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Australian shares are expected to fall, reflecting in part more selling on Wall Street over the weekend, as the global number of coronavirus cases and the death toll leapt higher.

ASX futures were up 6 points or 0.1 per cent to 4834 at 3.59pm on Friday in . After the closing bell in New York on Friday local time, Dow futures fell 4.1 per cent and S&P 500 futures fell 3.2 per cent.

During Friday’s session, the Dow shed 915 points or 4.1 per cent to 21,367. The S&P 500 lost 3.4 per cent to 2541. The Nasdaq closed down 3.8 per cent.

“The main focus for investors is whether government adopts more stringent health measures, particularly in the most-affected states of New South Wales and Victoria,” NAB said in a note.

Also, additional fiscal measures are expected from the federal government.

“With the global economy slipping into recession and many economists estimating second-quarter gross domestic product growth in the will fall by 15 per cent or more, the world is being confronted with the worst downturn since the 1930s,” Guggenheim Partners’ Scott Minerd wrote.


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“With the exogenous shock of the COVID-19 pandemic, policymakers are returning to tools deployed in the financial crisis,” Mr Minerd noted. “They are desperately searching for programs that will fill the demand gap created by massive shutdowns and travel restrictions and prop up businesses that to a large degree are overly indebted.

“The risk is on both sides of either not moving quickly enough or overdoing it. If too little money is made available, the prices of assets used as collateral backing loans will spiral downward. If there is too much, inflation will spiral out of control. It will take a deft hand to succeed at finding the middle path.”

Today’s agenda

No local data

Overseas data: zone March economic confidence, business climate indicator, consumer confidence final, CPI; US pending home sales February and manufacturing index March

Market highlights

ASX futures up 6 points or 0.1 per cent to 4834

  • AUD +1.7% to 61.68 US cents (Peaked at 62.00)
  • On Wall St: Dow -4.1% S&P 500 -3.4% Nasdaq -3.8%
  • In New York: BHP -6% Rio -4% Atlassian -4%
  • -4.5% -4.1% Microsoft -4.1% Facebook -4%
  • In Europe: Stoxx 50 -4.2% FTSE -5.3% CAC -4.2% DAX -3.7%
  • Nikkei 225 futures -2.8%
  • Spot gold -0.2% to $US1628.16 an ounce
  • Brent crude -5.4% to $US24.93 a barrel
  • US oil -4.8% to $US21.51 a barrel
  • Iron ore -0.5% to $US86.36 a tonne
  • Dalian iron ore -0.2% to 659 yuan
  • LME aluminium +0.7% to $US1547 a tonne
  • LME copper -0.2% to $US4795 a tonne
  • 2-year yield: US 0.24% 0.20%
  • 5-year yield: US 0.39% Australia 0.34%
  • 10-year yield: US 0.67% Australia 0.90% Germany -0.48%

From today’s Financial Review

Wage subsidies for business ‘hibernation’: Big and small business will receive federal government wage subsidies to keep hundreds of thousands of workers on the payroll during the coronavirus crisis, via a “hibernation” package Prime Minister Scott Morrison says will be “bigger than anything you’ve so far seen”.

China spree sparks FIRB crackdown: The federal government has placed immediate and indefinite restrictions on all foreign investment bids following at least two cases of Chinese-owned companies shipping medical supplies to China.

Banks are the recession ‘shock absorbers’: APRA chairman Wayne Byres says the banks have built up big enough capital reserves to get the financial system through the coronavirus crisis, even as they are still recovering from the bruising Hayne royal commission.

United States

Trump signs $3.2 trillion rescue bill into law: The law authorises $US1200 payments to millions of Americans and programs to disburse close to $US1 trillion to large and small companies.

US companies raised a record $US109.1 billion through investment-grade bond sales last week, as corporate America hoarded cash. , McDonald’ and Home Depot were among 49 companies that borrowed money through investment-grade bonds, according to IFR Refinitiv data.

“It is a desire on the part of companies to build liquidity in an uncertain time. You combine that with the fact that markets have been so volatile, when they open up companies want to take advantage,” said Andrew Karp, head of global investment grade capital markets at Bank Of America Securities, which worked on many of this week’s deals.

The Cboe Volatility Index is down nearly 20 points from its record closing high hit earlier this month but remains far above its usual levels. The index was last at 64.29.

The persistent elevation of the index, which shot to its highest level since 2008 as markets plunged, sounded a discordant note during the rally earlier this week, which took the S&P 500 nearly 18 per cent higher from Monday’s close to Thursday’s close.

