Markets Retrace | Bank of Queensland

1 October 2020

Global markets were lower overnight as US markets (S&P 500 -0.5%) retraced snapping a 3-day rally as we head into the end of month and quarter. In a quiet night for markets, investors took money off the table hours before the first US presidential debate. and recent stimulus talks ended without an agreement – weighing on sentiment.

Energy and Financial sectors were the biggest drag in the session, while travel related companies were also weaker as concerns rose over a possible resurgence in covid-19 cases, as data showed New York City’s rate of positive Covid-19 tests rose above 3% for the first time in months.
 

Bank of Queensland (BOQ:ASX)

Bank of Queensland (BOQ) fell -7.2% yesterday after completing its 2020 financial year collective provision modelling – unlike the other banks this was not announced earlier in the year. 
The bank announced that the loan impairment expense for the current year will be $175m (pre-tax), which includes a covid-19 provision expense of $133m. BOQ is now expecting higher unemployment, downgrades to property prices and an increased duration of the economic downturn.

We remain HOLD rated on BOQ due to uncertain operating conditions for the lending banks and see better value in Westpac which is our top banking sector pick.
 

   
Australia & New Zealand Market Movers

The Australian market was flat on Tuesday (ASX 200 Index -0.2%), as gains in technology stocks helped to counter falls among the banks.
Technology led the gains on the local market with Xero (+3%) and Afterpay (+2.5%) doing most of the heavy lifting by market value, following a strong lead from Wall street. Bank of Queensland's impairment announcement brought its banking peers down with the big 4 banks also slipping lower. 

The New Zealand market fell yesterday (NZX 50 Index -0.5%) as the two NZX heavy weights (Fisher & Paykel and A2 Milk) slipped. 
A2 milk shares were down another -4.9% yesterday as investors are concerned around its near-term earnings (being partially linked to Australia reopening its borders to international travel), with its supplier Synlait also caught up in the sell off down 3.4%.

On the other hand Air NZ and Auckland Airport edged higher as optimism over a potential trans Tasman bubble by the end of the year. Air NZ confirmed at its AGM that it has drawn down $110m of its $900m government loan and reiterated that it expects to complete a capital raising by June next year.
 

3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​COVID-19 related -flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
  2. This week sees the first 2020 US presidential debate, monthly US employment data, and US 2nd quarter economic growth (GDP) data.
  3. Locally, NZ business and consumer confidence data and the latest building permits data will be released along with retail sales in Australia.
     

Team

Energy and Financial sectors were the biggest drag in the session, while travel related companies were also weaker as concerns rose over a possible resurgence in covid-19 cases, as data showed New York City’s rate of positive Covid-19 tests rose above 3%

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