Global markets were mostly lower overnight, with the US market edging lower (S&P 500 Index -0.8%) as uncertainty grows around a covid-19 stimulus bill with negotiations at a stalemate.
Big Technolgy shares which have had an amazing run were the biggest drag, while on the flip-side financials and industrials which have under-performed were the only sectors in green, as investors continue to seek value.
Closer to home, Auckland has been put into strict level 3 lockdown measures, while the remainder of NZ is moving into level 2 for three-days (so far), which will put pressure on many companies that struggled through the first lockdown. It is still too early to speculate how things will unfold so we would continue to invest in a more conservative and defensive manner, and choose to avoid riskier companies with greater uncertainty. That said, many companies such as Auckland Airport have raised capital and are in a much better position than during the first lockdown. Air New Zealand on the other hand, has not.
Like the first lockdown, Travel and Tourism will likely be hardest hit over the near-term, followed by retail, and sub-prime property (particularly retail property) depending on the length of lockdown. The retirement sector will also be under pressure, while least impacted sectors look be healthcare, infrastructure, technology, agriculture, and the gentailers.
In our view, the severity of a market pullback will depend on length of lock-down, and our gut feel is that lockdown measures will remain in place for at least 2 weeks.
Fletcher Building (FBU:NZX / FBU: ASX)
Fletcher building (FBU) shares have opened -3% lower this morning but were a touch higher yesterday – despite announcing they expect an earnings loss of $196m for the 2020 financial year, due to impacts of covid-19.
This includes an additional $150m loss to its troublesome B&I (constriction project) division, due to extended delays and reduced productivity, as well as $276m of significant items including range of asset impairments, costs of early exit of USPP loan, and charges associated with their extensive cost out program. It appears the market likes the $300m cost out program as FBU scales back to a much smaller size in response to uncertain times which could help in times of an uncertain recovery.
Keep an eye out for our weekly report, with a full update after the market reacts to Auckland's lockdown news today.
Australia & New Zealand Market Movers
The Australian market climbed higher on Tuesday (ASX 200 +0.5%), amid signs Melbourne's covid-19 cases peak point could possibly have passed, as well as stronger than expected jobs data reported in the US.
Travel and real estate stocks were best performers, being most sensitive to Victoria's lockdown reacting positively to any sign of news on cases slowing down. Sydney Airport entered into a trading halt, as it released its 2020 first half result reporting a loss of $51.8m warning there is still more uncertainty ahead and that they would look to raise $2 billion in capital from shareholders to reduce its debt levels to "respond to a range of recovery scenarios".
James Hardie shares rose 6.8% after it reported stronger performance than expected for its first quarter (2021), and guiding net operating profit for the 2021 financial year to be between $US330m and $US390m, range bound around the $US352.8m reported in 2020.
The New Zealand market declined yesterday (NZX -0.3%) as investors took profits on strong performers for the year to acquire 'value'. Summerset Group fell (-2.1%) after a locally owned Christchurch retirement village – owned by a local family – was put into lockdown after residents developed symptoms of a respiratory illness, while other retirement village operators weren't affected by the news.
3 Things Markets Will be Watching this Week
- COVID-19 related news-flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
- Trade tensions between the US and China look to have escalated once again.
- Closer to home, the NZ corporate reporting season kicks off today with Vital Healthcare and Contact Energy the first to announce profits on Monday. The Reserve Bank of New Zealand also makes an interest rate decision.