Fragile Sentiment | James Hardie Jumps

23 June 2020

Global markets were mixed overnight with the US market (S&P 500 +0.65%) led by technology stocks. While markets are rallying, sentiment remains fragile as a spike in covid-19 cases in the US and other major economies could create a setback for the economic recovery. High-flying Apple and Microsoft Corp traded at all-time highs and provided the biggest boost, while travel-related stocks were one of the hardest hit sectors.

The World Health Organization reported a record rise in global covid-19 cases on Sunday, driving demand for perceived safe-havens, including gold and longer-term US Treasuries.

The market is placed in an interesting position, the bulls making a case for the fact that the opening up is going much better than expected with better than expected retail sales and jobs data, while bears are looking at the number of covid-19 cases which are still continuing to rise, potentially delaying a recovery.

 

James Hardie (JHX:AX)

James Hardie  (JHX:AX) shares price has climbed over 7% yesterday, after the building materials company upgraded its guidance for the first quarter of 2021 financial year (3 months to 30 June 2020). The group’s North America adjusted earnings (EBIT) margin is now expected to be between 27% and 29% for the quarter, a significant jump from its previous forecast of 22% to 27%. This has been helped by housing market in North America which has been steadily improving  over the past seven weeks despite the COVID-19 pandemic.

We maintain our High Risk BUY recommendation on JHX given the North American market is performing better than expected, but remain cautious at current valuations as there is still economic uncertainty over the medium-term.

 

   
Australia & New Zealand Market Movers

The Australian market (ASX 200) closed flat yesterday, after a volatile day of trading as heightened levels of concerns around the rising number of covid-19 cases in Victoria and in the US challenged optimism. The major bank stocks rebounded, all finishing the day higher, while gold miners rose strongly led by a rise in gold price as the market appears anxious. Travel and consumer stocks were hardest hit. 
National Australia Bank’s CEO said the recovery would more closely resemble a 'W' than a 'V' or ‘U’ and the years ahead for bank investors were likely to be leaner than what they were used to. He added: "In the short to medium term it will be a less profitable sector in Australia”.

The New Zealand market was lower on Monday (NZX 50 Index -0.9%) as investors grew increasingly concerned about a second wave of covid-19 disrupting the global economic recovery. Stock directly related to travel tumbled hard including SkyCity Entertainment (-3.9%), Auckland International Airport (-3.4%), Air New Zealand (-2.3%) and Tourism Holdings (-1%).

A2 Milk led the market lower, giving back some gains while confirming it is in talks to get involved in manufacturing, but declined to respond to speculation that it would acquire Southland's Mataura Valley Milk. 
Kiwi Property fell -0.9% despite announcing it would resume paying dividends later this year as visitors to its shopping portfolio had recovered 1% above pre-covid levels.
Pushpay shares were the best performer yesterday, up another +5% yesterday following on from a strong rally last week after their earnings upgrade. 

 

3 Things Markets Will be Watching this Week

  1. ​​​Covid-19 related news flow remains top of mind. 
  2. The Reserve Bank of New Zealand June OCR Review takes place on Wednesday, with the market not expecting too many surprises. 
  3. In the US there will be a release of Q1 GDP figures and the Fed is scheduled to release results of its annual stress tests on the largest US banks. 

Have a Great Day,
 

Team

The market is placed in an interesting position, the bulls making a case for the fact that the opening up is going much better than expected with better than expected retail sales and jobs data, while bears are looking at the number of covid-19 cases whic

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