Wall St rises, ASX to open flat

Australian shares are poised to open higher as Wall Street rallied on hopes that the US will start to ease at least some virus related lockdown measures.

ASX futures were up 11 points or 0.2% to 5501 near 7am AEST. The currency retook the US64¢ mark.

US deaths top 25,000; WHO says virus has not peaked: Click here for our live coronavirus blog.

In New York, shares were sharply higher on bets the US is moving ever closer to at least a partial reopening of its economy. The Dow was up 2.5% near the closing bell.

The 10 states coordinating plans separately from the White House to reopen businesses shut by the coronavirus are responsible for an outsized proportion of the US economy.

California and New York, the biggest and third-biggest states respectively, account for about 23% of total US economic output, figures from the Bureau of Economic Analysis show.

Bank of America said its monthly survey of global fund managers showed “extreme investor pessimism” – from the percentage of cash held to a bleak outlook for the global economy.

Some highlights from the survey:

  • cash held rises to 5.9% from 5.1% – the highest level since the September 11 terror attacks
  • 93% expect global recession in 2020; investors think global GDP cuts largely over, but global EPS cuts just beginning (rare dichotomy)
  • 52% believe economic recovery from COVID-19 shock will be U-shaped, 22% say W-shaped, just 15% say V-shaped
  • equity allocation lowest since Mar’09 (when S&P500 hit 666 low during GFC)
  • FMS investors very long cash, healthcare, staples, utilities, US, tech, bonds ; very , equities, materials, industrials, UK, banks, Eurozone.

In terms of tail risks, the biggest is a second wave COVID-19 virus outbreak at 57% followed by a systemic credit risk at 30%.

In a note, LPL Financial’s Ryan Detrick said “We are close to getting clarity on a peak in new COVID-19 cases in the United States, a key signal for us that the market lows may be in place.

“We continue to believe this may be a suitable time for long-term investors to consider adding more equity exposure in their portfolios where appropriate.

“But as we noted last week, more tactical investors may want to wait for a potential retest of the March 23 lows, as most previous major market crashes experienced a return to prior lows before beginning the recovery. A more attractive entry point may present itself soon.”

Today’s agenda

Local: Westpac-MI consumer confidence April

Overseas data: US February business inventories, March retail sales and industrial production, April NY Empire manufacturing and NAHB housing index, Fed’s Beige Book

Market highlights

ASX futures up 11 points or 0.2% to 5501 near 7am AEST

  • AUD +0.9% to 64.40 US cents (overnight peak 6443)
  • On Wall St: Dow +2.4% S&P 500 +3.1% Nasdaq +4%
  • In Europe: Stoxx 50 +0.9% FTSE -0.9% CAC +0.4% DAX +1.3%
  • Spot gold +1.2% to $US1736.36 an ounce at 2.35pm New York time
  • Brent crude -7.3% to $US29.42 a barrel
  • US oil -10.5% to $US20.06 a barrel
  • Iron ore +1.7% to $US87.02 a tonne
  • Dalian iron ore +1.2% to 606.5 yuan
  • LME aluminium +1.8% to $US1506 a tonne
  • LME copper +2.9% to $US5163 a tonne
  • 10-year yield: US 0.75% as of 4.59pm New York

From today’s Financial Review

Deep recession and V-shaped rebound for Australia: IMF: Fund warns that virus containment measures will slice 6.7 per cent off the economy this year, in the world’s worst downturn since the Great Depression.

Prospa will cut loan rates with government guarantee: Shares in the online small business lender surged after the company announced it would become part of the federal government’s SME Loan Guarantee Scheme.

The pros and cons of ring-fencing COVID-19 hotspots: Ringfencing COVID-19 hotspots in an almost biblical way could be a next step in controlling local transmission of the disease, a pandemic expert says.

United States

JPMorgan Chase is preparing for the possibility that customers ranging from credit card holders to oil companies could fail to pay back billions of dollars in loans as the economy reels from the coronavirus outbreak.

JPMorgan said Tuesday that first-quarter profit plunged nearly 70%, as it boosted its reserves for potentially bad loans by nearly $US7 billion. The bank warned it could boost those reserves even further in the April-June period,

Fed’s Bullard says economists wrong to doubt ‘V’ rebound in US: “I know it’s become popular to say that is not going to happen. I think it can happen.”

