Australia Unveils A$17.6 Billion in Stimulus to Combat Virus

Australia unveiled a A$17.6 billion ($11.4 billion) fiscal stimulus plan to buttress the economy from the coronavirus outbreak that threatens to tip the nation into its first recession since 1991.

The plan announced by Prime Minister Scott Morrison Thursday includes A$1.3 billion in support over two years to safeguard the jobs of 120,000 apprentices. The government will also spend A$6.7 billion over four years to support the cash flow of small and medium businesses so they can pay wages during the expected downturn.

In addition, the government will expand a tax write-off program with A$700 million in funding over four years to help businesses buy new equipment.

“This plan is about keeping Australians in jobs,” Morrison told reporters. “This plan is about ensuring the Australian economy bounces back stronger on the other side and the budget bounces back with it.”

Australia is joining governments around the world in opening up the fiscal spigots to fight economic fallout from the coronavirus outbreak. More than $84 billion in budget support has already been pledged or is under consideration, with governments adopting a mix of cash handouts, tax breaks and transfers.

 

The stimulus to be announced will see Australia’s government:

Deliver tax-free payments of as much as A$25,000 for businesses with revenues under A$50 million to help pay wages and improve cash flow

Pay A$7,000 in wage assistance to small businesses each quarter for each apprentice they employ to help retain trainees and re-hire those who lose their jobs

Expand an instant tax write-off program to help around 3.5 million businesses with revenue up to A$500 million (from A$50 million previously) buy assets worth up to A$150,000 (from A$30,000 previously)

 

Make a one-off A$750 payment to welfare recipients

Morrison’s package comes after the Reserve Bank of Australia cut interest rates to a record low 0.5% and as money markets wager it will ease again in April, setting up a fiscal-monetary injection for the economy.
The coronavirus has slammed the Australian tourism and education sectors — expected to cut 0.5 percentage point from GDP in the first quarter — that rely heavily on Chinese cash. Government revenue is set to slide as firms’ profits plummet and commodity prices decline.

 

The economic hit comes on top of a summer of devastating wildfires that were already expected to crimp growth.

 

The number of confirmed coronavirus cases in Australia surged 40% to 112 in the 24 hours to Wednesday morning local time. Morrison announced the same day that his government will open as many as 100 pop-up clinics to test for the virus as part of a $1.6 billion health package. Worldwide, more than 117,000 people are infected and fatalities from the epidemic stand at more then 4,200.

 

The stimulus package suggests the government is all but certain to fail to return the budget to its promised surplus this year. S&P Global Ratings said the nation’s AAA rating will remain intact despite the fiscal slippage, while joining Bloomberg Economics in forecasting the economy would nonetheless fall into a recession.

 

Morrison’s reputation was tarnished during summer wildfires that engulfed the nation’s east coast amid heavy criticism of his performance. An opinion poll released last month showed his Liberal-National coalition government’s 4 percentage point lead over the main opposition Labor party two months prior had been reversed.

 

The prime minister tempered expectations ahead of the fiscal package’s release, saying it would be measured and targeted and not in the league of the huge stimulus deployed by a Labor government in 2008-09 in the wake of the global financial crisis. He said the shock would be temporary and Australia was set to benefit on the other side.

 

Still, he may see the coronavirus stimulus plan as a vehicle to win back some trust from the electorate that was forfeited during the bushfires.

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08.07.2020 15:14
Forex — Dollar Edges Higher as Virus Cases Grow

The dollar edged higher in early European trade Wednesday, with the safe haven currency in demand as a resurgence of the coronavirus in the United States cast doubt over the strength of the economic rebound.

At 3:050 AM ET (0705 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 96.873.

EUR/USD was up 0.2% at 1.1280, while USD/JPY was flat at 107.52.

There are almost 11.8 million COVID-19 cases globally as of July 8, according to Johns Hopkins University data, of which the U.S. has the highest known numbers of cases and deaths in the world.

A number of Federal Reserve officials expressed concern Tuesday that the surge in infections could adversely impact the economy just as some stimulus programmes are set to expire.

Atlanta Federal Reserve Bank President Raphael Bostic warned that the spike in the number of cases has made business owners “nervous again” and that ‘there is a real sense this might go on longer than we have planned for.”

Still, the rise in cases is not simply a matter for America. The AUD/USD pair lost 0.2% to 0.6935, with the Australian dollar weakening after the country’s second-largest city Melbourne re-imposed lockdown measures to curb the outbreak.

Elsewhere, GBP/USD gained 0.2% to 1.2559 after Prime Minister Boris Johnson said that the U.K. remains committed to working hard to find an agreement over trade with the EU. Chancellor of the Exchequer Rishi Sunak is due to announce details of the country’s latest fiscal stimulus package later Wednesday.

