Global markets rebounded overnight after President Donald Trump said a trade deal with China could happen sooner than expected and moved toward a pact with Japan, diverting attention from the swirling impeachment drama in Washington.
The Reserve Bank on NZ kept the official cash rate at 1.00% yesterday, in line with expectations, although the commentary by the policy committee was not as dovish as some had anticipated.
Stock in Focus: Air New Zealand (AIR:NZX / AIZ:ASX)
Air New Zealand shares rose yesterday as rival Jetstar signalled it it plans to withdraw from five unprofitable regional NZ routes in November.
Jetstar are blaming tepid demand and high jet fuel prices which it says look set to stay for some time. The affected routes are between Auckland and Nelson, Napier, New Plymouth and Palmerston North, and flights between Wellington and Nelson. The news is clearly a positive for Air NZ, although the national airline already has ~90% market share on the routes Jetstar are exiting and Jetstar has already been reducing capacity. Air NZ said it will investigate increasing capacity and keep prices low for those routes.
One thing in Air NZ’s favour is it offers an attractive 8% dividend yield for the year ahead. However, as with Qantas we would continue to caution that investors need to have an appetite for risk considering the highly competitive airline industry and the impact of volatile jet fuel prices can have on future profits.
We currently have a BUY (High-Risk) rating on Air NZ.
Members should look out for a full update on Air NZ to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market was lower yesterday (ASX 200 Index -0.57%) as a flurry of trade and political headlines weighed on global equity markets. The materials sector led the market declines on Wednesday, with base metal prices falling after the People’s Bank of China said it wasn't in a rush to roll out massive rate cuts or begin quantitative easing. Afterpay Touch led the market gains after it was upgraded from 'neutral' to 'buy' by a major broker, saying the company had a $1 trillion market opportunity as a tailwind and frequency of use should drive strong operating leverage over the medium term.
The New Zealand market was basically flat on Wednesday (NZX 50 Index +0.03%) as NZ shares outperformed the rest of Asia, edging higher as yield stocks such as Trustpower and Infratil were back in favour among investors. Z Energy fell as the Commerce Commission's conference on the fuel market study wrapped up its second day.
Warehouse Group will pay its biggest dividend in five years as efforts to turn the ship around have started paying off with a 26 percent lift in annual underlying profit.
3 Things Markets Will be Watching this Week
- Trade War related news-flow is likely to continue to feature in headlines.
- The Reserve Bank of New Zealand makes an interest rate decision on Wednesday.
- Reserve Bank of Australia Governor Lowe also makes a speech on Tuesday.
Have a Great Day,
