Global markets soared on Friday as US stocks jumped and Treasuries fell after a jobs report that far surpassed analysts’ forecasts bolstered expectations for the economy to rebound quickly from coronavirus lockdowns. The jobs numbers were a huge surprise, with payrolls for May +2.9m vs estimates of a -7.5m drop in employment, with the unemployment rate at 13.3% vs estimates of 19%.
The US market (S&P 500) rose 2.6% Friday, posting its third weekly advance (+4.9%), leaving the gauge up more than 40% from its March low and close to wiping out its losses for the year. The Energy and Industrials sectors led the charge higher. Airlines, automakers and banks soared, signalling that investors are rotating away from the beneficiaries of the stay-at-home economy and into shares that will do well when more normal activity resumes.
SkyCity (SKC:NZX / SKC:ASX)
SkyCity shares have been rebounding as lockdown restrictions ease in New Zealand & Australia. Allowing Sky City to open its New Zealand casino, entertainment and accommodation facilities in Auckland, Hamilton and Queenstown from 14 May 2020, with staged opening to determine demand. The ongoing border restriction continues to have a detrimental effect on local Queenstown economy, which is heavily reliant on international tourism, hence the smaller Wharf casino will remain closed.
SKC shares climbed higher after providing a trading update, showing performance was better than expected over level 2, while level 1 around the corner will prompt an earlier than anticipated recovery in the NZ economy – spurring investor confidence into the heavily beaten down tourism sector. A near term trans tasman bubble to bring in some ‘international’ (Australian) visitors a lot earlier than anticipated is also providing some near-term support.
Despite easing restrictions and the possibility of a trans-tasman bubble, we believe the share price may have gotten ahead of itself, ignoring the heavy cash burn during lock down as well as weaker performance over the interim period. SKC have adequate funding, and have cut costs which may avoid heavy operating losses going forward. However, there is a significant gap from no international visitors (especially in the VIP segment) which needs to be filled, and the current valuation does not take into account the delayed recovery to normalised levels of business – in our view.
Despite the recent positive developments, we maintain our HOLD rating given SKC’s share price and long road to recovery to meet market expectations which have been priced-in, but may end up being more difficult to meet over the medium-term.
Australia & New Zealand Market Movers
The Australian market was a touch higher on Friday (ASX 200 Index +0.1%) to close at a fresh 13-week high despite a slumping CSL dragging down the market. The Australian dollar meanwhile broke the 70 cent level against its US counterpart for the first time since January 2. China’s Ministry of Culture and Tourism has warned its citizens not to travel to Australia due to a "significant" increase in racist attacks since the coronavirus outbreak. Of course, Chinese tourists cannot currently visit Australia because its borders are closed to visitors.
The New Zealand market pulled back on Friday (NZX 50 Index +0.9%) as investors took profits on the larger blue chip names in the markets such as Fisher & Paykel Healthcare and and A2 Milk. There continues to be a rotation into the names which have been hit hardest during covid-19, with Kathmandu surging +11%, while Air New Zealand gained +8%. Air NZ's CEO has announced an 800-day recovery plan to get back to profitability but warned of further job cuts and revealed the airline would start drawing on a $900m Government loan within months.
New Zealand will find out when it moves to Alert Level 1 today with Prime Minister Jacinda Ardern set to make an announcement this afternoon. A delay beyond a midnight Wednesday move would be a shock to most, following 16 days of no additional COVID-19 cases.
3 Things Markets Will be Watching this Week
- Once again, US-China trade tensions and covid-19 news-flow will remain top of mind.
- A decision by the US Federal Reserve will be made this week.
- Closer to home, Ryman Healthcare will release its full earnings on Friday while an AGM will be held by Stockland.
Have a Great Day,