- Local and global share prices moved higher this week, with investors buoyed by additional central bank stimulus and positive results from a drug trial treatment for the virus.
- In local stock news, NAB’s cash earnings fell 51% in the 1st half, versus the same time last year, as credit impairment charges increased to $1.16 billion. Of that, $807 million relates to provisions to reflect potential Covid-19 impacts. The bank launched a $3.5 billion capital raising and slashed their dividend to assist with capital management.
- Other corporates, including Ramsay Healthcare and LendLease, also announced capital raisings to assist with cash flow and balance sheet management. Plenty more equity raisings to come.
- Westpac will take a $2.23 billion impairment charge, with $1.6 billion of that amount coming from the decline in activity related to the virus.
- ANZ Bank’s cash profits fell 62% which was primarily driven by credit impairment charges of $1.67 billion. The bank also chose to defer the decision on their interim dividend to a later date given the present uncertainty.
- Aristocrat Leisure shares rose after the company announced it was standing down 1,000 employees and suspending dividends. The company will also be cutting the pay of 1,500 of its 4,000 staff until the end of September.
- Coles and Woolworths reported exceptionally strong quarterly sales growth, with Coles’ sales up more than 13% and Woolworths sales up 10%.
- The Australian dollar continued to push higher, supported by a potential early easing of virus restrictions and US dollar weakness.
- The US economy suffered its sharpest decline in 11 years, with 1st quarter economic growth falling almost -5% pa measured on a quarterly basis.
- US private sector output fell more than 32% in April, from the previous already low March levels, signalling the fastest reduction in private sector output since 2009. Similar data from Europe showed a fall of more than 50% on the previous month, whilst the Australian equivalent fell more than 43% in April.
- US unemployment continued to worsen with more than 30 million now unemployed, bringing the unemployment rate above 20%.
- The European central bank has expanded its program of loans to banks whilst warning that the Eurozone economy could shrink by as much as 12% this year. The Bank will now be lending money to banks at rates as low as minus 1% and also launched a separate round of fresh lending, whilst indicating that they are fully prepared to increase the size of its recently launched $1.27 trillion pandemic program. The program could be extended beyond the end of the year and they could also start buying high yield bonds like the US central bank has done.
- The central bank of Japan stepped up its efforts to support the economy, removing their self-imposed cap on how many government bonds they can buy and also announced plans to quadruple its purchases of corporate debt. This follows on from the Japanese government’s almost $1 trillion economic package.
- PM Scott Morrison is pushing for a wider and quicker lifting of virus restrictions, highlighting the resumption of community and professional sport and the reopening of cafes and restaurants. The PM also said that the government may consider extending the jobseeker program beyond its original 6 month timeframe as the economic outlook is set to worsen.
- PM Scott Morrison dangled a sizable carrot in front of independent and religious schools, offering to bring forward $3 billion in funding linked to reopening of their schools in full before the end of the month. The move comes after the state governments pushed back on the PM’s pleas to reopen schools with most states not looking at a full reopening until next term.
- The political heat on China continued to rise with Australia pushing ahead on its plans for an inquiry into the origins of the virus and initial response from China. Reports from the US intelligence agencies suggest that the virus was not manmade or genetically modified, but did originate in China, in contrast to President Trump’s claims that the virus originated in a Wuhan lab.
New York will begin a phased reopening in the 2nd half of May, with construction and manufacturing the first businesses to reopen. Europe has also moved further towards reopening, whilst the UK is now considering plans for a phased reopening.
Chris Lioutas, Director, Insight Investment Consultants
Chris holds the position of asset consultant for Maxim Advisors and is a current sitting member of Maxim's investment committee.
With permission of the author, this article is presented by Maxim Private Clients Pty Ltd ASFL No. 511972
Maxim Private Clients Pty Ltd ABN 47 611 614 398 AFSL No. 511972
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