The Australian share market is experiencing another volatile day, despite the overnight enthusiasm on US markets that the Trump administration may soon ease coronavirus lockdown measures.
- ASX 200 had fallen by 1.2pc by 10:20am AEST
- Australian dollar lifted to 64.3 US cents
- Wall Street’s benchmark index (the S&P 500) jumped 3.1pc
By 11:20am AEST, the benchmark ASX 200 index had dropped by 1.2 per cent to 5,423 points.
It was a sharp reversal of sentiment, compared to its opening jump of 0.8 per cent.
Among the best-performing stocks were Southern Cross Media (+6pc), Ooh!Media (+4pc) and A2 Milk (+2.6pc).
On the flipside, the weakest performers were Unibail Rodamco Westfield (-9pc), Corporate Travel Management (-7.6pc) and Flight Centre (-6.3pc).
The Australian dollar has jumped (+0.8pc) to 64.25 US cents, around its highest value in a month.
Consumer confidence collapses
As the coronavirus crisis continues, it was perhaps unsurprising that consumer morale tanked in April.
Consumer sentiment suffered its worst monthly fall ever, plunging 17.7 per cent to 75.6 points, according to an influential monthly survey conducted by Westpac and the Melbourne Institute.
“This is the single biggest monthly decline in the 47-year history of the survey, taking the index beyond GFC [global financial crisis] lows,” Westpac chief economist Bill Evans said.
The April collapse came as the COVID-19 outbreak was officially declared a pandemic, with the number of Australian infections surging from 76 to about 6,500 in a month.
Australia’s federal, state and territory governments had also begun to implement strict social-distancing measures, and ordered mass economic shutdowns with “non-essential” businesses forced to close.
Mr Evans said consumer sentiment had now fallen “to levels only seen during the deep recessions of the early 1990s [64.6 points] and early 1980s [75.5 points]”.
He also observed that it took “one to two years of continuous deterioration” to reach the lows of the previous recessions, compared to “the one month collapse we have seen here”.
Optimistic about a recovery
Overnight, Wall Street surged on hopes that the number of coronavirus infections, particularly in the epicentre New York, is slowing down.
The Dow Jones index closed 559 points, or 2.4 per cent, higher at 23,950.
The benchmark S&P 500 and Nasdaq jumped by 3.1 and 4 per cent respectively.
Market snapshot at 7:45am (AEDT):
- ASX SPI futures +0.2pc at 5,500, ASX 200 (Tuesday’s close) +1.9pc at 5,488
- AUD: 64.41 US cents, 51 British pence, 58.6 Euro cents, 68.98 Japanese yen, $NZ1.054
- US: Dow Jones +2.4pc at 22,950, S&P 500 +3.1pc at 2,846, Nasdaq +4pc at 8,516
- Europe: UK (FTSE) -0.9c at 5,791, Germany (DAX) +1.3pc at 10,697, Euro Stoxx 50 +0.9pc at 2,918
- Commodities: Brent crude -5.2pc at $US30.08/barrel, spot gold +0.7pc at $US1,728.25/ounce, iron ore +1.7pc at $US87.02/tonne
“The market is going up, on prospects of the economy reopening soon and also the coronavirus [outbreak possibly] reaching some sort of peak,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
He said the market could be in store for further sharp selling in the coming months as data showing the extent of the economic damage from the virus is released.
“We’re going to see [macroeconomic] numbers that are going to be frightening, and that will weigh,” Mr Cardillo said.
Meanwhile, the International Monetary Fund said, in its latest report, that the global economy is likely to contract by 3 per cent this year and suffer its worst financial crisis since the Great Depression of the 1930s.
The IMF warned Australia could be one of the worst-hit economies in the Asia-Pacific, shrinking by 6.7 per cent this year.
Market sentiment was also lifted by better-than-expected economic figures from China, on Tuesday, as factories restarted production.
However, the global coronavirus health crisis looks set to keep trade under pressure over coming months.
Data showed China’s exports fell by just 6.6 per cent in March (from a year ago), while imports shrank by 0.9 per cent.
Trump’s ‘overly optimistic’ timeline
US President Donald Trump wants to reopen the US economy by May 1, despite warnings from the World Health Organisation (WHO) that the pandemic has not yet peaked.
But shortly after the market closed, Mr Trump’s top infectious diseases adviser, Anthony Fauci, said that timeline might be “overly optimistic”.
Health officials must first be able to test for the virus quickly, isolate new cases and track down new infections before social-distancing restrictions can be eased safely, Mr Fauci said in an interview with the Associated Press.
“We have to have something in place that is efficient and that we can rely on, and we’re not there yet,” he said.
Spot gold jumped (+0.7pc) to a seven-year high of $US1,727 an ounce.
Traders piled into the safe haven asset as a hedge against potential inflation and currency devaluation resulting from massive central bank and government stimulus measures around the globe.
Brent crude oil plummeted (-5.5pc) to $US30 a barrel.
Investors had doubts that the record supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and other producers would fix the world’s oil oversupply problem, which has come about because of a collapse in demand due to the coronavirus pandemic.
Bank profits plummet
Amid the wave of optimism, investors appeared to overlook the rocky start to earnings season, particularly the sinking profits of major US banks.
JP Morgan Chase reported a 68 per cent slump in first-quarter profit as the COVID-19 pandemic forced the largest US bank to boost reserves to cushion it from a wave of potential loan defaults.
Net income fell to $US2.87 billion ($4.46 billion), or 78 US cents per share, in the quarter ended March 31.
This was a big drop compared with last year’s $US9.18 billion, or $US2.65 per share.
It appears investors are not concerned about current results as the corporate earnings season begins but are focused on the long-term value of each company’s franchise, said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“Is it an all-clear signal?” Mr Ghriskey said.
“No, because I have difficulty in believing the market fully recovers until the timing of the economic recovery is visible, and we just don’t know that timing.”
Another major bank, Wells Fargo, revealed that its first-quarter profit also plunged as it set aside billions of dollars to cover potential losses from bad debt due to the virus outbreak.
Walls Fargo said its quarterly profit fell to $US42 million ($65 million), or 1 US cent per share, from $US5.51 billion, or $US1.20 per share, a year earlier.
The pandemic has shut down businesses, put nearly 10 million people out of work in the United States alone and is expected to cause a worldwide recession worse than the global financial crisis a decade ago.