Global markets were up overnight, with the US market (S&P 500) closing 1% higher and experiencing two-consecutive positive days since the start of the covid-19 outbreak sell-off in mid Feb.
The US "do whatever it takes" attitude to support the economy was illustrated by the $2 trillion stimulus deal which was approved by the Senate, although markets retraced in late trade after Senator Bernie Sanders threatened to hold voting for the bill – which may require some more tweaks before being enacted. The European market jumped +3% as Germany announced a 750bn stimulus package, while all major Asian markets rallied strongly as well.
While the medium-term outlook appears somewhat promising with heightened levels of stimulus, investors are still treading with caution towards given the risk to earnings near term. Most analysts are expecting a 25% – 30% drop in US corporate earnings in 2020, before a subsequent rebound in 2021. The pace of the recovery will depend on how long a lockdown is in place, which will be dependent on when a slowdown in new cases occurs. .
Stock in Focus: Scales Corporation (SCL:NZX)
Scales Corporation (SCL) shares jumped +11% yesterday, after announcing it is considered an 'essential service', and continue to remain operational during New Zealand's four-week lockdown.
Scales have completed 40% of the 2020 crop harvest and subject to market conditions currently has adequate resources to cover harvest, packing, cool storage and shipping.
The impact of covid-19 makes it difficult to assess market conditions with regard to overseas demand and pricing (we would expect apple demand to remain resilient), and SCL have not made a change to guidance yet, which is encouraging.
We currently have a BUY rated.
Members can login to read our full reports on Scales Corporation
Australia & New Zealand Market Movers
The Australian market rally continued for a second day in a row on Wednesday (ASX 200 index +5.5%).
The banking sector was the standout.Companies that have been sold off heavily since coronavirus panic started to take hold also performed strongly, with Afterpay soaring 33.8%, Qantas up 26.3%, and Aristocrat up 22.2%. Funeral operator Invocare shares were the worst performing down -12.2% after announcing their core business was affected due to restrictive social gatherings, meaning they were unable to provide customers with their full range of services.
The NZ market ended higher yesterday (NZX50 +1.7%), with a strong rally bolstered by prospects of a $2 trillion bailout for the US, sending Equity markets around the world into positive territory. The retirement sector experienced a strong second day rally all jumping double-digits, likewise tourism facing shares were also up, Tourism Holdings and Auckland International Airport both made significant gains, while Air NZ ended the day up a touch higher.
Fletcher building shares were down, after it withdrew its earnings guidance and cancelled its dividend, with most of their NZ operations shutdown, other than supply for essential services which will put some earnings strain. EBOS shares continued to hold up well with positive news flow that competitor Sigma Healthcare reported strong revenue and volume growth year to-date (up 80%) for their pharmaceutical products amid the covid-19 pandemic.
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of driving investor sentiment.
- Moves from central banks globally in response to coronavirus,
- Corporate earnings guidance changes from Australasian businesses.
Have a Great Day,