European Stocks Tumble | James Hardie Jumps

16 October 2020

Global markets were lower overnight (S&P 500 Index -0.2%) as US equities are trading on a cautious note again, with little positive news to drive stocks higher marking a third consecutive negative session.
US corporate earnings season is being watched closely, and it has been a mixed bag from the bank results so far. While Goldman Sachs and Morgan Stanley were higher after solid results, much weaker results from Bank of America and Wells Fargo saw their share prices sell-off.

Stimulus talks continue as Treasury Secretary Steven Mnuchin downplayed a stimulus deal ahead of the election. Treasury Secretary Steven Mnuchin was scheduled to have another call with House Speaker Nancy Pelosi Thursday in a continuing saga of talks about a relief package. He noted the White House is “not giving up” in the search for an agreement, while President Donald Trump said he’d go over $1.8tn in stimulus and blamed Pelosi for holding up a deal.

European stocks dropped sharply as Europe’s biggest cities clamped down to curb COVID19, adding to concern that further restrictions could cause more economic damage. Risk appetite has weakened following fresh restrictions across London and France to bring the spread of COVID19 under control. The EU has overtaken the US in terms of new infections of COVID19 when measured accounting for population.

James Hardie (JHX:ASX)

JHX delivered a strong result for the 2nd quarter of its 2021 financial year, driven by strong improvement in all markets. The company has upgraded its full year guidance range to US$380-$420m (was US$330-390m).

James Hardie CEO, Dr Jack Truong welcomed the result, saying: “This is the sixth consecutive quarter that we have delivered growth above market with strong returns. We continue to achieve these results by executing better every day against our strategic imperatives and seamlessly serving our customers, while improving working capital for our customers and for the company”.

We believe JHX are able to deliver and outperform during normal conditions and history shows it has done well to recover after the GFC. We maintain our High Risk Buy recommendation. Despite its current valuation, the outlook appears to remain supportive for its major markets with housing data surprisingly strong, as well as JHX maintaining healthy margins from their restructuring efforts.

Australia & New Zealand Market Movers

The ASX 200 bucked the trend in the rest of the Asia-Pacific region yesterday (ASX 200 Index +0.5%) closing higher after the central bank signalled it would provide further support to the economy.
In a speech, RBA Governor Lowe noted that the Board was considering the case for additional policy easing, which made more sense now that the worst of the pandemic is over and the economy is opening up. In the Q&A the Lowe reiterated it was possible to cut the cash rate to 0.10% from 0.25% and that the Board was evaluating the case for buying bonds in the 5-10 year space to keep interest rates low.

In recent stock news, CSL has narrowed its 2021 financial year profit guidance to a range of US$2,170-2,265m, which equates to ~2% upgrade.

Bank of Queensland’s 2020 result beat versus market expectations, with stronger than expected net interest margin and loan repricing.

Finally, BHP has confirmed China is deferring shipments of Australian coal, saying it is concerned about the impact the trade tensions will have on post-pandemic economic recovery.
The NZ market sold off on Thursday (NZX 50 Index -0.5%) as it impressive bull run of 11 sessions came to an end. Contact and Meridian led the market higher. Contact has been rallying partly because many are expecting that it will be added into the MSCI global index for the November re-balance. There is also speculation that a Global Clean Energy ETF has an upweight coming for Contact and Meridian. Index & ETF weights are important as index aware funds follow the changes.

Mainfreight has been rallying following a strong trading update at its investor day, with Q1 momentum continuing into Q2 and forward indicators suggesting this should be sustained through the remainder of the financial year.

Michael Hill also released a strong quarterly update with Group revenue (A$119.3m) down only -3.6% vs the prior period and gross margin growth of 100-200bps across all markets and channels despite a reduced store footprint and COVID-driven footfall reduction / store closures. While still early in the year and ahead of the key Christmas trading period, Michael Hill's Q1 sales run-rate was well above expectations


3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​US election developments will be followed closely by markets as we move closer to elections both in the US and NZ.
  2. US quarterly earnings season kicks-off, with key names reporting this week including JPMorgan, BofA, Wells Fargo, Citi, Morgan Stanley, Goldman, Delta Air, United Air and J&J.
  3. In Australasia, AGM’s are scheduled for CBA, Telstra, Ebos, Sky Television, BHP, Cleanaway, CSL, Aurizon, Perpetual and SkyCity


Risk appetite has weakened following fresh restrictions across London and France to bring the spread of COVID19 under control.

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