Wall Street jumped on Tuesday as hopes that Donald Trump could move to ease coronavirus-induced lockdowns overshadowed dismal quarterly earnings reports from JPMorgan and Wells Fargo.

JPMorgan and Wells Fargo reversed early gains to drop as first-quarter profits plunged with both banks setting aside billions of dollars to cover potential loan-losses from the pandemic.

A 5.1% jump for Apple put the tech-heavy Nasdaq on course for a fourth straight day of gains as data showed shipments to China rebounded slightly in March after crashing in February.

surged 9.1% to retop $US700 and was among the top boosts to the Nasdaq after brokerage Credit Suisse upgraded the electric car maker’s stock to “neutral”.

Europe

Britain set to prolong lockdown three more weeks: The government’s official forecaster said the economy could contract by 35pc in the second quarter if the lockdown lasts through June.

European shares ended higher on Tuesday, as better-than-expected data from China added to signs that sweeping lockdowns to contain the spread of the coronavirus were working.

The pan-European STOXX 600 index closed up 0.6% after a strong finish last week that was powered by another aggressive round of stimulus and tentative signs of the virus peaking in some hot spots.

“There are hopes that the COVID-19 pandemic is reaching an inflection point and that the EU will muddle its way through,” said Cameron Brandt, director of research at fund flow data provider EPFR.

“Cheaper energy, inventory restocking and pent-up demand will fuel a significant rebound in economic activity during the second half of 2020.”

Spanish shares gained 0.5% as some businesses re-opened on Monday, although shops, bars and public spaces were set to stay closed until at least April 26.

Almost all the major European country bourses were trading higher, with sentiment also lifted by data showing a smaller-than-expected decline in China’s exports and imports. Analysts, however, warned a sure-footed recovery was months away.

The benchmark STOXX 600 index has recovered about 24% – or nearly $2 trillion in market value – in the past month, fuelled by a raft of global fiscal and monetary stimulus, including the half-a-trillion euros worth of support for European economies announced last week.

Although the index remains 22.5% below its mid-February record highs, Europe’s volatility gauge has steadily declined since hitting a record high mid-March and is now at levels last seen in 2015.

Asia

Japan’s stock benchmark Nikkei jumped 3% to its highest closing level in more than a month on Tuesday, driven by a gigantic short squeeze, with -related companies and retailers leading gains.

The Nikkei average rose 3.1% to close at 19,638.81, a peak unseen since March 10.

The Nikkei’s volatility index, a measure of investors’ volatility expectations based on option pricing and considered to be a fear gauge, slid 11.9% to a three-week low of 37.48.

“A massive short squeeze appears to have powered the rally especially in the afternoon,” said , at Libra Investments.

“At least some investors are seeing early signs of bottoming out and betting a recovery will happen six months ahead.”

Hong Kong shares closed higher on Tuesday after China reported smaller-than-expected contractions in imports and exports in March, and as fears over the global spread of the new coronavirus eased.

The Hang Seng index ended up 135.07 points or 0.56% at 24,435.40. The rose 0.37% to 9847.47.

Currencies

Government bond sale attracts over $18.4b in bids: Bond investors rushed to buy an attractively priced government bond issue, which could raise up to $10 billion.

RBA the new major bond market player: The Reserve Bank is expanding its balance sheet to soak up government bonds, with issuance set to approach the $850 billion debt ceiling.

Commodities

Copper prices hit a four-week high on Tuesday, boosted by coronavirus-linked supply disruptions and expectations of stronger demand, although gains were capped by caution over the pace of an economic recovery.

Benchmark copper on the London Metal Exchange was up 2.9% at $US5163 a tonne at 1700 GMT. Prices of the metal used by investors as gauge of economic health touched $US5200 earlier, the highest level since March 17.

“Some people are convinced things are improving and are positioning accordingly, but a V-shaped recovery could turn out to be an illusion,” said Peter Fertig, analyst at Quantitative Commodity Research. “China is starting up, but we are far from normalisation, price gains could be getting ahead of economic reality.”

Three-month aluminium was up 1.8% to $US1506 a tonne.

Australian sharemarket

ASX hits one-month high, enters bull market: The Australian sharemarket rose to a one-month high, re-entering a bull market as local shares extended a rebound from heavy falls through February and March.

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