Global markets were mixed overnight as US stocks continued to swing between gains and losses as investors weighed the latest economic data and reports about fresh outbreaks of the coronavirus. There hasn't much fresh news to drive markets but a cautious trading environment remains the order of the day.
The benchmark US S&P 500 Index fluctuated after opening lower in the wake of a report that weekly US jobless claims stayed above one million. While economic data has generally rebounded faster than many expected, this is a reminder that high unemployment remains a risk for the global economy.
Elsewhere, the Bank of England expanded its quantitative easing program, increasing its asset purchase programme by £100bn, as expected. This followed some support late yesterday after the Peoples Bank of China continued with its measured easier monetary policy stance – as globally central banks remain in support mode.
Air New Zealand (AIR:NZX / AIZ:ASX)
Air NZ dropped yesterday after it forecast an underlying loss of $120 million in the June year, down from a $374 million profit in 2019. That was before more than half a billion dollars of one-off costs. and includes ~$79m of wage subsidies from the government.
We remain negative on Air NZ, and believe a capital raise is imminent. There is speculation that Air NZ is looking to raise approximately $500m, which will likely be at a significant discount to the current share price. Air NZ is likely to remain loss-making until its long-haul network reopens which may not be until the 2022 financial year.
In the absence of a material capital injection, we expect Air NZ will have to access its government loan facility of $900 million.
We currently have a SELL rating on Air NZ.
Australia & New Zealand Market Movers
The Australian market dipped on Thursday (ASX 200 Index -0.9%) as data showed unemployment rose to over 7% in May. Consumer, telco and mining businesses led the losses, with all sectors except utilities in the red. A fall in iron ore prices led to weakness in the big mining companies BHP and Rio Tinto. This followed Brazilian mining company Vale's announcement that it would restart production at mines shuttered by coronavirus. Qantas shares were lower after it cancelled all international flights until late October.
The New Zealand market was lower yesterday (NZX 50 Index -1%) after Statistics NZ figures showed gross domestic product shrank -1.6% in the March quarter, more than some economists were predicting. A much bigger hit to economic activity is expected in the June quarter. Air New Zealand and Tourism Holdings led the market lower. Operating updates from Meridian Energy and Contact Energy showed strong performances in hydro-generation and in the retail market. Despite that, energy stocks joined the market decline.
Breaking the trend was Pushpay, which rose +8% to new all-time highs post its annual general meeting. At the meeting management increased underlying profit guidance by US$2 million to US$48.0-$52.0m.
3 Things Markets Will be Watching this Week
- Covid-19 related newsflow, namely the re-opening of economies around the globe and new case growth in Southern US States.
- Economic data including retail sales and a raft of housing data in the US along with a data dump in China.
- Locally, employment data in Australia and Q1 GDP in NZ will be closely watched.
Have a Great Day,