Global markets rallied overnight (S&P 500 Index +1.8%) as a gust of optimism swept through global equity markets while millions of Americans headed to vote. In stock news, Alibaba’s US-traded shares tumbled as much as 10% after China halted the initial public offering of Ant Group, in which Alibaba owns about a one-third stake.
The markets focus will be on the US Presidential election today and equity markets appear to be betting on a clear victory for the Democrats and a swift deal on more fiscal stimulus. The first polls will close 12.30pm NZ time but the real action begins at 1pm (11am AU time) when polls close in Georgia as well as parts of Florida. At 1.30pm NZT, results from swing states Ohio and North Carolina will start to come in, before 2pm sees polls close in Pennsylvania along with the rest of Florida.
The big news yesterday locally came from the Reserve Bank of Australia which cut the cash rate to a record low 0.1% from 0.25%. The RBA also committed to keeping interest rates low, announcing the purchase of A$100bn of 5-10 year government bonds over the next 6 months and reluctantly opened the door a fraction on negative interest rates in Australia. Similar to the RBNZ, the RBA expect asset prices (principally houses) will continue to rise, and they expect that rise will support confidence and consumption via the wealth effect, despite the increased risk to financial stability and to economic inequality in Australia.
As we touched on yesterday, property markets across Australia and NZ are hot (to say the least), helped by actions from the RBA & RBNZ and record low interest rates. This has been a positive for companies such as MPG.
Metro Performance Glass (MPG:NZX / MPP:ASX)
MPG has started to move higher since August, as it released a trading update and in mid-October announced a solid reduction in debt levels.
MPG has reduced net debt to NZ$47.7m at 30 Sept 2020, down approximately NZ$20m from 6 months earlier. The reduction comes on the back of operating expenditure and capex control measures, strong operating cash flows and a NZ$7m sale and leaseback of two thirds of the NZ vehicle fleet. Activity levels in NZ residential sector remain surprisingly strong (with what can only be described as a very hot property market) after the initial COVID-19 lockdown and, pleasingly, the Australian business returned to profit in the first four months of the year. The entry of APL into the NZ market earlier this year has likely had some impact on NZ volumes and this will likely continue to play out over the near term.
It is encouraging to see MPG has become a lower risk proposition now with lower debt and improved earnings expectations. However, risks around activity levels post COVID-19, and combined with greater competition we will remain HOLD rated for now. Management appear to be finally turning MPG around and the recent share price recovery shows how quickly the shares can move higher on positive news.
Australia & New Zealand Market Movers
The Australian market surged higher yesterday (ASX 200 Index +1.9%) on the back of the RBA decision.
Many of the best performing stocks were the ones that have been hardest hit by the coronavirus pandemic including travel companies Webjet and Flight Centre, and casino operator Star Entertainment.
In other news, tensions continue as China has reportedly ordered traders to stop purchasing at least seven categories of Australian commodities from Friday. Including coal, barley, copper ore and concentrate, sugar, timber, wine and lobster.
The New Zealand market was higher on Tuesday (NZX 50 Index +0.5%) as it rallied with the ASX. Stocks exposed to the Australian market performed well such as Fletcher Building, second-tier bank Heartland Group, and retailer Kathmandu.
In stock news, Briscoe Group delivered another quarter of stellar growth with 3rd quarter sales up +15% on the prior year period accompanied by a robust gross margin. At its AGM, New Zealand King Salmon said it is “very pleased” with the start of the financial year, saying it has been “positively surprised” by the recovery of its premium branded products, however it’s still doubtful whether annual profit will lift due to the impact of Covid-19.
3 Things Markets Will be Watching this Week
- All eyes this week will be on the US election, with results set to start coming through around lunchtime on Wednesday (Australian time).
- COVID-19 news is back at the top of headlines with social distancing measures re-introduced in Europe.
- It will be another big week of US earnings ahead with 132 S&P 500 companies due to report including Alibaba Group, Wynn Resorts, and Berkshire Hathaway. Regionally, Westpac, CSR, Pushpay, Z Energy, Trustpower, Goodman Group and News Corp all report earnings.
Team
