Global markets sold off overnight (US market S&P 500 -2.6%) experiencing one of its heaviest falls in two-weeks as a continued surge in US covid-19 cases intensified the fears of another round of government lockdowns and economic damage.
Investor sentiment is very fragile at the moment, and had previously overlooked recent surge in covid-19 cases on the belief further lockdowns were unlikely, focusing largely on better than anticipated economic data. However the recent rise in infections has begun to flare up in States where restrictions have been lifted early, and there is a risk that more drastic containment measures will come at the cost of economic activity.
Closer to home, the RBNZ has kept the official cash rate on hold at 0.25%, and will continue with a large scale asset purchase programme aimed to keep interest rates low for the foreseeable future. The RBNZ said it would be prepared to provide additional stimulus as necessary and expressed concern at the high level of the NZ dollar.
Metro Performance Glass (MPG:NZ / MPP:AX)
Last week shares in Metro Performance Glass (MPG) shares slid after reporting a -$77.9m net loss after tax for the 2020 financial year (down significantly from previous year net profit of tax of $5m), due to an $86.5m impairment of intangible assets due to the softer outlook for New Zealand construction created by covid-19.
However normalised operating earnings (EBIT) came in at $21.2m, on the bottom end of guidance with lower earnings from NZ operations, due to weaker commercial revenues, offset by Australia beating expectations achieving revenue growth for the year and positive earnings in the second half. Cashflow continues to remain positive and MPG were able to reduce net debt further by $16.5m.
We downgrade MPG to a HOLD, due to the difficult outlook ahead.
Australia & New Zealand Market Movers
The Australian market (ASX 200 +0.2%) edged higher again yesterday after a positive lead from Wall street, as investors balanced signs of a recovering global economy with trepidation over a rising number of covid-19 cases in Victoria, as well as other places around the world adding caution to markets. The major miners which are linked to global economic activity were all up, as well as being helped by positive upgrades from analysts confident they would meet their guidance.
There are reports Qantas has called its bankers to consider its liquidity position considering a range of options on the table include an equity raise to strengthen the balance sheet as it waits for international travel to recommence. Woolworths and Coles are reintroducing purchase limits in Victoria after a spike in covid-19 cases in the State triggered panic buying in some Melbourne suburbs
The New Zealand market rose on Wednesday (NZX 50 Index +1.1%) after RNBZ's comment to keep interest rates low spurred investors to snap up income stocks with attractive dividends in an extremely low interest rate environment, particularly the utilities and property companies with more secure revenue.
Stride Property led the market higher (+8.3%) after announcing its made plans to maintain its dividend payments. A weaker NZD saw the major exporters A2 Milk and Fisher & Paykel Healthcare rally, as well as Pushpay, which continued on its remarkable run. Travel stocks sensitive to a rise covid-19 cases delaying a return to business as normal for them saw those stocks close lower.
3 Things Markets Will be Watching this Week
- Covid-19 related news flow remains top of mind.
- The Reserve Bank of New Zealand June OCR Review takes place on Wednesday, with the market not expecting too many surprises.
- In the US there will be a release of Q1 GDP figures and the Fed is scheduled to release results of its annual stress tests on the largest US banks.
Have a Great Day,