The Australian share market has closed lower after a volatile session, with the major bank stocks leading the falls
- The ASX 200 ended 0.9 per cent weaker after a volatile session
- The Australian dollar slipped to 61.25 US cents
- The Dow Jones wiped out its 900-point surge after oil prices dropped in afternoon trade
At its worst, the ASX 200 dropped as low as 2.5 per cent after a massive rally overseas, which was sparked by hopes of slowing the coronavirus infection curve, fizzled out.
The benchmark index recovered in mid-afternoon trade before retreating again, to finish 0.9 per cent lower at 5,206 points.
The big four banks were a drag on the broader market, with shares in ANZ (-4.9pc), Commonwealth Bank (-3.3pc), NAB (-4.8pc) and Westpac (-5.3pc) all tumbling.
The stocks fell after the financial regulator wrote letters to banks and insurers, asking them to reconsider their need to pay dividends during the pandemic.
Westpac said it had not made a decision yet but would do so on May 4, when its first-half results are released.
BoQ profit dives
Bank of Queensland has confirmed it will defer paying dividends to its shareholders until “the economic outlook is clearer”, citing the “significant disruption caused by COVID-19”.
This led to a 2.1 per cent slide in the bank’s share price.
The regional lender was also influenced by a letter from the Australian Prudential Regulation Authority (APRA), urging all banks and insurers to “seriously” consider the “deferment of dividends” and “limit discretionary capital distributions in the months ahead”.
It also reported a 40 per cent slump in statutory first-half profit (to $93 million), and its cash earnings after tax dropped by 10 per cent (to $151 million).
BoQ chairman Patrick Allaway said the bank understood the impact of its decision on shareholders but said following APRA’s guidance was a prudent step.
The bank’s revenue was flat at $545 million for the six months to the end of February, while expenses soared 31 per cent to $377 million.
Australia and its banks downgraded to ‘negative’
The Australian dollar has slipped to 61.25 US cents, from its overnight high of 62 cents.
RBA slashes interest rates to 0.25pc
The Reserve Bank cuts interest rates to a record low and announces a quantitative easing program for the first time in its history to help prevent a coronavirus-driven recession.
This was after the Australian economy’s “AAA” credit rating outlook was downgraded to “negative” by S&P Global Ratings.
S&P expects the nation to plunge into recession for the first time in almost 30 years.
It also said there had been a “substantial deterioration” of the Government’s “fiscal headroom” due to its massive debt burden, resulting from its coronavirus stimulus packages, which was worth more than $210 billion.
However, another agency, Moody’s, reached the opposite conclusion and rated Australia as “AAA stable” .
Moody’s said this was due to the nation’s “very high economic strength, reflected in its solid and stable growth history, as well as strong growth potential, notwithstanding current challenges posed by the coronavirus outbreak”.
Both agencies agreed Australia’s weakness was its high levels of household debt, which could be a problem if there was a significant housing downturn.
Meanwhile, Fitch Ratings downgraded its outlook for Australia’s major banks to “negative”.
Fitch said the big four banks were likely to experience a substantial jump in bad debts as more businesses failed and unemployment spiked amid the COVID-19 pandemic.
Rio Tinto reveals tax payments
Rio Tinto has disclosed it paid $US7.6 billion ($12.37 billion) worth of tax and royalties across its vast network of global businesses in 2019, including $US4.8 billion in corporate tax.
The overwhelming majority of its taxes were paid in Australia ($US6.2 billion), where the largest part of the miner’s business is located.
It also made significant payments in Chile ($US311 million), Mongolia ($US305m), Canada (US$291m), United States ($US178m), the United Kingdom ($US117m) and South Africa ($US80m), according to the company’s latest “taxes paid” report.
But Rio also revealed the profit from its controversial Singapore marketing hub surged by 73 per cent to $US459 million last year.
Furthermore, it revealed the extent of its latest tax dispute with the Australian Taxation Office (ATO).
