30 July 2020 Fed Remains Supportive | Tourism Holdings

31 July 2020

Global markets were mixed overnight as the US market climbed higher (S&P 500 Index +1.2%) as the US Federal Reserve vowed to use its "full range of tools" to support the economy, but cautioned that the outlook will still depend significantly on the course of the virus. As expected, the Fed announced it will keep its interest rate target range unchanged until it is confident the economy has weathered the covid-19 pandemic and is on track to achieve its employment and price stability goals.

All major sectors were in the green, with earnings season also in full swing. Starbucks  climbed +3.7% despite reporting a weak second quarter, as the coffee chain said business was “steadily recovering” worldwide and it would report a profit in the current quarter. Boeing was down as it slashed production and posted a wider than expected loss as well as GE reporting stronger than forecasted revenue but also a wider than expected loss. Tonight is a big session in terms of earnings announcements from big tech companies. 

Closer to home, the Queensland Premier announced it will close its borders to greater Sydney, in an attempt to keep the virus contained after reporting 2 new covid-19 cases  (its first since May). This comes as parts of Sydney start to develop hot spots of the virus, with blocked borders a less extreme measure as opposed to a lockdown, with Queensland’s borders already closed to anyone from Victoria.

Tourism Holdings (THL:NZX)

Tourism Holdings (THL) shares have pulled back recently, as the hopes of a trans-tasman bubble starting in the near future diminish, with covid-19 cases growing in Australia. However, THL released promising guidance for the 2020 financial year with cash burn not as significant as earlier anticipated. More importantly, with current trading levels and a manageable amount of debt THL believe they will not be required to raise additional funds from shareholders.

Fortunately, the current business dynamics provide some cushioning over the interim as local tourism demand for campervans appears supportive, given it is a safer form of domestic travel as opposed to air travel.

We maintain our High-Risk BUY due to THL’s current valuation and ability to avoid further cash burn, but with the high risk caveat as they are not likely to be profitable again until international tourism returns

Australia & New Zealand Market Movers

The Australian market dipped lower again on Wednesday (ASX 200 Index -0.2%) after Queensland announced it will closes its borders to greater Sydney. the border controls is another speed bump for Australia's economic recovery "post-covid" with a tremendous amount of uncertainty.  

After a strong run recently, the major miners were broadly weaker yesterday with BHP down -2%, while Rio Tinto fell -0.7% and released a solid first half result for the 2020 financial year result after the closing bell. The major banks were up, after APRA told lenders to moderate payouts (dividends) to shareholders, asking them to reduce payout ratio to below 50% of earnings as opposed to a full defer. 

The New Zealand market was marginally higher yesterday (NZX 50 Index +0.2%) despite jittery trading across global markets. NZ investors appear to be willingly to hold on to companies heading into NZ's earnings season. 

The property sector performed well as Stride Property told shareholders it will maintain its annual dividend for the current financial year, despite financial impacts of covid-19 with the sector recovering from the march sell-off and appearing to be defensive enough in a weak post-covid economy. Healthcare companies Fisher & Paykel Healthcare and EBOS alos rose as investors favoured more defensive holdings.

Restaurant brands fell -0.4%, after reporting the nation wide lockdown had hit second quarter sales which fell -11%, with year to date sales down -3.2% from the previous year – while trading post lockdown appearing to be promising.

 

3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​Covid-19 newsflow around a second wave and re-opening of economies remains top of mind
  2. Reporting season continues with a bumper round of earnings this week with 193 S&P 500 companies reporting including Apple, Amazon, Facebook, Exxon Mobil, Chevron and GE. US 2nd quarter GDP and the latest Federal Reserve rate decision are also due. 
  3. Trade  tensions with China look to be escalating once again.
Global markets were mixed overnight as the US market climbed higher (S&P 500 Index +1.2%) as the US Federal Reserve vowed to use its "full range of tools" to support the economy, but cautioned that the outlook will still depend significantly on the course

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