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Queensland’s decision to close its border to Greater Sydney appeared to quash an early rally as the big banks rebounded on revived hopes for dividend payments.
The S&P/ASX 200 reached mid-session 14 points or 0.2 per cent in the red after news of the unexpected border closure helped tip the market into reverse. Earlier the index rose as much as 30 points after the financial regulator loosened restrictions on bank dividends introduced in April at the height of the COVID-19 lockdown.
The market rolled over after Queensland announced it would introduce new border rules on Saturday, exacerbating concerns a second wave of COVID-19 restrictions could hamper the nation’s economic recovery. New South Wales this morning reported 19 new cases. Victoria announced a decline in new cases to 295. Queensland recorded two new cases.
Earlier, bank stocks rallied after the Australian Prudential Regulation Authority (APRA) dropped a recommendation that banks and insurers defer paying dividends until the economic outlook was clearer. APRA said uncertainty in the economic outlook had reduced since April, but banks and insurers should remain cautious and retain at least half their earnings.
“Although the environment remains one of heightened risk, we now have a stronger sense of how Australia’s economy and financial institutions are being impacted by COVID-19,” APRA Chair Wayne Byres said. “On that basis, APRA believes that banks and insurers do not need to continue to defer capital distributions, provided they moderate payments to sustainable levels based on robust stress testing, and continue to prioritise supporting their customers and the economy.”
The financial sector responded by rising almost 2 per cent, on track to break a three-session losing streak, before paring its advance to 0.8 per cent. ANZ rallied 1.7 per cent, NAB 1.5 per cent, Westpac 1.3 per cent and Commonwealth Bank 1 per cent.
The morning had a defensive bias, with gains in utilities, real estate trusts and consumer staples offsetting declines in tech, energy and materials. Supermarket Coles gained 1.7 per cent, shopping centre operator Unibail-Rodamco-Westfield 2.3 per cent, AGL Energy 2.1 per cent and Spark Infrastructure 1.5 per cent.
Automotive retailer AP Eagers topped the index with a rise of 7.7 per cent to a four-week high after telling investors it had a significant liquidity buffer to ride out COVID-19. Construction group Cimic gained 0.1 per cent after announcing it was negotiating to buy a 50 per cent share in mining services provider Thiess.
Mining and energy heavyweights dragged on the market. BHP sagged 1.7 per cent, Woodside 1.1 per cent and Rio Tinto 0.8 per cent. Gold miner Newcrest fell for a second day, easing 0.4 per cent despite an overnight recovery in gold. The precious metal swung through a US$76 range in 24 hours before finishing $13.60 or 0.7 per cent ahead at $US1,944.60 an ounce. The recovery continued this morning, raising the price $6.30 or 0.3 per cent to US$1.950.90.
The consumer price index – an important gauge of inflation – slumped 1.9 per cent last quarter, broadly in line with expectations. The fall was the largest since the Great Depression, according to CommSec.
Asian markets were mixed. China’s Shanghai Composite gained 1.2 per cent and Hong Kong’s Hang Seng 0.4 per cent. Japan’s Nikkei faded 0.75 per cent. S&P 500 index futures were recently trading flat..
Oil extended overnight gains. Brent crude edged up 14 cents or 0.3 per cent to $US43.36 a barrel.
The dollar rose 0.1 per cent to 71.64 US cents.
What’s hot today and what’s not:
Hot today: The morning produced a pair of big winners at the junior end of the market. Thinly-traded recruitment company Ignite (ASX:IGN) briefly quadrupled in value after reporting it was better positioned to ride out COVID-19 after slashing its head count by a third and registering for JobKeeper. The share price ran from 2.1 cents to 8.1 cents before easing to 5.9 cents mid-session, a gain of 181 per cent. Biotech Suda Pharmaceuticals (ASX:SUD) charged 207 per cent on news the Australian regulator had approved its ZolpiMist product for treating insomnia.
Not today: Nickel miner IGO (ASX:IGO) gave up a month of gains after warning of lower production and higher costs this financial year. The downbeat outlook took the shine off a quarterly result that was broadly in line with analysts’ expectations. The share price plunged 13.2 per cent to $4.80.
