Global markets were higher overnight with the US market (S&P 500 +1.2%) climbing to a 9-week high (and now up +38% from its March 23 low) after returning from a long-weekend break as optimism grew around development of a possible coronavirus vaccine and revival of business activity.
Gains were experienced across all sectors with financials and commodities leading the market given their sensitivity to improving economic outlook, whilst the resilient tech sector which has experienced a strong run so far lagged given most tech stocks are trading near all-time highs.
Air New Zealand (AIR:NZX / AIZ:ASX)
Air NZ (AIR) shares were up +5% yesterday after providing a market update highlighting their financial position. AIR confirm that it would expect to report a significant loss for the 2020 financial year, despite a strong first half. AIR have highlight a number of cost saving measures including labour reduction of -30% (or 4000 employees), reduction in executive team, hiring freeze and deferral or cancellation of capital expenditure.
Air NZ's short-term liquidity (excluding the government loan facility) is now $640m, down from over $1 billion prior to covid-19 (3 months earlier) However, without international travel we anticipate cash-burn to continue at a heavy rate (even with cost saving measures) over the near-term putting pressure on the overall business even under more relaxed Level 1 and level 2 restrictions.
We currently have a SELL recommendation on AIR due to a negative near-term outlook and current (inflated) valuation.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index +2.9%) jumped yesterday, making it a second day of significant gains as the "reopening trade" boosted investor sentiment. The real estate sector, particularly retail landlords were heavily hit due to lockdown measures and jumped as malls start to open and foot traffic returns to near-normal levels. Likewise travel and tourism related stocks enjoyed a second day of strong returns.
Coca-Cola Amatil was among the few companies to end the day in the red (-1.6%) after providing a weak trading update which saw consumers continue to buy beverages for home consumption above historic levels, partially offsetting by a decline in 'on-the-go" (which generates a higher gross margins).
The New Zealand market was closed higher on Tuesday (NZX 50 +1.3%), as investor sentiment buoyed as more global economies started to re-open, clearing the way for a recovery as restrictions around the world start to ease.
Tourism Holdings led the market higher yesterday up +10%, after announcing significantly cheaper rates to boost local tourism as well as beginning a restructuring process which will affect 140 jobs (of its 900 employees) to match reduced activity levels forecasted over the near-term. With other tourism estate related stocks also performing better on a better outlook from local tourism. Napier Port shares rose 1.3% after reporting a +39% increase net profit for the 2020 financial year, however cancelled their interim dividend as freight volumes in April were down -40% percent and it expects May's trade to also be down “materially” on the same period last year.
3 Things Markets Will be Watching this Week
- Covid-19 and US-China trade tensions are likely to once again dominate headlines.
- 1st quarter GDP, Consumer confidence and housing data (new and pending home sales) in the US dominates the data flow this week.
- Locally, earnings are due from Mainfreight, Goodman Property, Sanford, Infratil, Gentrack, Tilt Renewables and Napier Port.
Have a Great Day,
