Global markets were mostly lower overnight, although Apple kept the Nasdaq Technology Index in positive territory as it is set to announce a series of new bundled products
US equities pulled back from the cusp of record highs, and there hasn’t been much fresh news overnight offshore. US jobless claims fell below 1 million for the first time since mid-March, pointing to a continued recovery in the US labour market (although the level of jobless claims remains very high, above that seen after the GFC). There is still no breakthrough in sight in negotiations between Democrats and Republicans but the market is trading like a new fiscal package will eventually be agreed. The rate of new COVID-19 cases continues to trend lower in the US, albeit from very high levels.
Closer to home, the focus today in New Zealand will be on the Government announcement at 530pm NZT from the Prime Minister on the strategy from here. Most are expecting that Level 3 to be extended for a couple weeks in Auckland & the rest of the country to remain Level 2.
We are also now in the thick of Australasian earnings season, with a number of companies reporting profit results. As always, we will provide full updates on announcements in our weekly reports.
Treasury Wine Estates (TWE:ASX)
TWE shares jumped +12% yesterday, as it pointed to a brighter future for its China business as its margins and profits crashed in the United States.
The 2020 financial year result was in line with prior guidance and TWE has not provided 2021 earnings guidance, but did give positive commentary on Asia with China depletions up 13% in June quarter and 40% in the month of June with some signs of momentum returning in Asia. North America was messy result with operating earnings down A$115m in constant currency while Europe held up well in what was a fairly stable pandemic performance.
We currently have a High-Risk BUY rating in TWE as we saw that the road of recovery may be slower than anticipated, especially given challenging market conditions in the US. Yesterday's share price jump shows the market now has low expectations for the stock.
Australia & New Zealand Market Movers
The Australian market was lower yesterday (ASX 200 Index -0.6%) for the second day in a row.
Investors digested a number of stock announcements, those under our research coverage were:
Xero, which provided a positive Annual Shareholding Meeting update, as it added 96k subscribers in the first 4 months of the 2021 financial year. Xero did not provide an update on the price hike which was deferred for the second time this year, however pricing will likely be under pressure given the global economic backdrop.
Telstra dropped -8% after its full year profit fell -14% to $1.839 billion, while its like-for-like operating earnings was down -0.3% to $8.4 billion. While a mixed result it was in line with prior guidance, but Telstra said it was assuming COVID-19 would have a $400 million hit on its earnings for the 2021 financial year which spooked investors.
QBE Insurance shares were higher as it managed to pay out a 4¢ dividend despite posting a loss for the financial year, with wild weather, poor investment results and hits from the pandemic weighing heavily on its profitability.
New Zealand shares edged higher on Thursday (NZX 50 Index +0.1%) as gains in local software companies spurred on by Wall Street's tech rally just offset the general malaise of the latest covid-19 lockdown.
Stock market operator NZX reported a 21% increase in first-half operating profit due to a marked increase in capital raisings and a surge of new retail investors driving trading activity. The result was underpinned by listed companies which raised capital, but the NZX needs more new listings to have a sustainable increase in revenue.
Precinct Properties New Zealand hiked its dividend on an 11.8% increase in operating income. The 2020 financial result had little impact from COVID-19. However, retail uncertainty was evidenced in a NZ$70m negative value movement on Commercial Bay retail to NZ$425m. In saying that, a large part of the office portfolio remains in good shape.
3 Things Markets Will be Watching this Week
- COVID-19 related news-flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
- Trade tensions between the US and China look to have escalated once again.
- Closer to home, the NZ corporate reporting season kicks off today with Vital Healthcare and Contact Energy the first to announce profits on Monday. The Reserve Bank of New Zealand also makes an interest rate decision.