Global markets bounced on Friday (S&P 500 index +3.1%), as we experienced a much needed relief week for financial markets, with equities bouncing over 5% off their low levels recorded last Monday.
US stocks rebounded sharply as the latest comments from Federal Reserve officials buoyed sentiment on the economy and a reading on inflation expectations eased. The University of Michigan’s gauge of longer-term consumer inflation expectations settled back from an initially reported 14-year high, potentially reducing the urgency for steeper rate hikes. Investors also appeared reassured by St. Louis Fed President James Bullard, who said worries over a US recession are overblown.
Despite a batch of weak economic data, European stocks had their best session in more than three months on Friday as investors went on a buying spree, grabbing several battered down stocks, amid slightly easing worries about inflation
China’s zero COVID policy has been a significant factor in terms of constrained supply chains. On this front, Beijing on Saturday said it would allow primary and secondary schools to resume in-person classes while Shanghai reported zero new local COVID cases for the first time in two months. We continue to watch this space.
Qantas Airways (QAN:ASX)
Qantas was in the headlines Friday as the airline said it will cut domestic flights as jet fuel prices soar. Chief executive Alan Joyce insists the airline’s move to cut the number of domestic flights it offers until March next year will not worsen chaos at airports, as the carrier brings on thousands of workers for the upcoming winter school holidays
QAN updated the market as domestic & international demand continues to recover strongly, which likely helps explain management’s June-22 net debt guidance of $4.0bn, a $1.5bn improvement over the past 6 months. In saying that, QAN earnings guidance for the 2022 financial year is unchanged, as QAN is taking additional staffing costs of $87m for a one-off “recovery boost”.
We expect concerns about demand and higher fuel costs to prevail into the 2023 financial year, and as a result remain HOLD rated. For investors looking for an airline exposure, we do prefer Qantas over Air NZ at the current juncture.
Australia & New Zealand Market Movers
Despite a soft start to trade, the ASX 200 finished the session on a positive note, recording its first back-to-back gain this month after edging 0.77% higher.
NAB’s Consumer survey in Australia highlighted cost of living pressures with half of those surveyed downtrading or shopping around, 40% cutting back on delivery and entertainment, and 1/3 cancelling subscriptions such as Netflix.
The NZX was closed on Friday to celebrate Matariki. The Australian is reporting that bids being prepared for telco towers owned by Spark NZ and Vodafone NZ show the heat has come out of the market due to higher credit costs.
Fonterra lifted its 2022/23 forecast Farmgate Milk Price range to NZ$8.75-$10.25 per kgMS, up from NZ$8.25-$9.75 per kgMS. This increases the midpoint of the range by 50 cents to $9.50 per kgMS, reflecting supply/demand and the strong US Dollar. The Co-op also announced 2022/23 earnings guidance of 30-45 cents per share
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated given the Russia/Ukraine conflict.
- Highlights this week include GDP, ISM manufacturing data out of the US.
- Locally, retail sales in Australia are due along with earnings from Metcash and Collins Foods while AGM’s will be held by Kiwi Property, CSR and Arvida.