Australian shares swing after Federal Government reveals coronavirus budget hit
The Australian share market has swung between positive and negative territory, following the Federal Government’s budget update.
By 1:05pm (AEST), the ASX 200 was around two points lower at 6,073 points, while the All Ordinaries index was flat.
The local market had initially opened lower, with falls for bank and mining stocks, however it changed course after the budget update, which revealed an $86 billion deficit amid the coronavirus pandemic, before dipping back into the red.
The Australian dollar was fairly steady, buying around 71.4 US cents.
The major bank stocks were mixed, with ANZ (-0.5pc), the Commonwealth Bank (-0.8pc) and Westpac (-0.3pc) lower while NAB shares (+0.1pc) were higher.
The materials and telco sectors remained in the red, as did health, tech and consumer stocks, while energy was the best performing sector.
Shares in Tabcorp rose by 4.4 per cent, after announcing the retirement of its chief executive David Attenborough in the first half of 2021.
The company said a global search for Mr Attenborough’s replacement is underway.
The gaming giant also announced that its chair Paula Dwyer will retire at the end of the year, and will be succeeded by current director Steven Gregg.
The changes at Tabcorp follow its integration with Tatts Group after a merger, which Ms Dwyer said is nearing completion.
S&P reaffirms Australia’s ‘AAA’ credit rating
One of the world’s major credit ratings agencies said the predicted rise in the budget deficit this financial year would not affect Australia’s ‘AAA’ credit rating.
S&P Global Ratings said the extension of the JobKeeper wage subsidy and JobSeeker supplement would not put the rating at risk, given the cost of the JobKeeper program is less than forecast in March.
“The ‘AAA’ rating on Australia reflects our expectation that the economy will begin to recover from recession during fiscal 2021,” it said.
“We expect the general government’s fiscal balance to improve during the next few years beyond the large deficit being incurred in fiscal 2021, and believe the government remains committed to fiscal discipline.”
However, it warned that the credit rating could be downgraded if COVID-19 caused more severe or prolonged economic damage than currently expected, and maintained its negative outlook.
The assumptions in the budget update were based on a six-week lockdown in Melbourne followed by a gradual easing in restrictions, with other states are assumed to continue opening up.
Meantime, Victorian Treasurer Tim Pallas said the state’s budget was projected to run a $7.5 billion deficit for the 2019-20 financial year.
National Australia Bank has warned some businesses in the hospitality, tourism and aviation industries may not survive the coronavirus recession.
Ana Marinovic, head of NAB’s small business bank, said the second lockdown in Victoria has seen some firms delay their plans to start making loan repayments.
“Collectively, I think we need to be open to the fact that some businesses will not be in a strong position coming out of this and may not be able to recover, particularly those in hospitality, tourism and aviation and associated industries and sectors,” she said.
“From the conversations I’ve been having with a large plethora of our customers, this is the market that has been hardest hit.”
US Government strikes vaccine deal
The US Government will pay nearly $US2 billion ($2.79 billion) to buy 100 million doses of a potential COVID-19 vaccine.
That is enough doses to inoculate 50 million people if the vaccine proves to be safe and effective.
The vaccine is being developed by global pharmaceutical giant Pfizer and Germany’s BioNTech.
The companies will not get paid by the US Government unless their vaccine succeeds in large clinical trials and can be successfully manufactured.
It is the latest deal the US has done with pharmaceutical firms trying to develop potential vaccines to treat coronavirus, as governments race to secure supplies of vaccines and medicines to reduce the spread and severity of the virus.
Gold hits nine-year high on US-China tensions
Global markets fell and gold rose after the US ordered China to close its consulate in Houston, Texas, fuelling fears of worsening diplomatic relations between the superpowers.
Citing the protection of American intellectual property and private information, the US gave China just three days to close the consulate.
China is expected to retaliate.
Spot gold jumped to a nine-year high of just above $US1,870 an ounce as investors turned to safe havens because of the tensions.
The price of gold has doubled since the coronavirus share market crash in March, with spot prices just $US50 less than their record high in September 2011.
Silver surged to the highest in seven years, up a further 8 per cent to just above $US23 an ounce.
Oil prices are weaker, with Brent crude oil at $US44.28 a barrel, down 0.1 per cent after a surprise fall in US inventories.
But Wall Street ended higher after a volatile session, as investors weighed quarterly profits results and negotiations in Washington to extend stimulus checks.
US Democrats and Republicans remained divided on a new stimulus package expected to cost $US1 trillion or more, less than two weeks before extended benefits are due to expire for millions of unemployed Americans.
The Pfizer-BioNTech deal also boosted the market, with Pfizer shares jumping 5.1 per cent.
The Dow Jones index rose almost two-thirds of a per cent to 27,006. The S&P 500 reached a five-month high, up 0.6 per cent to 3,276, and the Nasdaq Composite added 0.2 per cent to 10,706.
Peter Cardillo, chief market economist at Spartan Capital Securities in New York, said investors were looking to shares to boost returns.
“Investors are starving for income and they can’t get that in the bond market so they’re looking to equities,” he said.
“But even though the averages are going up, investors seem to be growing more cautious.”
National Australia Bank currency strategists warned that “a US-China cold war remained a key risk for investors.”
Tesla posts profit as US earnings season continues
Snap shares fell 6.2 per cent after it posted a net loss of $US326 million. It also forecast fewer than expected users over the current quarter as the lockdown-induced boost petered out.
Electric car maker Tesla saw another rise in quarterly profit, helped by stronger deliveries and cost cutting which offset coronavirus factory shutdowns.
Tesla made a net income of $US104 million from April to June, the first time the company has posted a profit for four quarters in a row, making it eligible for inclusion in the S&P 500 index.
The company’s shares have jumped more than 500 per cent over the past year.
Tesla will also build a new vehicle factory in Texas, which could create 5,000 new jobs.
Microsoft reported better than expected quarterly earnings as the coronavirus pandemic has increased demand for its flagship products.
In economic news, sales of existing homes in the US jumped by a record 20.7 per cent in June, according to the National Association of Realtors, but sales are still down by a fifth compared to before the pandemic.
European stocks fell on the worsening ties between the US and China.
The FTSE 100 index fell 1 per cent to 6,207, the DAX in Germany dropped 0.5 per cent to 13,104 and the CAC 40 in Paris lost 1.3 per cent to 5,037.