RBNZ Outlook, Powell’s Warning | James Hardie

14 May 2020

Global markets were down overnight as the US market (S&P 500) dropped -1.8%, falling for a second day in a row after Federal Reserve Chairman Jerome Powell warned of extended economic weakness due to the covid-19 pandemic and called for Congress to agree on additional fiscal support. The near term economic outlook remains bleak with expectations that second quarter GDP numbers could be down almost -33% for the US.

Closer to home, RBNZ left the OCR unchanged at 0.25% and said they will likely remain at that level until early 2021. Further stimulus is not being ruled out including lowering the OCR further and potentially into negative territory. The RBNZ's large scale asset purchase program was extended from $33 billion up to $60 billion over the next 12-months and now includes NZ government inflation indexed bonds. The RBNZ's baseline economic outlook is that the NZ economy declines by -8.4% for the 12 months to March 2021, and then recovers up +9.6% over the next 12 months to March 2022. While unemployment would initially jump and then ease down to 7.4% in the March 2021 quarter and continue to decline further from there.

 

James Hardie (JHX:ASX)

James Hardie (JHX) shares were up after narrowing their earnings guidance for the 2020 financial year, when the building materials company announced performance across the North American and Australian operations continued to remain firm despite covid-19 pandemic.

The 2021 financial year will be challenging for JHX but we believe JHX should be able to withstand a period of weak demand with no debt covenant issues and improved operating efficiencies over the last two-years allowing them to operate in a cost efficient manner to avoid any significant losses.

Given JHX valuation we maintain our High Risk Buy recommendation    

 

   
Australia & New Zealand Market Movers

​The Australian (ASX 200) market ended the day up +0.4% after recovering from a sharp fall at the open over the course of the day.
Commonwealth Bank led the news with its quarterly update, which showed it had put aside $1.5 billion to provide for the rise in bad debts expected as a result of the strain placed on households and businesses from the covid-19 pandemic.

The New Zealand market (NZX 50 -0.3%) slipped on Wednesday. Fuel retailer Z Energy was down -4.4% after it released weekly fuel volume data showing demand still down 42% percent during the slightly eased level 3 lockdown period compared to pre-lockdown levels.

RNBZ's announcement to keep OCR down for longer and potentially cut further if need be saw the NZ dollar weaken sending exporters Fisher and Paykel Healthcare, A2 Milk, and Fonterra higher. 

 

3 Things Markets Will be Watching this Week

  1. ​​Covid-19 and lock-down news-flow remains key in terms of market moves.
  2. Global earnings will continue to dominate headlines. Companies of note reporting this week include: Alibaba, Tencent, Vodafone, Sony, Honda Motor and Porsche.
  3. Locally, the  RBNZ’s OCR decision along with the latest employment data in Australia are in focus. Earnings from Xero and a quarterly update from CBA will be watched closely. 

 

Have a Great Day,
 

Team

The RBNZ left the OCR unchanged at 0.25% and said they will likely remain at that level until early 2021. Further stimulus is not being ruled out including lowering the OCR further and potentially into negative territory.

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