Sterling has gained around 0.6% this week against the dollar and 0.4% against the euro, but still remains one of the weakest G7 currencies as doubts still remain as to whether a trade deal will be signed by the end of the year.

Additionally, skepticism exists that a proposal by some of Donald Trump’s advisers to undermine Hong Kong’s currency peg would come to fruition, as such a move would be difficult to implement and risk hurting U.S. interests as much as it would punish China.

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08.07.2020 13:12
Risk aversion sends gold higher, oil downwards

Oil retreats slightly on risk aversion
With one eye on the equity markets overnight, oil markets mirrored the response of currency markets, giving up some of their recent gains and slipping into range trading mode. Brent crude fell slightly by 0.70% to 42.90 a barrel. WTI eased by 0.70% to USD 40.50 a barrel.
Both contracts are unchanged this morning in Asia, with critical resistance on Brent crude at USD 44.00 a barrel, and on WTI at USD 42.00 a barrel. Only a fall below USD 40.00 a barrel for Brent crude, or USD 37.00 a barrel for WTI, would suggest that the rally in oil prices has run its course.
Oil prices continue to remain balanced between Covid-19 induced growth concerns, and recovery expectations in Asia and Europe. Oil’s downside is likely to be limited unless the US situation deteriorates dramatically. OPEC+ discipline is high, and the grouping will no doubt find the willingness to extend the headline cuts if the situation calls for it.

Excitement builds for gold longs as USD 1800.00 approaches
Anticipation is building in the gold fraternity, with Covid-19 concerns giving a haven boost to prices overnight. Gold rose 0.60% to USD 1795.00 an ounce, having tested USD 1797.00 an ounce earlier in the session. Gold’s grind higher is remorseless and pleasingly, appears to have detached itself from negative equity price action for now.
The USD 1800.00 an ounce region will be a tough nut to crack though. It capped gold’s advance multiple times from 2011 to 2012. I do not doubt that there will be substantial option related offers ahead of it to defend USD 1800.00 strikes. Nevertheless, gold is girding itself for the long-awaited assault on this critical resistance level. Gold had support at USD 1775.00 an ounce. Only a daily close below here would delay proceedings. Should USD 1800.00 an ounce give way, gold is likely to move quickly to the USD 1820-1830 zone, driven by stop loss and algorithmic buying.
Gold is unchanged in Asia today in yet another moribund session. It will probably be left to the New York market to get the job done.

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07.07.2020 12:23
Oil prices fall on demand concerns from U.S. coronavirus case surge

Oil prices fell on Tuesday, erasing earlier gains, on concerns that the surge in coronavirus cases in the United States, the world’s biggest oil user, will limit a recovery in fuel demand.

U.S. West Texas Intermediate (WTI) crude (CLc1) futures fell 17 cents, or 0.4%, to $40.46 a barrel at 0340 GMT, after earlier rising to as high as $40.79.

Brent crude (LCOc1) futures declined by 19 cents, or 0.4%, to $42.91, after hitting an intraday high of $43.19.

With 16 U.S. states reporting record increases in new COVID-19 case in the first five days of July, according to a Reuters tally, there is mounting concern that public health measures to limit the virus spread will curb fuel demand.

Florida is re-introducing some limits on economic reopenings to grapple with rising cases. California and Texas, two of the most populous and economically crucial U.S. states, are also reporting high infection rates as a percentage of diagnostic tests conducted over the past week.

«The potential for demand destruction as lockdown re-instatement looks more likely are combining with concerns about OPEC+ discipline to weigh on oil prices,» said CMC Markets’s Chief Market Strategist Michael McCarthy in Sydney in an email.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, collectively known as OPEC+, are lowering output by 9.7 million barrels per day (bpd) for a third month in July.

However, those cuts are set to taper to 7.7 million bpd starting next month, adding supply at the same time U.S. fuel demand, especially for gasoline, remains impacted by the COVID-19 outbreak.

«Summer driving demand in the U.S. is low, keeping gasoline demand subdued, and a reintroduction of lockdowns is a major headwind,» ANZ said in a note.

Data from the American Petroleum Institute industry group later on Tuesday and the U.S. Energy Information Administration on Wednesday are expected to show a 100,000 barrel rise in gasoline stockpiles, six analysts polled by Reuters estimated.

The U.S. crude market faces some uncertainties from a court decision on Monday ordering the shutdown of the Dakota Access pipeline, the biggest artery transporting crude oil from North Dakota’s Bakken shale basin to Midwest and Gulf Coast regions, over environmental concerns.

Market sources in the Bakken said the closure of the 570,000-bpd pipeline, while a thorough environmental impact statement is completed, will likely divert some oil flows to transportation by rail.

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