Global stocks were weaker Friday (S&P 500 index -1.3%) closing out the worst week since February as the euphoric run of the re-opening trade in equities hit the wall as tapering talk and the prospect of higher future rates proved a decent handbrake.
Sector rotation continued, with the reflation trade sectors under-performing such as energy and materials, while banks were hurt as earnings could take a hit when the spread between short-term and long-term rates narrows. Surprisingly, technology was the only sector in the green as investors rotated back to the high growth sector.
European stocks were also weaker on Friday, with the Stoxx 600 index down -1.6%, as commodity prices tumbled.
Air NZ (AIR:NZX / AIZ:ASX)
Air New Zealand (AIR) shares were down -0.3% on Friday after providing a worrisome trading update.
For the 2021 financial year (ending 30 June 2021) AIR will report a loss before tax no greater than $450m, and said that despite the trans-tasman bubble it does not expect a meaningful recovery in long-haul travel for 2022 financial year – given the high level of uncertainty created by covid-19 with cases remaining stubbornly high and slow vaccine roll-outs in parts of the world, particularly in New Zealand and Australia.
Since Covid-19 we did not favour Air NZ, and with the recent update we downgrade Air NZ to a SELL on concerns about heavy losses continuing on into 2022 financial year and rise in jet fuel prices also hampering cashflow in low volume period for the airline.
Even with an optimistic recovery in demand and revenue for the 2023 and 2024 financial year, Air NZ looks overvalued to us especially when taking into account the much awaited capital raise to pay down debt incurred to cover covid-19 related losses, and help with their PAYE deferral payment of ~$310m. Cash burn has temporarily been halted but is likely to pick up again and a much needed and significant capital raise is still anticipated in the next few months.
Australia & New Zealand Market Movers
The Australian market inched higher on Friday (ASX 200 index +0.1%) as a recovery in Tech stocks saw the Australian sharemarket report its 5th straight weekly gain.
For the week, the Tech sector was the best performing, followed by healthcare stocks – the former enjoying a strong recovery rally the last few weeks. Major miners were weaker as commodity prices were hit mid-week by the Fed's hawkish announcement and China's measures to tamper prices for some metals.
Coles shares slipped -1.9% after unveiling a $330m step up in capital expenditure for 2022 financial year to accelerate automation at its distribution centres.
The New Zealand market (NZX 50 index +0.1%) eked out a gain on Friday as A2 Milk surged higher.
The beaten down milk marketing company saw heavy volume buying by Australian investors in particular.
Precinct Properties has acquired 2 office buildings in Wellington, which will be funded through a $250m capital raise. The purchases will bolster the company’s development pipeline & lift its weighting in Wellington. Surplus funds from the capital raise provide some capacity to fund other initiatives (viaduct carpark development expected some stage).
Z Energy Shares were up +2.7% following its AGM where it hinted at an improved outlook
3 Things Markets will be Watching this Week
- Key events this week include Bank of England interest rate decision, US GDP numbers, and Fed Chair Powell testifying to Congress on the Covid-19 response and economy
- In Australia there will be retail sales for the month of May and Westpac Consumer Confidence data.
- In NZ, Oceania Healthcare has scheduled its AGM for this week.