ASX rises on vaccine hope, as RBA official warns against cutting stimulus ‘too early’

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ASX rises on vaccine hope, as RBA official warns against cutting stimulus ‘too early’

Australian shares have lifted to a fresh nine-month high after the University of Oxford and AstraZeneca announced the results of their COVID-19 vaccine trials.

The ASX 200 index gained 83 points (+1.3pc) to close at 6,644, its highest level since late February.

The market’s rise was helped by Queensland’s decision to reopen its state border to Sydney-siders from December 1.

It also followed an upbeat trading session on Wall Street, which was boosted by reports that US president-elect Joe Biden has nominated Janet Yellen, 74, to be his Treasury secretary.

Another risk was removed from the market’s radar when US President Donald Trump authorised his team to begin transitioning towards a Biden presidency, yet still refused to explicitly admit defeat.

By 5:00pm AEDT, the Australian dollar was slightly higher (+0.5pc) at 73.23 US cents.

RBA warns against withdrawing stimulus

Meanwhile, Reserve Bank deputy governor Guy Debelle has reminded Australia’s policymakers not to withdraw emergency stimulus from the economy too early.

In a speech to the Australian Business Economists forum on Tuesday, Dr Debelle said some European countries suffered severely in the aftermath of the global financial crisis when they removed stimulus prematurely.

RBA deputy governor Guy Debelle says the Government’s high debt is “absolutely sustainable” at such low interest rates.(ABC News: Maisie Cohen)

He said Australia must not make that mistake during this crisis.

“Be careful of removing the stimulus too early,” he said.

“Public-sector debt remains low as a share of gross domestic product for the Australian Government as well as the states and territories, even after the sizeable stimulus that is being implemented.

“The cost of borrowing is at historically low levels for Australian governments. Borrowing costs are likely to remain very low for quite some time, and almost certainly until the economy is considerably stronger.

Dr Debelle’s reminder came a day after the RBA published a discussion paper on its website that showed 700,000 workers would have lost their jobs during the first few months of the coronavirus pandemic recession if the Federal Government had not introduced the JobKeeper wage subsidy.

“This means that the debt dynamics for the Australian Government and the states and territories are absolutely sustainable,” he said.

The research paper by RBA economists James Bishop and Iris Day, released on Monday, looked at how JobKeeper cushioned employment losses in the initial months of the program.

It said one in five employees who received JobKeeper would not have remained employed during this period had it not been for the wage subsidy.

“Given that 3.5 million individuals were receiving the payment over the period from April to July 2020, this implies that JobKeeper reduced total employment losses by at least 700,000 over the same period,” the paper said.

JobKeeper, introduced soon after the coronavirus pandemic hit Australia and resulted in shutdowns in late March, gave employers $1,500 a fortnight per eligible worker. 

The scheme has been extended several times, but dropped down to lower rates, to help businesses still struggling as the economy starts to reopen.

Treasurer Josh Frydenberg said: “With 650,000 jobs created over the past five months, 80 per cent of those Australians who either lost their jobs or saw their working hours reduced to zero at the start of the pandemic are now back at work.”

“This has seen the effective unemployment rate come down from around 15 per cent in April to 7.4 per cent today,” he said.

Qantas to require vaccinations

The 10 worst-performing stocks on the market were all gold miners, including Silver Lake Resources (-9.4pc), Perseus Mining (-7.6pc), Evolution Mining (-8.4pc) and Northern Star Resources (-8.9pc).

On the flip side, the best performers were coal, oil and gas stocks like Beach Energy (+8.2pc), Whitehaven Coal (+6.9pc) and Origin Energy (+5.2pc).

Vaccine optimism led to a sharp rise in oil prices, and investors selling down their “safe haven” assets like gold.

It also drove Qantas shares higher, up 3.9 per cent to $5.57.

That came after Qantas boss Alan Joyce said the airline would require international travellers to have a COVID-19 vaccination before flying, describing the move as “a necessity”.

“We are looking at changing our terms and conditions to say, for international travellers, that we will ask people to have a vaccination before they can get on the aircraft,” he told Channel Nine.

“Whether you need that domestically, we will have to see what happens with COVID-19 in the market.

Australia closed its international borders in March during the first wave of the pandemic, and currently requires travellers returning from overseas to quarantine for two weeks.

Banks and mining giants also boosted the market, including Commonwealth Bank (+2pc), Westpac (+2.6pc), NAB (+2.6pc), ANZ (+3.1pc), BHP (+3.4.pc), Rio Tinto (+2.2pc) and Fortescue Metals (+2.7pc).

Yellen to become next Treasury Secretary

If confirmed by the Senate, Janet Yellen would be the first woman to lead the department.

She was also the first woman to become chair of the world’s biggest central bank, the US Federal Reserve (between 2014 and 2018).

Joe Biden will pick former Fed chair Janet Yellen to be his Treasury secretary.(Reuters: Jonathan Ernst)

An experienced policymaker, Dr Yellen is seen as a safe choice by the markets.

She has called for increased government spending to boost the US economy out of a deep recession brought on by the coronavirus and has frequently cited growing economic inequality in the United States as a threat to America’s values and its future.

At Treasury, she would have a major role in influencing US fiscal and tax policy, tools she did not have when she was the Fed chair.

The daughter of a family doctor and elementary school teacher in Brooklyn, Dr Yellen earned a doctorate in economics from Yale and has taught economics at the University of California, Berkeley, Harvard University and the London School of Economics.

She was vice-chair of the Fed between 2010 to 2014.

Optimism driven by vaccine

AstraZeneca is the latest major drug-maker to announce its vaccine results, while the US health regulator is expected to approve Pfizer’s vaccine for distribution in mid-December.

Vaccine hopes were the main driver of positive sentiment on US markets, which are on track to end the day higher.

Kicking off a trading week shortened by the Thanksgiving holiday on November 26, the Dow Jones index jumped 328 points (+1.1pc) to 29,592 points.

The benchmark S&P 500 closed modestly higher (+0.6pc) at 3,578 points.

The tech-heavy Nasdaq lifted (+0.2pc) to 11,881.

“The vaccine is the driving factor in terms of the general optimism,” said Scott Brown, chief economist at Raymond James in St Petersburg, Florida.

“[But] you are going to get a little bit of back and forth as this is a holiday week and typically we are going to get lot more volatility.”

Once again, there was a sell-off in technology stocks (which have performed best during the pandemic).

Investors poured more cash into the hardest hit sectors, like energy and industrials, which are expected to recover if the COVID vaccines are effective and widely available next year.

Markets ignore short-term pain

But European markets were not as exuberant, with Britain’s FTSE (-0.3pc) and Germany’s DAX (-0.1pc) down slightly.

Shares of UK-listed AstraZeneca dropped 3.8 per cent, despite its vaccine announcement.

The British pharmaceutical giant’s vaccine was up to 90 per cent effective in some trials.

However, its average efficacy (70 per cent) was lower than its US peers like Pfizer and Moderna.

Oil prices added to last week’s gains as traders anticipated coronavirus vaccine news would spur a recovery in energy demand.

“Investors are ignoring near-term headwinds, chief among which are surging global COVID infections, and instead looking ahead to next summer,” said PVM analyst Stephen Brennock.

The United States has surpassed 255,000 deaths and 12 million infections since the pandemic began, with daily infections at a record near 170,000 and daily deaths around 1,500.

Brent crude had jumped (+3pc) to $US46.54 a barrel.

However, gold fell to a four-month low as optimism over vaccine progress drove investors towards riskier assets.

Spot gold dropped (-2.5pc) to $US1,823.90 an ounce.


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