Global markets finished the week on a positive note, as US markets (S&P 500 +0.2%) closed at record highs on Friday following a stronger-than-expected jobs report, while investors shrugged off concerns over the Delta variant impacting a nascent economic recovery.
Positive US jobs data pushed cyclical stocks higher (Financials led gains +2.0%), while rising bond yields saw growth and defensive stocks underperform. Nonfarm payrolls increased more than economists expected (+943,000 jobs were added for he month versus estimates of +870,000) and the US unemployment rate dropped to its lowest level (5.4%) since the start of the pandemic. The question for the market is whether “substantial further progress ” in the labour market, which the Fed is looking for as a precondition for tapering its bond buying, might be met sooner than the end of year timetable suggested by Fed Chair Powell.
On the back of the data, US interest rates rose, the US dollar strengthened, and Gold fell given its sensitivity to both interest rates (interest rates are important as cash is the opportunity cost of holding gold) and the US dollar in which gold is usually priced (gold chart below).
The Stoxx 600 closed flat on Friday, with strong gains from positive corporate results muted by weak industrial data. Germany’s industrial output unexpectedly fell -1.3% m/m in June as supply shortages hamper the manufacturing sector.
Auckland Airport (AIA:NZX / AIA:ASX)
Auckland Airport this morning announced plans to launch the development of a new domestic terminal and combine the current domestic & International terminals.
The new domestic terminal development to be launched in early 2022, there will be enabling capital expenditure (capex) only in this year. The total capex NZ$1bn in today’s dollars, will be built over five years.
The plan will utilise the under-utilised international terminal to process domestic passengers. Utilising international terminal capacity results in less operational disruption. This plan is broadly in-line with the previous capex plan, the key change is to make the terminal more integrated versus the prior plan which is better described as being adjacent. Importantly, the timing of capex will align with the international passenger recovery profile. While this seems like a sensible move, the announcement is unlikely to materially impact AIA shares.
We currently have a HOLD rating on AIA.
Australia & New Zealand Market Movers
The Australian market (ASX 200 +0.4%) experienced a late surge on Friday to reach a record close. The market traded flat for most of the day after Victorians joined millions of people in NSW and southeast Queensland in COVID-19 lockdown.
Technology shares fared best and were up 2.07 per cent.
Positive comments from the Reserve Bank’s Governor on the strength of the economic recovery outweighed weakness in heavyweight miners as iron ore prices continued to sink. Afterpay jumped +5.5% after the share price of its US acquirer Square bounced.
ResMed inched forward +0.2% after posting strong revenue figures. The RMD full year 2021 result beat versus expectations on higher than expected Device sales due to the Philips product recall. RMD is expecting incremental device revenue of US$300-350m in 2022 as a result of the Philips recall, however the company did not provide margin guidance but higher devices sales and elevated freight costs should have a negative impact
The New Zealand market was a touch higher on Friday (NZX 50 Index +0.1%) but continues to lag global markets this year.
Shareholders in the country’s only refinery voted Friday to convert the crude oil processing plant into an import terminal for refined fuel. Shares in New Zealand Refining were up 1.2% but still down 45% from before the pandemic. Chief executive of Z Energy (one of NZ Refinings biggest customers) Mike Bennetts welcomed the vote saying it will unlock operational and financial opportunities for the company. “It will mean a significant reduction in our working capital as we will hold less crude and will mean reduced earnings volatility from no exposure to refining margins meaning greater investor confidence,” he said.
Fuel retailer Z Energy, which owns a 15% stake in the refinery, saw its shares jump 5.5%, its highest share price since January, although still down a third from pre-pandemic levels. Takeover speculation continues to remain around the stock – Vitol and Ampol are the most likely suitors circling Z Energy according to The Australian while PetroChina and Swiss multinational trading company Trafigura are also possible buyers. Sources say approaches may have already been made.
Briscoe Group also saw its share price jump, up 4.4% to $6.00, after it said first-half net profit will be at least $46 million while reporting a 22.6% increase in first-half sales. The homewares and sporting goods retailer's net profit for the previous first half was $28m, although impacted by the lockdown which closed stores for 50 days.
3 Things Markets will be Watching this Week
- Highlights this week include the latest inflation prints in the US and China.
- Earnings season across Australasia kicks into gear. Key names reporting this week include Aurizon, Suncorp, Transurban, Challenger, CBA, Computershare, James Hardie, IAG, Mineral Resources, Orica, ANZ Q1, AGL Energy, AMP, Downer, Goodman Group, Mirvac, QBE, Telstra and Precinct Properties.
- Ongoing commentary and reactions to the COVID delta variant remain in the headlines.
