Global markets were up overnight with the US market (S&P 500 +3.06%) higher as covid-19 cases appear to start to ease with New York (the US epicentre of the virus) reporting total hospitalisations fell for the first time since the pandemic commenced. President Trump appears optimistic about easing lock down measures with an announcement set to be released in the next couple of days,
This overshadowed some weak earnings results from JP Morgan and Wells Fargo, as the banks prepare for challenging period ahead. At the same time Johnson & Johnson rallied on a strong profit result.
Markets around the world have rebounded strongly and quickly since the March slump, the US market S&P 500 index is up +27% from its trough and now down "only" -16% from February's all time high.
We believe there might be some short-term pain as we come towards earnings season, which will provide some light on how much damage is done and how things are tracking in a covid-19 shutdown world. Unfortunately, with large levels of unemployment and inability to fully reopen the economy anytime soon, the market appears overly optimistic at the current juncture. We would hold fire and wait for either more certainty or wait for a dip at more attractive valuations to buy on most companies. We still expect near-term volatility.
G8 Education Limited (GEM:ASX)
Early childcare operator G8 Education (GEM) returned from its trading halt yesterday, ending the day down -4% after a strong run prior to the trading halt after Australian government announced a significant support package for the childcare sector. GEM announced that it will be raising $301m in additional capital to provide financial flexibility in this current period of market disruption.
New shares would be offered at $0.80 each, with $227m raised from institutional investors with strong interest, and the remaining $74m remaining from eligible retail investors which will open soon.
We currently have a High-Risk BUY rating on GEM Members should look out for a full update on GEM to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market continued to climb higher yesterday (ASX 200 +1.9%), re-entering a "bull-market" closing out up +20.7% from its March 23 low, whilst down -24% from it's all-time high in February.
Gold miners performed strongly as the price of precious metal rose sharply. Westpac shares rose despite flagging a $1.43 billion hit to its first half profits as it counted the cost of the AUSTRAC money laundering matter and refunds to its customers continued to mount, as it was outweighed by positive sentiment towards the sector as other banks also gained some ground.
Afterpay was the best performer, up +29%, reporting strong underlying sales growth through the first three months of year despite the coronavirus pandemic, with online sales representing 88% of total global underlying sales.
The NZ market closed out higher on Tuesday (NZX 50 +2%).
The Treasury highlighted its base case expectation that the lockdown likely to be eased 'slightly' after April 22 to level 3, as the number of new covid-19 cases start to fall. With the country likely to enter lockdown level 3 for a month, and then move to level 1 & 2 for a remaining 10-months.
Strong gains were experienced by stocks heavily beaten down by the pandemic like Air NZ (up +15.6%), as its near-term future would shift to a focus on domestic travel.
Fletcher building was also up strongly as its construction activity could commence sooner than the market had anticipated.
While large public spaces like casinos may not open anytime soon, it is encouraging news that SkyCity could reopen sooner (for locals) than anticipated given how well covd-19 has been contained so far, but given the reliance on tourism activity would be a slow road to recovery with no certainty on when borders would open – with NZ borders expected to be closed for at least 12-months
3 Things Markets Will be Watching this Week
- Coronavirus related news-flow remains key in terms of market moves.
- US corporate earnings season kicks off this week.
- Capital raising announcements by companies are growing as companies ask for cash from investors in this uncertain period.
Have a Great Day,