ASX plunges into bear market as investors await stimulus

ASX plunges into bear market as investors await stimulus

When he failed to show, US futures began to drop and US government bonds moved higher as the confirmed COVID-19 cases in the world’s largest economy ticked past 1000.

The rebuffed expectations also weighed on the local market, turning attention to the economic support package that is to be announced by Prime Minister Scott Morrison’s government as early as tomorrow morning.

 

Consumer sentiment hits five-year low

The threat posed by the virus outbreak to business receipts and economic activity was on show when data tracking consumer sentiment for March showed it had fallen to a five year low.

“The coronavirus has added a major downside risk to consumer spending,” said Commonwealth Bank economist Kristina Clifton.

“While there has been extra spending on grocery items as households stock pile, we are likely to see a reduction in spending on eating out, activities that take place in public areas and travel. Uncertainty around the economic outlook may also weigh on spending on durable items.”

The vulnerability of the travel sector was also thrown into the national spotlight yet again when Mr Morrison said Australia had now extended the the travel ban to Italy.

And despite announcing drastic cost-cutting measures that were favourably received by investors on Tuesday, Qantas was one of the worst performers on Wednesday. Its shares fell 9.2 per cent to $4.04 as investors weighed the mounting threats to the sector.

That added to announcements from Webjet and Helloworld. The travel companies told investors that increased booking cancellations and uncertainty had made their earnings guidance redundant.

Shares in the companies fell sharply with Webjet closing 5.2 per cent lower at $6.92 while Helloworld dropped 7.1 per cent to end the day at $2.11.

Both companies said cost-cutting measures were being rolled out to address the hostile trading environment, including a reduction to executive and board remuneration.

The trouble for the travel sector was also reflected in an update from Sydney Airport that came after the market closed on Tuesday. Australia’s largest airport said it had suffered a 16.8 per cent fall in international passengers and a 4.5 per cent slide in domestic traffic numbers.

Its shares closed 4.7 per cent lower on Wednesday on the news, ending the day at $6.31.

 

“We expect business conditions to continue to soften as the virus impact extends,” said Morgan Stanley’s equity strategist Chris Read.

“How businesses respond through employment and capex intentions will be important to the second-round impacts.”

“At this stage we expect temporary (but significant) disruption, with an improvement in growth through the second half of the year helped by easier policy and a global recovery.”

The housing sector remains one area of optimism, for the time being at least. Data for home lending in January showed a 4.6 per cent rise led by a strong pick-up in owner-occupier borrowing.

That provided minor cover for real estate companies, with Mirvac managing to hold a fall of just 0.3 per cent to close at $3.04, while plumbing supplies company Reece eked out a 1.11 per cent gain to end the day at $10.89.

“The Westpac consumer sentiment survey showed house price expectations remained firmly in positive territory in March and the balance of survey respondents still viewed it as a good time to purchase residential property,” Ms Clifton said.

But while Australians’ confidence in the residential market has managed to hold to date, Ms Clifton added that this may change.

“Fears around the spread of the coronavirus and its impact on the economy and jobs has the potential to negatively affect the housing market.”

Miners also declined on the day, with BHP closing 2.5 per cent lower and Rio Tinto shedding 1.1 per cent.

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