RBNZ Remains Supportive | Sydney Airport

14 August 2020

Global markets were mostly up overnight, with the US market climbing higher (S&P 500 Index +1.4%) and briefly surpassing its record high close in February intra-day. Technology heavy weights Microsoft, Amazon and Apple were the main drivers for the session boost. The market awaits a new US stimulus bill, and prepares for a closely contested US election following a better than feared second quarter US earnings season which is now largely over.   

Closer to home, New Zealand's Reserve Bank held the official cash rate unchanged at 0.25%, which came as no real surprise. However, the RBNZ announced it will expand its large scale asset purchase program from $60 billion to $100 billion, to keep retail interest rates low, highlighting they would do whatever it takes to protect the economy. 

Judging by the NZX reaction yesterday, the NZ market appears to be pricing in the initial lockdown, but we think there is more downside risk for some covid-19/lockdown sensitive sectors should Auckland's lockdown be extended significantly. We expect around 2 weeks and remain hopeful it is not for a month or longer (like in Victoria). On the plus side, the lockdown so far is only in Auckland and not countrywide which allows the remainder of the country to operate 'relatively' freely with limited restrictions. 

Sydney Airport  (SYD: ASX)

Sydney Airport (SYD) shares were put into a trading halt as it looks to raise $2 billion  from its shareholders, to strengthen their balance sheet as it navigates an uncertain aviation market. This comes as the local market struggles to recover as covid-19 pandemic forced Victoria into a lockdown and with uncertainty around when international travel can recommence. The additional funds are to ensure SYD remains well capitalised to meet current challenges as well as position itself for growth for the future – once international passengers return.

Sydney Airport also reported a net loss after tax of $53.6m for the first half of 2020, driven by material decline in passenger volumes due to covid-19 related travel restrictions which were implemented progressively from February and volumes were down 56.6% from the previous year.

We continue to remain BUY rated on SYD, and would encourage investors to take part in the capital raise

Australia & New Zealand Market Movers

The Australian market was marginally lower on Wednesday (ASX 200 -0.1%), after a weak lead from Wall Street overnight. Gold miners brought the market lower due to a steep drop in the precious metal which had surged to over $2,000 an ounce.

This was offset by strong gains across the wider banking sector, while Commonwealth Bank ended the day a touch lower (-0.5%) after delivering a full-year cash profit of $7.3 billion which was down -11.3% from the previous year after lifting provisions against loan losses due to covid-19.

The New Zealand market started yesterday with a sharp decline reacting to Auckland' lockdown, but managed to offset early losses to end the day down -1.3%. The Reserve Bank announced additional stimulus which should helped soften the blow to the economy, and support financial markets, while the Government talked about a possible extension to the wage subsidy.

Tourism holding was down -7.4% as it said no vehicle pick-ups would be permitted at either of its Auckland locations, but other branches would remain open. Other travel retail and property (with retail exposure) ended the day significantly weaker as expected.

Retirement villages were also hit, particularly those most exposed to aged care with the likes of Arvida group and Oceania Healthcare both down -5.7% and -5% respectively, with tighter restrictions implemented on villages across the country.
 

3 Things Markets Will be Watching this Week

  1. ​​​​​​​​​​​​​​​COVID-19 related news-flow remains key, with second wave and lockdown headlines, while US Congress debate what an extension of stimulus will look like.
  2. Trade tensions between the US and China look to have escalated once again. 
  3. Closer to home, the NZ corporate reporting season kicks off today with Vital Healthcare and Contact Energy the first to announce profits on Monday. The Reserve Bank of New Zealand also makes an interest rate decision.
Global markets were mostly up overnight, with the US market climbing higher (S&P 500 Index +1.4%) and briefly surpassing its record high close in February intra-day.

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