Global markets were mixed overnight (S&P 500 -0.5%) with profit taking on the large tech names and healthcare stocks, while more economically sensitive stocks which had suffered the most rallied on the back of US state by state easing of shutdown restrictions. There are concerns covid-19 cases could increase or create a second wave of infection if economies open too up too quickly. Policy makers need to be wary of opening economies in a restrictive and safer manner.
European markets were stronger, as several major economies (which were hit early) moved to loosen restrictions, while oil prices (an indirect indicator of economic activity) continues to remain soft as demand remains at almost stagnant levels.
Markets have experienced a spectacular rally since late March, however we are still braced for heightened levels of volatility, as the economic outlook continues to remain uncertain.
Aristocrat Leisure (ALL:ASX)
Gaming company Aristocrat Leisure (ALL) jumped +4% after announcing a well received covid-19 trading update.
As expected all land based operations have been suspended due to closures of public spaces like casinos. However, its digital business which normally accounts for ~40% of group revenue continues to perform strongly over recent months with higher booking and player engagement across most of the portfolio. ALL also added cost reduction measures which will save approximately ~$100m and continue to maintain a sound balance sheet with access to $1 billion of liquidity.
We maintain our BUY rating on Aristocrat and had included it in our Covid-19 top 10 recovery stocks as s play on Casino's reopening, with digital earnings offsetting significant cash burn in the interim.
Australia & New Zealand Market Movers
The Australian market closed a touch lower yesterday (ASX 200 -0.22%) with another dip in oil producers, while miners were also weak as production levels were impacted by covid-19 with increased safety precautions required.
Financials were also a poor performer, led by NAB down -2.8% after returning to trade following their capital raise and dividend cut. Westpac shares rose slightly after announcing a more realistic $2.2 billion impairment charge, which includes $1.6 billion directly related to covid-19, possibly ruling out a capital raise and the bank is yet to make a decision on their upcoming dividend payment.
The NZ market (NZX 50 +3.3%) climbed strongly after missing out on action on Monday.
The number of covid -19 cases remain in single digits over the last few days suggesting a switch down to level 2 may come sooner than anticipated.
Steel and Tube shares were down after announcing it will reduce activity materially due to challenging market conditions, planning to cut 150 to 200 jobs as it restructures operations towards moderate regional levels.
3 Things Markets Will be Watching this Week
- Covid-19 and lock-down news-flow remains key in terms of market moves.
- US investors gear up for one of the busiest weeks of quarterly earnings reports, including from tech titans Apple and Microsoft. Closer to home, ANZ will continue a much anticipated reporting season for the banks with its 1st half result on Thursday.
- The US Federal Reserve makes an announcement on Thursday morning (AU/NZ time).
Have a Great Day,