“In March 2020, the ATO issued amended assessments to our company for the 2010 through 2016 calendar years in relation to the pricing of the sale of aluminium between Australia and our Singapore commercial centre,” Rio said in its report.
“The amended assessments are for a total amount of A$86.1m.”
Penfolds may go its own way
Shares in Treasury Wine Estates (TWE) have lifted by 0.5 per cent.
This was after the Melbourne-based company revealed that it wants to spin off its Penfolds wine division as a separately listed company.
The company, which also owns the Beringer and Wolf Blass labels, is struggling with falling demand for its wine amid the coronavirus pandemic.
Penfolds accounts for about 10 per cent of the company’s total volume, but more than half of its earnings.
Any decision over whether or not to demerge Penfolds would depend on TWE getting approval from shareholders and regulators, as well as market conditions in light of the virus outbreak.
If a potential demerger proceeds, the company expects it to be finalised by the end of 2021.
Shareholders would then own a share in Penfolds and “New TWE” — the remaining business.
TWE is also looking to downsize its commercial wine business, and has considered selling some of its brands and restructuring its supply chain.
“The retained commercial business will comprise a smaller portfolio of profitable and differentiated brands that will continue to appeal to consumer trends and preferences across key markets,” TWE said.
Wall Street volatility
The local bourse’s volatile performance comes after Wall Street’s rollercoaster session, which saw massive gains at the start before ending with slight losses.
The Dow Jones index finished 26 points (or 0.1 per cent) lower at 22,654, a big comedown from its earlier 900-point surge.
Likewise, the benchmark S&P 500 index posted a 0.2 per cent loss, after surging by as much as 3.5 per cent during the day.
The tech-heavy Nasdaq index fell by 0.3 per cent.
Despite the minor falls, US markets have surged by about 20 per cent in the past fortnight, and global markets have also jumped.
This was mainly due to expectations that many countries would fall into short recessions, followed by fast “V-shaped” economic recoveries, and the decisions by governments and central banks to inject record amounts of stimulus into their economies.
Sentiment was also boosted by early signs that the rate of new COVID-19 infections and deaths may be starting to slow down in the epicentres of New York, Italy and Spain.
But Wall Street is still in a bear market, having fallen by about 20 per cent from the record high it reached in mid-February.
‘Premature’ market rally
Some investors believe markets are getting ahead of themselves given the economic fallout from COVID-19 is widely expected to be worse than the global financial crisis (GFC) more than a decade ago.
Sharp rise in unemployment could trigger house price crash
The spread of coronavirus across Australia could see unemployment reach about 10 per cent and house prices drop 20 per cent, says one economist.
In previous bear markets, including the GFC, markets had surged several times before hitting a new low within months.
“The rally is sentimental and a little premature because if we lift these lockdown measures too soon and try to resume economic activity, we’re going to get a very severe pandemic rebound,” said Indranil Ghosh, chief executive of Tiger Hill Capital in London.
However, US markets lost their steam as oil prices tumbled in the afternoon trading session.
Brent crude plummeted by 3 per cent to $US32 a barrel.
Investors are concerned about an oil oversupply, particularly when demand for jet fuel has plunged amid worldwide travel bans and widespread businesses closures.
These worries are on top of the rising scepticism that Saudi Arabia and Russia can reach a deal to end their self-destructive price war at their Thursday (local time) OPEC+ meeting.
“Reports suggest they are focused on a three-month cut to output, although volumes have not been discussed,” ANZ senior economist Felicity Emmett said.
“What is clear is that the US must be involved [and] President Trump said he hasn’t been approached by OPEC yet.
“But following his meeting with oil executives over the weekend, the likelihood of them agreeing to a voluntary cut to output looks unlikely.”
European markets experienced strong gains, particularly London’s FTSE (+2.2pc) and Germany’s DAX (+2.8pc), as they finished trading before the slide in afternoon oil prices.