Global markets were higher overnight (S&P 500 +1.4%), adding to gains made on Friday. The US House of Representatives overwhelmingly approved a $US484 billion coronavirus relief bill, funding small businesses and hospitals and pushing the total spending response to the crisis to an unprecedented near $US3 trillion. More US states prepared to ease stay-at-home orders and several major economies edged toward reopening.
For the week ahead, investors gear up for one of the busiest weeks of quarterly earnings reports, including from tech titans Apple and Microsoft. Many companies in recent weeks have pulled their profit forecasts entirely for 2020, and Wall Street analysts are slashing their own estimates. The US Federal Reserve also makes an announcement on Thursday morning (AU/NZ time) .
Despite markets experiencing a spectacular rally since late March (US market +30% off its low) we are still braced for heightened levels of volatility, as the economic outlook continues to remain uncertain. The first peek at 1st quarter GDP for the US and the Euro Area this week could provide investorss with a reality check as to the state of the economy.
National Australia Bank (NAB:ASX)
In an extremely unusual move, National Australia Bank has reported its results to the ASX almost a fortnight early as it seeks an extra $3.5 billion of investment from shareholders. The bank reported a -51% slump in half-year profit to $1.3bn yesterday.
NAB went into a trading halt as it told shareholders that it will raise $3 billion in an institutional placement and $500 million from a retail offer while slashing its dividend 64 per cent to 30¢ per share, as it faces an unprecedented and uncertain environment.
We are cautious towards the banking sector, and lowered our ratings on the banks generally. The economic uncertainty is likley to mean more bad debts for the banks, and low interest rates mean margins are small.
Our sector pick and only BUY rating is Macquarie. Unlike the big 4 Aussie banks Macquarie has a more diversified revenue stream, and we continue to see Macquarie as a top-quality business which should rebound relatively quickly/early in a recovery given their solid asset base.
Australia & New Zealand Market Movers
The Australian market was higher on Friday and yesterday (ASX 200 +1.5%) on the back of global stimulus efforts. Optimism that the economy could start to reopen was given a boost on Monday after Chief Medical Officer Brendan Murphy said the current national rate of fewer than 20 new cases a day was a positive sign for the lifting of social distancing restrictions
Mesoblast surged 41%, extending Friday's rally linked to optimistic clinical outcomes of its cell therapy. Qantas shares rose despite a warning from the competition regulator it would take swift action if the airline engaged in any anti-competitive behaviour, following Virgin Australia entering voluntary administration.
Domino's Pizza shares slumped, after it said more of its stores had asked for support because of the coronavirus economic shutdown. Domain Holdings rallied 18% as the online property advertising business secured an additional $80 million in bank debt on top of $225 million it had previously agreed.
The NZ market (NZX 50 -0.25%) was lower on Friday (closed on Monday for ANZAC day) as investors paused to take stock as they wait to see how conditions develop under alert level 3.
Air New Zealand led the market lower and Tourism Holdings fell 4% as Chief executive Grant Webster said that with no international tourists the industry is facing a 70% to 80% percent reduction in revenue. Infratil was unchanged as Its junior shareholder in Wellington International Airport – Wellington City Council – has agreed to underwrite a $75 million loan facility as part of refinancing efforts for the airport.
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,