Global markets sold-off overnight (S&P 500 Index -2.4%) with all three major Wall street indices falling sharply without a clear catalyst.
There hasn’t been much fresh news to drive the markets, so the fall is just a continuation of recent themes, including the worrying increase in COVID-19 cases across Europe and, to a lesser extent, the US which threatens the nascent economic recovery. At the same time the stalemate in Congress over more fiscal stimulus remains unchecked.
All major sectors were down lead by energy which has been the worst performing sector this year, reporting its worst session since 9th of July, followed by Tech sector which was also heavily sold-off. Marketing darling Tesla Inc tumbled -10.3% after Chief Executive Elon Musk failed to impress with his promise to cut electric vehicle costs at the company's much-awaited "Battery Day" event on Tuesday.
Closer to home, the RBNZ is preparing to introduce a Funding for Lending Programme (FLP) before any cut to the OCR next year in a move to bring forward lower interest rates and provide additional stimulus via the offer of low-cost, secured, long-term funding to banks by end of 2020. Adrian Orr is still talking up teh possibility of negative interest rates next year. In Australia, Westpac believes the Reserve Bank of Australia is gearing itself for an interest-rate cut on the same day the Federal Government will deliver its budget, making reliable and more defensive income stocks more attractive.
Kathmandu (KMD:NZX / KMD:ASX)
Kathmandu shares fell -5.5% yesterday, after delivering their much anticipated full year result, where they anticipate ~$135m of revenue was lost across all brands due to covid-19 store lockdown measures. Group sales were up +48.7% due to the Rip Curl acquisition, and Kathmandu and Oboz sales only fell -9.7% and 15.2% respectively for the year as strong online sales and post lockdown winter sales helped offset the brunt of the lockdown. Government wage assistance (globally) contributed to a net benefit to operating expenses of ~$16m, with the group reporting an underlying net profit after tax of $31.5m, down -44.5%.
Despite sales rebounding post lockdown, the outlook continues to remain challenging especially on the backdrop of a weaker economy, likely to put added pressure on discretionary spending, as well as second waves of covid-19 around the world restricting activity and in some cases returning back to a lockdown – especially in regards to KMD's overseas stores.
We continue to remain HOLD rated on KMD
Australia & New Zealand Market Movers
The Australian market surged strongly on Wednesday (ASX 200 Index +2.4%) its best session in two-months, as bond proxies and banks jumped following market speculation that the Reserve Bank of Australia will cut its cash rate once again.
All major sectors were up led by Industrials and Healthcare, helped by a strong lead from Wall street overnight as investors snap up shares at recently deleted levels. Aristocrat Leisure jumped +5.1%, after a major analyst upgraded its price target significantly as it is tipped for strong machine growth and entering into iGaming market.
The New Zealand market was up yesterday (NZX 50 Index +0.8%). Pushpay led the market higher jumping +5.8%, due to a strong lead from tech stocks on Wall street overnight as well as receiving a broker upgrade on the back of the view its 2021 financial year will benefit from three years of growth compressed into one.
The big heavy weight exporters and covid-19 beneficiaries A2 Milk (+3.5%) and Fisher and Paykel Healthcare (+0.6%) were also up but both trade close to recent lows.
3 Things Markets Will be Watching this Week
- COVID-19 related -flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
- Locally, the RBNZ OCR meeting is the key event on Wednesday.
- There will also be earnings from Nufarm, Kathmandu, Premier Investments and Hallenstein Glasson. AGM’s are scheduled for Turners Automotive, Mercury, Oceania Healthcare and Vector.
