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Natasha Rudra

Australian shares are set to drop despite markets mostly rising on the back of health and technology stocks with the Nasdaq set for its sixth straight day of gains.

Meanwhile as Rex steps up its game against Virgin and Qantas, Richard Branson will sell 25 million shares in his space travel business Virgin Galactic to bail out his empire, including Virgin Australia.

China and US CPI data is expected today. Capital Economics’ Andrew Hunter writes, “We expect headline US .CPI inflation to have plunged to 0.3 per cent in April, from 1.5 per cent in March, primarily due to the sharp fall in energy prices last month.

“But core CPI is also likely to have dropped back, as coronavirus restrictions have significantly reduced demand for a wide range of goods and services. Otherwise, the key releases this week will be the April retail sales and industrial production data due on Friday, which should reveal the full extent of the hit to activity from the pandemic.”

Steven Mnuchin said he sent the Federal Reserve money from a $US454 billion coronavirus rescue package to begin lending to US corporations.

The New York Fed announced on May 4 that it expected to begin purchasing shares of eligible exchange-traded funds via the so-called Secondary Market Corporate Credit Facility in “early May.”


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“I can tell you I’m authorising a wire this morning going into the secondary corporate facility. It’s on it’s way out,” Mnuchin said in a CNBC interview on Monday.

Today’s agenda

Local: Housing finance data March; NAB business survey April

Overseas data: China PPI April; China CPI April; US CPI April

Market highlights

ASX futures down 7 points or 0.1% to 5471 near 5.50 am AEST

  • AUD -0.5% to 64.94 US cents
  • On Wall St: Dow -0.2% S&P 500 +0.2% Nasdaq +0.1%
  • In New York: BHP -2.4% Rio -2.5% Atlassian +1.6%
  • In Europe: Stoxx 50 -0.84% FTSE +0.06% DAX -0.73% CAC -1.31%
  • Spot gold +0.3% to $US1697.70 an ounce at 1.21pm New York time
  • Brent crude -2.9% to $US30.08 a barrel
  • US oil -1% to $US24.50 a barrel
  • Iron ore flat to $US88.61 a tonne
  • Dalian iron ore -0.32% to 630 yuan
  • LME aluminium +0.7% to $US1495 a tonne
  • LME copper -0.3% to $USUS5258 a tonne
  • 10-year yield: US 1.43% Australia 0.95% -0.52%
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From today’s Financial Review

China’s fury over steel is behind the barley threat: Australian barley growers are set to become collateral damage in a broader dispute with China over the government’s aggressive use of anti-dumping measures against its steel and aluminium producers.

Secret emails show BHP deal left workers worse off: A Coalition appointee at Fair Work has attracted fresh criticism after he secretly emailed BHP modelling showing its agreement left workers worse off, two hours before he approved it.

Australians know there is no money tree’: Treasurer Josh Frydenberg will start building the case for a new economic agenda on Tuesday while warning a coronavirus second wave will come at further heavy cost to the economy.

The S&P 500 ticked higher as gains in healthcare and technology stocks countered losses in financials, while investors kept an eye on new coronavirus cases as several countries ease lockdowns.

The tech-heavy Nasdaq was headed for its sixth straight day of gains, while the Dow Jones index slipped about 0.2 per cent.

Technology and healthcare, the best performing sectors this year, rose 0.5 per cent and 1.4 per cent each. Financials, which tend to lag when the economic outlook darkens, declined 1.5 per cent.

“Markets want to believe that later on this year we’re going to be in a better position. Definitely not right now, but we are moving towards that direction,” said Robert Pavlik, chief investment strategist at SlateStone Wealth in New York.

The tech-heavy index is now just 6.6 per cent below its February record high, but analysts have warned of another selloff as macroeconomic data gets worse, foreshadowing a deep and lasting global recession.

AMC jumped as much as 56 per cent on a media report that Amazon.com has discussed a potential takeover of the largest US movie-theatre owner, though it pared the gains when another outlet said the companies aren’t talking.

Richard Branson has agreed to sell shares worth around $US500 million in his Virgin Galactic space business to raise funds for his struggling and leisure businesses.

