Extraordinary Stimulus Continues As Virus Worsens in the US

Friday 3rd April 2020

Extraordinary Stimulus Continues As Virus Worsens in the US

Friday 3rd April 2020
Written by Chris Lioutas

Markets –

  • Global equity markets fell this week whilst the Australian equity market was slightly higher at time of writing.
  • In local stock news, Virgin Australia said redundancies would top 1,000, on top of the 8,000 employees they’ve stood down already. The company has asked for additional funds from the government to which PM Scott Morrison has shot down as this stage.
  • Premier Investments, owner of brands Smiggle, Peter Alexander, Portmans, and Just Jeans, has said it would not pay rent to landlords. The company has shut down their brands.
  • Wesfarmers has sold another 5.2% stake in Coles Group, in a bid to retain a more flexible balance sheet, or potentially clear room for future acquisitions. The company’s stake in Coles is now less than 10%.
  • Australia’s big 4 banks won’t be able to receive dividends from their NZ subsidiaries after the NZ central bank took steps to protect its own financial system.
  • Westpac has permanently appointed Peter King as CEO, after previously acting as the bank’s chief financial officer prior to being chosen as acting CEO in November. His contract is for 2 years, and comes after new chairman John McFarlane pushed for his immediate appointment.
  • Oil prices moved higher this week after the Chinese government ordered for the country to start stockpiling at current low prices. Support also came after US President Trump inserted himself into Saudi/Russian talks.

Economic – 

  • The Australian government announced a $130 billion “job keeper” package aimed at the 6 million Australians (half of the workforce) who will need assistance in the months ahead. The government will pay companies $1,500 a fortnight per employee for the next 6 months to keep workers employed.
  • Another 30,000 Australian businesses will be eligible to defer their loan repayments, under further relief measures. The lift in the eligibility threshold will cover 98% of businesses with a loan, covering $250 billion worth of loans. Commercial property landlords will also be eligible so long as they undertake not to terminate leases or evict tenants.
  • Americans continued to apply for unemployment benefits in droves with 6.6 million more this week to go with the 3 million from last. The US now has 10 million unemployed and rising.
  • US consumer confidence fell in March but came in better than forecast. A key Chicago manufacturing index fell, but also came in better than forecast.
  • US central bank chair Jerome Powell stated that the bank stood ready to act “aggressively” to shore up credit in the market on top of the significant policy easing already in place.
  • The European central bank has removed a cap on how many bonds it could buy from any single Eurozone country, clearing the way for unlimited money printing as part of its support measures.
  • Chinese economic data continued to improve with both the manufacturing and services index rebounding strongly to move back into expansionary territory.

Politics – 

  • Prime Minister Scott Morrison continued to maintain that current containment measures are likely to be in place for some time, posturing 6 months as the current timeline. The curve is continuing to flatten on both contraction and death rates, but a ramp up in testing might see the pace of contraction rates rise again.
  • The Australian government has cut a deal with private hospitals to massively boost beds, staff, and ICU capacity in public hospitals to fight the virus. The move comes after concerns some private hospitals might go under given the bans on non-essential surgery. The move will result in more than 105,000 staff, 30,000 beds, and 5,000 ICU beds being added to existing capacity.
  • The G7 countries have been unable to agree on a joint statement due to the US’s insistence of calling the Covid-19 virus the “Wuhan virus”. The disagreement was in contrast to the optimistic reports of plenty of collaboration and offers for assistance at the summit.
  • US President Trump has pushed back his timeline for reopening the US economy to the end of April, as estimates now have the US death toll from the virus reaching between 100,000 and 200,000.
  • The Saudis and the Russians continued their oil stoush, with supply so high that many countries will soon runout of import storage capacity. Russia’s deputy energy minister was quoted as saying that Russia thought a fair price for oil is between $45 and $55 a barrel, well north of current prices, but well below the levels all other oil producers need to breakeven.

A group of US Republican Senators (those from oil and gas producing states) has urged the President to take action against Russia and Saudi Arabia for conducting “economic warfare” against the US. Interestingly, President Trump has since inserted himself into future Russian and Saudi talks.

Chris Lioutas, Director
Insight Investment Consultants

Chris is an independent consultant and is a member of Maxim Private Clients Pty Ltd Investment Committee.

With permission of the author, this article is presented by 
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