Global markets were lower overnight as US stocks fell from 2-month highs (S&P 500 Index -0.8%) as rising trade tension between America and China added to concern about the pace of recovery from the coronavirus pandemic.
Stocks hit the lows of the day after China responded to overnight accusations from Trump, warning that it will safeguard its sovereignty, security and interests, and threatened countermeasures. Signs are mounting that President Donald Trump will make his tough-on-China stance a key element of his re-election bid. At the same time, another 2.4m Americans claimed jobless benefits – still many but a decelerating number from the week before.
Aristocrat Leisure shares fell yesterday after its first-half results missed expectations.
The gaming company reported interim revenue of $2.3 billion and a $1.3 billion net profit with a disappointing land based result which will hit near term earnings. No outlook statement has been provided, and land based casino re-openings are generally expected by June or July 2020, albeit with restrictions. At the same time it is business as usual for the digital inline side of the business.
While there may be near term weakness, we project a multi-year recovery to pre-pandemic levels. ALL has expanded its loan facilities and now has A$1.8bn of cash and undrawn debt – adequate to ride out a period of casino capacity reductions.
We remain BUY rated.
Australia & New Zealand Market Movers
The Australian market sold off yesterday (ASX 200 Index -0.4%) snapping a 4-day rally, weighed down by mining stocks, after reports changes to China's rules around inspecting iron ore could hit Australian exporters. The Chinese government is also reportedly warning state-owned power utilities not to buy new cargoes of Australian thermal coal and to purchase domestic coal instead.
The New Zealand market was lower on Thursday (NZX 50 -0.5%) as shares fell for a second day as investors await earnings next week to gain a better sense of the economic outlook.
In stock news, Fonterra Shareholders’ Fund units were a touch higher as Fonterra said it is on track to meet forecast earnings guidance of 15 cents to 25 cents a share for the year, despite market challenges related to covid-19. Fonterra said it should deliver on its target for gross margin to rise $244 million on last year to $2.5 billion.
CDC Data Centres, an Australian firm 48% by Infratil, announced plans to develop two centres in Auckland.
Sky Network Television announced plans to raise $157 million through an underwritten and deeply discounted share offer to shore up its balance sheet while national and international sporting events are restricted, and to prepare a new broadband product. The capital raising is priced at 12 cents a share, 63% below the last closing price of 33 cents. The stock has been placed on a trading halt.
3 Things Markets Will be Watching this Week
- Covid-19 and lock-down news-flow remains key in terms of market moves.
- China-US tensions. The National People's Congress meeting in China will commence on Friday. The meeting is the Chinese Government's platform to outline its economic growth targets and management plan for the year ahead.
- Locally, earnings are due from James Hardie, Aristocrat, Property for Industry and Argosy Property.
Have a Great Day,