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Business Wrap: Negative rate talk hits NZ dollar

The NZ$ falls below 60 USc as Westpac forecasts an OCR cut to minus 0.5 percent. US oil prices hit US$10/barrel and a Lufthansa bailout beckons as it loses €1m/hour

Slip sliding: Westpac's economists forecast the Reserve Bank may cut the Official Cash Rate by 75 basis points to negative 0.50 percent, which helped drive the NZ$ below 60 USc.The central bank has previously said the inability of some bank computer systems to handle a negative interest rate was a problem.

Be careful what you wish for: Sweden’s Riksbank, the country’s central bank and the world’s oldest, provides a salutary lesson in the risks that accompany negative rates. In December last year the bank raised interest rates because of worries about the collateral damage and unintended consequences of an ultra-low regime. Opting to exit a negative rate paradigm that had been in place for five years, officials there publicly expressed concerns that persistent negative yields distorted the behaviour of households and companies adversely.

Battle ready: BNZ increased its loan provisioning by $108 million to $776 million in the wake of the Covid-19 virus. BNZ said net profit after tax fell 33 percent to $367 million for the six months to March 31. The bank also said it helped 21,000 home loan customers and 17,000 business customers with loans of $25 billion, or more than a quarter of its loan book.

Tripling: BNZ also reported credit impairments of $151 million versus $46 million a year earlier, and $68 million in the six months to September last year. The bank forecast the economy would contract by about 9 percent with unemployment potentially spiking to 10 percent and house prices also falling by up to 10 percent.

More layoffs: Steel & Tube announced it would lay off 200 staff and told shareholders it expected Covid-19 related bad debts would hit its profit. However, it remained optimistic that its balance sheet and debt facilities would provide sufficient financial liquidity. Debt had fallen below $3 million by March 31 and it had bank facilities of $70 million.

Optimistic: Chief Executive Mark Malpass said “Steel & Tube is well positioned for the anticipated Government infrastructure projects. We continue to lead industry standards and have secured further customer wins during the lock-down, including a significant Government roofing contract and other large projects are being finalised.” Steel & Tube shares closed down 1c at 62c.

Off to the races: The NZX50 flew out of the gates for the start of the Level 3 lockdown, posting its best one-day gain in weeks. A2 Milk rose 3.2 percent to $20.33 and F&P Healthcare rose 4.8 percent to $29.34. The index closed up 3.3 percent at 10,759. It was a different story across the Tasman with the Australian market weighed down by news of NAB’s big $3.5 billion capital raise and a further slide in the price of oil and liquid natural gas, which saw energy stocks weaken. The ASX200 closed down 0.2 percent at 5313.

Helping hand: Fonterra announced it would bring forward payments for its milk supply from June as part of a wider plan to improve cashflow for its farmer shareholders. From June, the co-op will make its monthly payments on the 15th of the month, compared to the 20th currently. It will also make its final settlement with farmers no later than five working days after its annual results announcement.

Simplifying: The co-op said it would also simplify its advance rate guideline from July, starting it at 65 percent of the mid-range for the payout forecast. Fonterra chair John Monaghan told shareholders the changes would "help improve cashflow on farm and simplify the guidelines”.

No bottom yet: US oil prices continue to trade lower as concerns over storage capacity prompted fears the American crude benchmark could again plummet into negative territory. The West Texas Intermediate (WTI) contract for June delivery fell another 18 per cent to US$10.07 per barrel, overnight adding to a 25 percent plunge in the price of the same contract on Monday. Extreme price swings have become a feature of the oil market in recent weeks, which saw WTI for May delivery fall to negative $40 a barrel, marking the first time in history that the price of an oil contract had fallen below zero.

Feeling the pain: BP reported a 66 percent slide in earnings and a rise in debt in the first quarter as the collapse in oil demand and crude prices triggered by the coronavirus crisis took a severe toll on its finances. The company said consumption of refined products had fallen dramatically in March when governments worldwide imposed dramatic restrictions to curb the pandemic.

But wait. There's more: Earnings from rivals Royal Dutch Shell, ExxonMobil, Chevron and Total are due in the coming days.

Europe hit hard: More than 30 million workers in Europe’s five biggest economies have applied to have their wages paid by the state via short-term leave schemes designed to stop unemployment surging in the wake of the coronavirus crisis. The rapidly rising figure for the number of furloughed workers in Germany, France, the UK, Italy and Spain — amounting to nearly 20 percent of those countries’ total workforces — underlined the scale of disruption caused to Europe’s labour markets by the pandemic.

Still climbing: The number of Europeans who have applied to join the subsidised schemes is higher than the 26 million people who have filed for unemployment benefits in the U.S. in the five weeks since the lockdowns began. The policy is forecast to cost the region’s five largest economies more than €100bn in total.

Bailout: Lufthansa looks set to receive a multi-billion-euro state bailout and is considering court protection as a last resort.

The so-called Schutzschirm protection would shield Europe’s biggest airline from creditors for three months while it worked out a management-led restructuring plan. The bailout is likely to exceed 8 billion euros (NZ$14 billion). It's estimated the airlines cash burn rate is 1 million euros an hour as a result of its fleet being grounded due to the coronavirus pandemic.

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