Global markets were mixed overnight, with European markets selling off sharply while the US market ended the day up +1% (S&P 500 Index). Markets are dealing with renewed worries about China-US trade relations and fears of an extended economic downturn due to the virus outbreak.
Closer to home, the big news was the New Zealand government revealing a budget with a $50 billion covid-19 recovery fund to soften, but not prevent, the coming recession.
Construction ($5bn on housing) and infrastructure (another $3bn for projects) are the sectors most impacted with large spend on housing and infrastructure, which could potentially benefit the likes of Fletcher Building.
The crippled tourism sector was allocated $400m, largely for promoting domestic tourism and criticised for not being enough. In saying that, there could be further support (with $20bn still unallocated) and the wage subsidy has been extended. The likes of Air NZ and Tourism Holdings may see some marginal benefit to the extent domestic tourism promotion is successful.
Xero shares dropped yesterday after releasing a solid result, but one that did miss market expectations.
A 30% rise in revenue helped Xero swing to a $NZ3.3 million full-year net profit from last year's $NZ27.1 million loss. Full-year revenue rose to $NZ718.2 million as subscribers to its accounting software jumped 26% to 2.28 million.
The bears will point to a lack of forward guidance, combined with negative commentary on slowing subscriber growth and a negative business outlook from customers. In saying that, the result was impressive with improved margins and there still looks to be a path for material double-digit user and revenue growth globally.
Members should look out for a full update on Xero to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market experienced losses on Thursday (ASX 200 Index -1.7%) with banks and miners down sharply. Australia's unemployment rate has posted its steepest monthly rise on record, with 594,300 people losing their jobs in April as restrictions to limit coronavirus shut thousands of businesses and affected many more.
In a falling market, the standout was GrainCorp which rallied 11% after telling shareholders it swung to a $388.3 million interim profit from its restated year-earlier loss of $58.9 million. Market conditions have improved considerably after widespread rainfall across much of eastern Australia, the company said
The New Zealand market sold off yesterday (NZX 50 -0.4%) following global moves, as locally investors digested the budget.
Pushpay continues to be a stand-out, rallying another +4% yesterday to all-time highs on the back of offshore buying demand. Z Energy continues to drift lower, closer to its recent capital raising price of $2.90. Tourism Holdings fell with investors finding little encouragement in the $400 million earmarked to support the tourism industry in the budget. Fletcher Building posted the day’s biggest gain, rising nearly +6% after after being sold off the prior day when it was dropped from the New Zealand MCSI index.
Freightways said it has increased its banking facilities by $50 million to ensure the firm can cope with the weaker economy. In a trading update, the company said total revenue dropped by an average of -32% in April but had improved during that time both in terms of volume and type of activity.
3 Things Markets Will be Watching this Week
- Covid-19 and lock-down news-flow remains key in terms of market moves.
- Global earnings will continue to dominate headlines. Companies of note reporting this week include: Alibaba, Tencent, Vodafone, Sony, Honda Motor and Porsche.
- Locally, the RBNZ’s OCR decision along with the latest employment data in Australia are in focus. Earnings from Xero and a quarterly update from CBA will be watched closely.
Have a Great Day,