Global markets rallied overnight (S&P 500 Index +1.6%) as the formal start of President-elect Joe Biden’s transition spurred investors into risk assets. The General Services Administration acknowledged Biden as the apparent winner of the presidential election, which suggest Trump's efforts to delay the inevitable might be coming towards an end. Markets also cheered Bidens plan to nominate former Federal Reserve Chair Janet Yellen to lead the Treasury Department.
Closer to home, the Kiwi dollar lifted more than half a US cent and touched 70 cents, after finance minister Grant Robertson proposed adding house prices to the RBNZ’s mandate, dashing remaining expectations of interest rate cuts (all else equal, higher rates make a currency more attractive). Grant Robertson has asked Adrian Orr to consider house price stability when the central bank makes monetary policy decisions, amid growing pressure to curb runaway housing valuations. Late in the day, the RBNZ acknowledged the letter, pledging to work together with the government on the issue, but rightly pointing out that there are longer-term, structural issues at play affecting house prices, not just interest rates.
Ampol (ALD:ASX)
Ampol shares advanced 4% yesterday as it announced a $300 million off-market buyback after completing a $635 million sale of its convenience retail property portfolio. The company had originally been expecting to pocket $612 million from the sale.
The buyback was a surprise from the company, which was formerly known as Caltex, as it was originally going to use the funds to reduce its debt leverage. But due to improving trading conditions, management has opted to use the proceeds to buy back shares as well.
We are pleasantly surprised by the decision given difficult trading conditions and Lynton refinery closure. However, this is not enough to change our HOLD rating, as we see value elsewhere as well as downside risk. Longer term we also believe with the popularity of fuel efficient (hybrid vehicles) and uptake of affordable electric vehicles there will be unavoidable headwinds and uncertainties for the industry.
Australia & New Zealand Market Movers
The Australian market rallied yesterday (ASX 200 Index +1.3%) supported by news that a third vaccine candidate had proved effective in phase three trials, putting local shares on track for their best November on record as the major banks lead market gains.
A bullish tone from the Reserve Bank of Australia's deputy governor, Guy Debelle, supported share gains through the afternoon, saying the central bank was cautious of removing stimulus too early, suggesting monetary policy would remain accommodative for the foreseeable future.
Stocks leveraged to the reopening trade such as Flight Centre, Webjet, and Qantas got a big bump early in the session after Queensland's government said it would reopen state borders with New South Wales as of December 1.
The New Zealand market (NZX 50 Index +0.4%) was higher on Tuesday.
Air New Zealand climbed 5.4% as AstraZeneca and Oxford University added to the list of functional vaccines. Residential retirement home provider Arvida posted the biggest drop, falling -3.9% after reporting first-half net profit fell -7%, reflecting about $5 million in additional costs because of the coronavirus crisis. Looking at Arvida’s result details, better-than-expected operating expenditure was partly offset by lower development margin.
Vital Healthcare announced a $95m acquisition of Grace Hospital in Tauranga with funding from the pending exit of three regional Australian assets. Grace Hospital looks to be an attractive asset as it offers a 5.25% yield from year two with a 30-year weighted average lease term.
3 Things Markets Will be Watching this Week
- In a shortened trading week in the US for Thanksgiving, the re-introduction of COVID restrictions and second wave news will remain at the top of headlines.
- At the same time, vaccines are also front of mind with growing speculation that a vaccine will be rolled out this year.
- In New Zealand results season continues with Kiwi Property and Goodman results today and Fisher & Paykel Healthcare due later this week.
Team
