Australian shares fall as IMF warns wartime measures are needed to protect global economy


The Australian share market has fallen, led by the major banks, after the International Monetary Fund told governments to enact wartime measures to fight the coronavirus pandemic.

Key points:

  • The ASX 200 lost 2 per cent and the All Ordinaries index fell by 1.9 per cent
  • Bank stocks are under pressure as New Zealand stops banks paying dividends in order to preserve capital
  • The IMF has warned the “war” phase of coronavirus will last at least one to two quarters

Australian shares slumped nearly 4 per cent in early trade, as the coronavirus death toll rose in the United States and New Zealand told banks to freeze dividend payouts.

The benchmark ASX 200 index came off those early lows to be down 2.3 per cent to 5,135 points by 1:25pm (AEDT).

Bank stocks led the falls following an announcement by the Reserve Bank of New Zealand that local banks cannot redeem short-term corporate bonds or pay dividends on ordinary shares to investors, in order to preserve capital.

ANZ said the measure would prevent it from repaying its $NZ500 million ($487 million) capital notes due in late May, although it can make interest payments on the bonds.

ANZ shares fell 5.3 per cent or 91 cents to $16.14.

National Australia Bank said the measures would not have a material impact on its capital buffers — its shares fell 5.4 per cent, while CBA and Westpac shares fell more than 4 per cent.

Westpac has appointed former chief financial officer and acting boss Peter King as its new chief executive, following the resignation of Brian Hartzer late last year, as the bank was accused of breaking money-laundering laws more than 23 million times.

Chairman John McFarlane said Mr King and other top executives would not be paid a short-term bonus in 2020 to take “collective accountability for the financial crime outcomes in Westpac’s business which led to the action brought by AUSTRAC”.

Ratings agency Moody’s downgraded its outlook for the Australian banking system to negative, from stable, citing the “broad and growing scope of economic and market disruption”, with increased loan losses and record low interest rates expected to decrease profitability.

Westpac’s newly confirmed boss told The World Today the banks will need to allow for people not being able to repay their loans.

“Our focus at the moment is to help people and get them through this period … if people have jobs, for those who have debt they can repay that debt, and the best thing for the bank, for the economy and for customers is to get employment back and the JobKeeper program from the Government is doing a very good job I think,” Mr King said.

Airline stocks were weaker, with shares in Virgin Australia down 8.9 per cent following reports the Government will not grant the airline’s request for $1.4 billion in financial support.

Shares in Qantas were down 5.2 per cent after SafeWork NSW notified the company of an investigation into its suspension of an aircraft cleaner who raised concerns about workers being exposed to coronavirus.

The Australian dollar has come off its overnight low to around 60.85 US cents.

A quarterly survey from economists at NAB showed business confidence and conditions declining sharply over the first three months of the year, due to the early impact of the coronavirus pandemic.

Forward-looking indicators of employment and business spending were lower.

“While there was clearly a large amount of uncertainty at the time of the survey, it was clear that looming lockdowns and an escalation in social distancing measures would materially impact economic activity,’ NAB’s chief economist Alan Oster said.

“While the immediate impact of [the Government support] measures is unclear given the restrictions on activity, they will certainly provide support in the recovery phase.”

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Global stocks sink as IMF predicts length of economic damage

Overnight, the International Monetary Fund (IMF) predicted the “war” phase of the coronavirus pandemic will last at least one to two quarters.

The IMF warned governments would need to mobilise to provide supplies to the health industry, cash transfers to those who had who lost their jobs and “exceptional support” like wage subsidies to companies.

“The success of the pace of recovery will depend crucially on policies undertaken during the crisis,” IMF economists wrote in a blog post.

“If policies ensure that workers do not lose their jobs, renters and homeowners are not evicted, companies avoid bankruptcy, and business and trade networks are preserved, the recovery will occur sooner and more smoothly.”

Australia and other countries have already unveiled similar policies with a massive rollout of economic stimulus.

On the markets, US stocks plunged after US President Donald Trump said there could be up to 240,000 deaths from coronavirus in North America.

“This is going to be a rough two-week period,” he said at a White House press conference.

“When you look at night the kind of death that has been caused by this invisible enemy, it’s incredible.”

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The Dow Jones Industrial Average fell more than 1,000 points at its low point, as a plunge in new orders for US-made products pushed investors away from stocks to safer assets. It lost 974 or 4.4 per cent to 20,944.

The S&P 500 fell 4.4 per cent to 2,471 and the Nasdaq lost 340 points or 4.4 per cent to 7,361.

US manufacturing activity contracted less than expected in March, but disruptions caused by the pandemic pushed new orders received by factories to an 11-year low, which has reinforced economists’ view the economy is in recession.

The outlook was further dented by other numbers showing private payrolls dropped last month for the first time in more than two years as businesses shut down because of strict measures to contain the virus.

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Banks suffered on speculation they could be forced to cut dividends after European lenders including HSBC and Standard Chartered Bank halted payouts and share buybacks.

European stocks sank as well despite European Union plans to save jobs.

The FTSE 100 index slid 3.8 per cent or 217 points to 5,455.

The euro extended its drop as manufacturing data from the Eurozone painted a bleak picture, with Italy’s purchasing managers’ index posting a record fall.

What the experts are saying about coronavirus:

Video: The Virus: Jeremy Fernandez updates you on the latest developments on COVID-19 as of April 3

(ABC News)