“I do think the VIX is too high right now,” said Gene Goldman, at Cetera Investment Management. “It’s pricing in 4 per cent stock moves per day for the foreseeable future.”

Europe

European shares closed in the red on Friday after EU lawmakers failed to agree on a coronavirus rescue package and British Prime Minister Boris Johnson announced he had been infected.

The pan-European STOXX 600 index started the day about 2 per cent lower, then closed down 3.3 per cent after the announcement about Johnson’s test. The declines followed a three-day rally, and the index marked its best week since 2011.

London bluechip stocks had extended losses after the news, closing 5.3 per cent down.

With most of Europe practically under lockdown due to the virus, a recession appears imminent. EU lawmakers on Thursday extended the deadline for agreeing on a comprehensive economic rescue package by two weeks over a dispute between the ailing south and the fiscally conservative north.

“The bottom line is that the recovery from this crisis will be a lot slower than consensus expects,” said Andrea Cicione, head of strategy at TS Lombard, in London. “And it will be further slowed down by the high level of unemployment and lack of capex.”

European car makers were the worst performers on the day, shedding about 5.8 per cent.

Volkswagen fell 7.3 per cent after its Herbert Diess said it may have to cut jobs if the pandemic is not brought under control, as the car maker is still spending about €2 billion a week.

Asia

TD Securities on Singapore’s outlook: “The shock to Singapore’s economy from Covid-19 will require aggressive action in our view. As such, we expect more fiscal stimulus to be accompanied by a re-centering of the SGD NEER band and shift to a neutral stance from what we believe was a 0.5 per cent slope previously. Singapore’s economy is sliding into recession.

“Growth in Q1 revealed a sharp fall, and the picture is likely to get considerably worse before any reversal. Inflation pressures have eased, with core CPI falling to its lowest in 10 years, at -0.1 per cent y/y. Weak external demand, low oil prices, weaker travel related prices and subdued labour market conditions, all point to a benign inflationary environment in the weeks and months ahead.”

In Hong Kong on Friday, the Hang Seng index rose 0.6 per cent, to 23,484.28, while the China Enterprises Index also gained 0.6 per cent, to 9504.92.

For the week, HSI climbed 3 per cent and HSCE gained 4.2 per cent, both snapping a two-week sell-off.

In Tokyo, the Nikkei average rose 3.9 per cent to 19,389.43 points on Friday, recouping most of the 4.5 per cent losses suffered on Thursday. The index jumped more than 200 points in the final minute of trade on passive investors’ buying to reinvest expected dividend payments.

For the week, the index surged 17.1 per cent, but it is still down 18 per cent for the year after the explosive spread of the virus triggered a global economic crisis and a meltdown in financial markets.

The Nikkei’s volatility index, a measure of investors’ volatility expectations based on option pricing and considered to be a fear gauge, fell 3.2 per cent to 52.47, moving further away from a nine-year peak of 60.86 hit on March 16.

Prime Minister Shinzo Abe is expected to order his cabinet to compile an economic package with spending worth $US135 billion or more, government officials and lawmakers say.

Currencies

TD Securities on the outlook for the $US: “The USD continued to trade on its backfoot, but we think this process is nearing completion. Month-end dynamics add to the noise, but we anticipate that once this passes, several currencies will need to reverse course as fundamentals begin to take hold.

“We think EURUSD has somewhat marked itself a top around 1.11, and we think it is more likely we trade near 1.05 than 1.15 in the coming weeks. We look for USDJPY to recalibrate towards US 10yr TIPS, which implies a return to 105.”

Commodities

Copper prices stabilised close to 4-year lows on Friday in London as disruption to supply caused by shutdowns of mines and shipping routes began to offset the huge hit to demand from the coronavirus outbreak.

Benchmark copper was down 0.2 per cent to $US4795 a tonne at 1700 GMT on Friday and roughly unchanged on the week.

Prices have fallen more than 20 per cent so far in 2020.

Plummeting aluminium prices are unlikely to persuade producers to immediately cut output as input costs have also fallen, leaving the market with massive surpluses.

Chinese Chalco played down the impact of the coronavirus and said its output fell 9 per cent in 2019.

LME aluminium was up 0.7 per cent to $US1547 a tonne.

Australian sharemarket

Rally crumbles after $US2trn stimulus optimism fades: Australia’s sharemarket ended a week of massive gains with a loss on Friday.

The S&P/ASX 200 Index closed 25.8 points, or 0.5 per cent, higher over the five sessions to end the week at 4842.4 points.

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