s 5.8 per cent surge, the benchmark index has now recorded its largest two-day advance on record, surpassing anything seen during the GFC.

The Aussie dollar has also broken through US60¢ on the news to US60.23¢. This is the first time is has been through that level in one week.

At the end of settlement, financials were 8.7 per cent higher, industrials were up 8.3 per cent, and materials up 7.1 per cent.

The biggest gains on Wednesday were a 33.8 per cent rise in Afterpay to $15, a 26.3 per cent rise in Qantas to $3.27, a 22.2 per cent rise in Aristocrat Leisure, and a 22.2 per cent rise in Resolute Mining Appliance maker Breville Group also gains nearly 20 per cent to $13.16, and Magellan Financial jumped 19 per cent to $40.80.

The largest percentage decline was a 12.1 per cent fall in funeral provider InvoCare, and a 11. 6 per cent decline in Pinnacle Investments.

Tenants at Australia’s largest shopping complex, Chadstone, have requested a three month rent-free period, warning that without help “most, if not all” could file for bankruptcy.

In a letter and petition to Chadstone Shopping Centre management, about 35 tenants said that, “each day is getting worse and worse” due to the economic fallout of the pandemic. and asked for help to “save our businesses.”

“We are not in position, at all, to pay any rent for now,” said the petition, sent last Friday, “and we are absolutely not in a position to even cover the fixed costs”.

Prime Minister Scott Morrison has said shopping centres will stay open and that they provide an essential service, but Chadstone this week has been a ghost town.

The tenants pushed in their letter for a three-month rent holiday, then reduced rent after that. They said they wanted to work “collaboratively and cooperatively” with their landlord to survive the crisis. If the pandemic went longer than that they asked for an extended rent-free period.

The giant Chadstone complex is half owned by rich-list billionaire John Gandel’s Gandel Group and half by the the ASX-listed Vicinity.

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Ratings agency Standard and Poor’s believes downside risks to property prices are not alarming for Australia’s banks. Yet

"We consider that the fiscal and monetary support announced by the Australian authorities in the past two weeks, in combination with hardship relief measures announced by the banks, should cushion the blow from COVID-19 to property prices, and consequently the banking sector,'' it says.

"We estimate that the Australian banks should be able to absorb increased credit losses due to COVID-19 within their annual earnings."

However, S&P acknowledges a severe downturn could be particularly damaging given household debt levels and the banking sector’s large exposure to residential mortgages.

“The combination of high household debt and house prices exposes the Australian banks to a scenario of a sharp correction in property prices, especially in the economic conditions weakened by COVID-19 outbreak,” it said.

“Although outside our current base case and economic forecasts, a more severe and prolonged economic downturn could precipitate such a scenario, which would trigger credit losses significantly above our current estimates, and consequently weaken the creditworthiness of the Australian banks.”

For the moment, investors appear to be adopting a view that such an outcome is unlikely with all of Australia’s big four banks up strongly again today, led by ANZ which has soared 8 per cent to $16.03.

The Reserve Bank of Australia has already purchased $13 billion of Australian Commonwealth Government Bonds (ACGB) over the past three days, says RBC Capital Markets macro strategist Robert Thompson.

The RBA is now going to start purchasing state government (semi-government) bonds "announcing it will seek to buy $2 billion of fixed nominal bonds maturing in 2026-2030 and covering all eight of the state and territory issuers."

It is hoped the RBA's intervention will help the market agree on prices, as a lack of buying and selling is making price discovery difficult.

"Today’s tender has been split into three groups, one for the AAA states (New South Wales and Victoria) together, a second bucket for the larger AA+ issuers (Queensland and Western Australia) and then a third for all other issuers," Mr Thopmson wrote in a note to clients today.

"The RBA is seeking to buy $900 million each from the first two buckets, and $200 milion from the third. This is (very roughly) in line with the distribution of state debt outstanding, so we don’t take it as a sign that the RBA is favouring the larger issuers."

"Going forward, the key will be how often the RBA comes into the market and thus how much it ends up soaking up. We don’t expect these federal/state purchases to remain a daily occurrence, or the RBA would find itself owning the entire market in about the space of a year. We are also still expecting the RBA to address one more stressed part of the bond market in coming days or weeks: the long end of the ACGB curve.

In breaking news this afternoon, News Corp Australia's executives will take a "significant" pay cut as the company reduces its cost base to reduce the financial impact of COVID-19 pandemic on its bottom line.

In a note to staff obtained by The Sydney Morning Herald and The Age, executive chairman Michael Miller said the company would look at reducing costs across all the whole business by making more staff part-time, taking annual leave, introducing nine day fortnights and forced leave over Easter.

"I want to assure you that my priority is to preserve as many jobs caross the company as possibnle, but it is now clear that some job losses will be inevitable. Together we need to move quickly to do everything we can to secure the health of our business and retain jobs," Mr Miller said.

Australian media companies are under pressure from the dramatic economic slump with Southern Cross Austereo suspending trading on its shares after prices crashed to 17¢, and Seven West Media facing the prospect of no Olympics this year, but no refund on broadcast rights with the games postponed to 2021. Seven shares are flat at 6.7¢ today, after it pulled full year guidance on Tuesday.

Economic activity at across Europe and the United States collapsed in March, according to the latest batch of PMI reports received overnight, recording declines larger than at any point during the GFC.
ANZ Bank’s senior international economist Brain Martin believes things are about to get a whole lot worse.

“Our analysis is that that is only the beginning of the cliff effect and that during the lockdown, the economic contraction will be significantly deeper,” Mr Martin told clinets.

"We estimated recently that the US and euro area economies are operating around 20 per cent below normal with significant downside risks as lockdowns become more common and longer lasting.”
And with activity levels collapsing across the services industry, Mr Martin warns the “demand for labour is collapsing”.
“In the European Union, 80 per cent of jobs are in services. In the US, 108 million jobs are in private sector services, or 71 per cent of employment,” he said.
“The number of vulnerable jobs in both economies is enormous, and very sharp rises in unemployment can be expected.
“Governments need to act quickly to stave off surging joblessness.”