Global markets were lower on Friday in quiet trade as the US market was closed in observance of July 4th Public Holiday. European markets were lower amid reports that ECB Governing Council members face a potential rift over how much their emergency-bond purchase programme should stay weighted toward weaker countries such as Italy.
In terms of covid-19 newsflow, US new daily case numbers of COVID19 broke through the 50,000 mark towards the end of last week and on Friday reached a record one-day total, reflecting outbreaks across a number of Southern and Western states.
Closer to home, Victoria in Australia recorded 108 new cases on Saturday, with lockdowns increased across Melbourne suburbs to contain the spread. Hopes for a Trans-Tasman bubble within a few months diminish by the day. This week sees the Reserve Bank of Australia make an interest rate decision on Tuesday. Traders will also be watching Australia-China geopolitical tensions. There are news reports that the Australian government expects further retaliatory tariff increases from China after PM Morrison’s offer of a safe haven to Hong Kong citizens. Following increased tariffs on barley and beef, other products such as milk powder might be included.
Auckland Airport (AIA:NZX / AIA:ASX)
AIA shares have been on a strong run since its capital raise, as AIA strengthened its balance sheet to prepare for a “worst-case scenario”. Soon after, rumours of a trans-tasman bubble encouraged positive market sentiment, with opening the two countries borders up as early as July, and then September which saw its shares surge.
However, this is now optimistic as covid-19 cases in Australia have recently started to rise, as well as a weak operating update from AIA weighing on sentiment – with international passenger numbers averaging 800 per day, less than 5% to what it was 6-months ago (which should have largely been expected).
AIA’s underlying business is in a strong financial position thanks to the capital raise and AIA can comfortably weather any delay in opening the borders due to the relatively low cost nature of the business and supportive level of domestic travel, helping to avoid significant cash-burn.
We continue to remain comfortable with our High-Risk BUY rating on AIA. However, due to its current valuation there are still considerable near-term downside risks. AIA provides upside for medium to long-term investors, however it might be more opportunistic to wait for a dip if covid-19 cases continue to rise in Australia, and our base case is that we are anticipating a potential December 2020/January 2021 trans-tasman bubble opening.
Australia & New Zealand Market Movers
The Australian market added to gains on Friday (ASX 200 +0.4%) but the major bank stocks were mixed, as Westpac admitted to underpaying staff. Westpac has blamed the underpayment of long-service-leave entitlements on "some calculation errors". The bank has pledged to repay approximately $8 million, including interest, to about 8,000 current and former staff, who will be contacted soon.
The healthcare sector rose strongly, led by shares in hearing implant maker Cochlear, which added 5.9% after receiving US Food and Drug Administration approval for four of its products.
On the flip side, shares in building-products company Adbri (which changed its name from Adelaide Brighton in May0 tumbled by 25% as it lost a lime supply contract with Alcoa, which represented $70 million in annual revenue, approximately 40% of the overall lime business and ~5% of group sales.
The New Zealand market was higher on Friday (NZX 50 Index +0.5%) as NZ shares rallied to a 4-month high. There was some profit taking across stocks which had rallied hard last week, such as Kathmandu, Pushpay, and Fisher & Paykel Healthcare.
Outside of the benchmark, Pacific Edge shares more than doubled in value on confirmation of acceptance under a key US medical regulation for its Cxbladder cancer test. The shares jumped 103% to 55 cents from 27 cents on Friday.
3 Things Markets Will be Watching this Week
- Covid-19 newsflow around a second wave and re-opening of economies remains top of mind.
- The Reserve Bank of Australia makes an interest rate decision on Tuesday.
- Trade tensions with China remain a risk to keep an eye on.