The businessman said the cash would be reinvested into firms including Virgin Atlantic. Announcing the plans via the New York Stock Exchange, Virgin Group said it would sell 25 million shares via Credit Suisse.

Europe

The FTSE closed marginally higher, on optimism about the UK’s plans to gradually ease some coronavirus-induced curbs but investors remained wary of it potentially setting off a second wave of new infections.

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The FTSE 100 edged 0.1 per cent higher, giving back some gains after rising as much as 1% during the day. The mid-cap FTSE 250 added 0.1 per cent.

“When it comes to reopening the economy, there is a fear in the markets that it might be a case of one step forward and two steps backwards,” said David Madden, at CMC Markets in London.

Madden added that the easing of lockdowns has turned out to be a double-edged sword, as countries such as Germany and South Korea reported an uptick in new coronavirus infections.

The blue-chip FTSE 100 has now recovered about 20 per cent from a March low on a raft of global stimulus, but it remains about 27 per cent down on the year as the outbreak halts supply chains, crushes consumer spending and puts entire sectors on the verge of collapse.

Asia

Benchmarks in Tokyo, Hong Kong and Southeast Asia advanced. Shanghai was off 0.1 per cent. Optimism is gaining as China and some other countries begin to revive their economies.

“While the argument that forward-looking market hopes of recovery should override backward looking economic gloom may not be groundless, it inevitably understates inherent fragilities and risks,” said Riki Ogawa of Mizuho in a report.

Tokyo’s Nikkei 225 gained 1 per cent and the Hang Seng in Hong Kong added 1.4 per cent. The Shanghai Composite Index declined.

The Kospi in Seoul was off 0.4 per cent.

Commodities

Oil prices fell as investors worried about a second wave of coronavirus infections, but new output cuts from Saudi Arabia tempered worries about oversupply and limited price losses.

Brent crude futures fell $US1.04, or 3.4 per cent, to $US29.93 a barrel. US West Intermediate crude fell 30 US cents, or 1.2 per cent, to $US24.44 a barrel.

Copper prices hit eight-week highs as recovering economic activity in top consumer China after the country’s central bank signalled further stimulus.

Benchmark copper on the London Metal Exchange was down 0.3 per cent at $US5258. Prices of the metal used widely in the power and construction industries earlier touched $5370 a tonne, the highest since March 16 and a gain of more than 20 per cent since March 19.

“Base metals are reacting to signs of economic activity in China recovering and moving towards normal,” said Dan Smith, managing director at Commodity Market Analytics. “Chinese data is showing an improvement.”

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Currencies

Sterling dipped against the dollar. Viraj Patel, FX and global macro strategist at Arkera, said the pound had got off to a mixed start for the week, with little lasting impact from Johnson’s announcement. “Instead, the dollar remains supported by rising US yields,” he added.

Bank of England Andy Haldane said there was a risk that the coronavirus pandemic would cause a long-term hit to spending by companies saddled with higher debts and by households worried about their job prospects.

“All crises leave scars and this crisis assuredly will be no exception,” Haldane said on a Royal Economic Society webcast on Monday.

Haldane said in the longer term, Britain needed to put its net-zero carbon target and boosting growth in underperforming regions – as pledged by Boris Johnson before the coronavirus crisis – into its growth strategies.

He also said there had been signs of stabilisation in some spending measures recently, although they remained at very low levels and there was no similar sign of a bottoming out in the labour market.

However, Haldane said he took heart from one set of data.

“Apparently Spotify downloads of the REM song ‘It’s The End Of The World As We know It’ peaked two weeks after lockdown began and have been declining since,” he said. “So perhaps, perhaps, we are seeing some stabilisation.”

Australian sharemarket

The Australian sharemarket recorded another solid session as the roll-back in restrictions provides support for the view the worst of the economic toll from the pandemic may be behind us.

The S&P/ASX 200 Index gained 70.1 points, or 1.3 per cent to 5461.2 following positive leads from markets in trailing time zones at the end of last week.

The notable gain comes despite economic data released from Friday evening local time, including the US April jobs report that showed unemployment in the world’s largest economy had jumped to 14.7 per cent.

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    Natasha Rudra is an online at The Australian Financial Review based in London. She was the life and entertainment editor at The Times. Connect with Natasha on Twitter. Email Natasha at [email protected]

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