Global markets continued to rebound overnight as investors shrugged off fears of an escalating trade conflict between the United States and China and looked forward to the quarterly earnings season.
The early advance was linked to signs that neither the US nor China is keen on a trade war per se and that negotiations to avert a trade war were proceeding. In other news, Facebook shares gained after chief executive Mark Zuckerberg said the company had not seen "any meaningful impact" on usage or ad sales since the data privacy scandal.
Stock in Focus: Air New Zealand (AIR:NZ / AIZ:AX)
As we touched on yesterday, Air NZ gained on news it will ditch an alliance with Virgin Australia. Air NZ said it will end its strategic alliance with Virgin Australia Holdings in October when regulatory approval for their shared services ends.
Management said it was the right time for each airline to pursue their own goals and the airline had built up a significant presence in the inbound visitor market from Australia, which is NZ’s largest. "This move will enable us to deliver a more consistent customer experience by using our own fleet and delivering an improved schedule, which we’ll provide more details about shortly," Chief revenue officer Cam Wallace said.
AIR shares have trended higher recently after the airline announced its 2018 first half results, despite earnings falling -7% to $323m. The market reacted positively to the rising dividend and management remaining upbeat on their outlook. Operationally Air NZ performed well in the half in our view, benefiting from robust passenger demand, particularly for short-haul flights reflecting Air NZ’s strong position in New Zealand and along the pacific rim.
We currently have a BUY (High-Risk) recommendation on AIR.
Australia & New Zealand Market Movers
The Australian share market continued to recover yesterday (ASX 200 index +0.48%) with the major banks making gains while the big mining companies fell. Market watchers were optimistic that tensions between the US and China won't escalate into a full-blown trade war with US officials suggesting a willingness to come to the negotiating table. Mineral producers Orocobre posted the biggest loss, down 9.5% after it downgraded its lithium production guidance for this financial year.
The New Zealand market was lower yesterday (NZX 50 index -0.41%) led by Sky Network Television, Genesis Energy and Fletcher Building while Kathmandu Holdings and Synlait Milk gained. Fletcher Building dropped to the lowest it has closed since March 2009. There have been comments in the market around the potential for the stock to fall out of the MSCI New Zealand Index at its next rebalancing, to be replaced by A2 Milk. Synlait Milk said it will spend about $18m to double production of lactoferrin at its Dunsandel plant after securing a multi-year agreement to supply the high-value milk protein to an unnamed customer.
3 Things Markets Will be Watching this Week
1. Global politics remain in focus with tensions rising between the US and China as they impose trade tariffs on each other.
2. The Reserve Bank of Australia makes an interest rate decision on Tuesday.
3. Monthly US employment figures are released at the end of the week
Have a Great Day,
Team
