Global markets sold off overnight as political turmoil in the US whipsawed shares after a report said Democrats would announce a formal impeachment inquiry amid the Ukraine controversy. Trump said he would release a complete transcript on Wednesday of his July 25 phone call with Ukrainian President Volodymyr Zelenskiy, which is the subject of a congressional investigation and a whistle-blower complaint from an unidentified intelligence official. The news adds another political risk for markets at the current juncture, adding to trade war news flow and Brexit drama.
The US Tech sector was also weaker after Trump made negative remarks about the growing power of social media platforms, a signal to some investors that the industry could soon face extra scrutiny from federal antitrust regulators.
Stock in Focus: Qantas (QAN:ASX)
Qantas shares have been trending upwards recently however in a turbulent manner due to volatility in oil prices more recently caused by the drone attacks on Saudi Arabia's Aramco production plant. Prior to that Qantas shares have been trending upwards after delivering a sound result for the 2019 financial year, despite dealing with a number of headwinds as the market continues to react positively to Qantas’ shareholder friendly management announcing another share buyback which will only improve shareholder returns going forward – improving investor sentiment towards the business despite challenging conditions.
Qantas was able to lift revenues by +5% to $15.7 billion to offset higher fuel costs (but not enough to offset other cost increases), due to efficient capacity management, while unit revenue grew due to robust demand as well as easing competition capacity on international routes (due to a high fuel cost environment).
We see QAN as continuing to benefit from stable tourism. However, if fuel prices were to continue to rise and demand weaken this can dramatically hurt QAN’s margins and for this reason we have a high-risk caveat (given factors outside of QAN’s control).
We currently have a BUY (High-Risk) rating on Qantas.
Members should look out for a full update on Qantas to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian market was virtually flat yesterday (ASX 200 Index -0.01%) in quiet trading, with a fall in base metal and oil prices pushing resource stocks lower while Banks and healthcare stocks were in positive territory. Treasury Wine Estates declined after chief executive Michael Clarke told investors that Treasury was very conscious of the political situation as tensions over China grew.
The New Zealand market was lower on Tuesday (NZX 50 Index -0.1%) as A2 Milk hit 7 month low. The milk marketing firm has been on the back foot since China Mengniu Dairy Co announced a A$1.5 billion takeover bid for Bellamy's Australia, raising concerns by some of the emergence of a tougher competitor for A2. Summerset Group rose after the retirement village operator said it’s proceeding with its Australian expansion plans with the purchase of land in Melbourne.
Tower shares were lower as it said it will raise $47.2 million at a discount, of which less than half will go towards buying controversial minnow Youi NZ and the rest will bolster the insurer's balance sheet to meet new licencing conditions.
Z Energy has warned petrol stations could close at the rate of "one of week" if the Commerce Commission intervenes in the fuel market. The Commission will publish its final report into the fuel market by 5 Dec.
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,