Global markets continued the remarkable rally on Friday, despite a record decline in US payrolls for the month as 20.5m Americans became unemployed. However, the unemployment rate at 14.7% compared to the market consensus of 16.0%, not as bad as many feared.
There is a growing divide between the roaring market and weak economy. We believe the key risk is a second wave of infections, particularly in the US as several states appear to be exiting lock-down very early. We remain invested but believe it pays to remain cautious (most easily done by holding higher levels of cash than normal).
Closer to home, the NZ Cabinet will reveal today if the country moves to alert Level 2. An announcement is expected from the PM at 4pm. The NSW Premier has announced easing of COVID-19 movement restrictions. From Friday, cafes and restaurants in NSW will be allowed to have up to 10 customers, and playgrounds and pools will reopen. Meanwhile, WA will ease rules even further around indoor and outdoor gatherings from May 18 and Victoria's Premier will announce any potential easing in the rules today.
Costa Group (CGC:ASX)
Costa Group (CGC) shares have managed to hold up quite well amidst the covid-19 pandemic, with the share price relatively flat after being beaten down in a difficult 2019. CGC released a promising update with the first quarter of 2020 trekking along well – but management are cautious due to economic uncertainty.
Costa delivered a weak result for the 2019 financial year which was understandable given 7 of its 9 categories faced headwinds. This should not be classified as a “normal year” and a “silver lining” being that despite the many difficulties Costa were still able to deliver a positive cash profit. We believe most of these issues should subside, and CGC’s business should be relatively immune as the food sector should continue to perform in a recession with demand remaining robust even in a weak economy.
Taking a medium term view, we still believe the company can recover once the operating backdrop improves and remain BUY rated at current valuation.
Australia & New Zealand Market Movers
The Australian sharemarket rebounded on Friday (ASX 200 Index +0.5%) with retailers buoyant after Prime Minister Scott Morrison and the National Cabinet disclosed a roadmap to reopen the country for business – shares in Myer jumped +45%.
The Australian dollar was trading higher at 65.30 US cents, its highest levels since the coronavirus crisis began in early March.
The NZ market was higher on Friday (NZX 50 Index +0.4%) as stocks exposed to consumer leisure sectors found support with coronavirus restrictions set to ease, led by pay-TV operator Sky Network Television.
Tourism Holdings also added to its winning streak this week, with investors encouraged by lockdown restrictions easing around the world and the prospect of Trans-Tasman travel resuming.
Property for Industry said its balance sheet and cash flow are in a strong enough position for it to continue paying dividends — one of few listed companies to pay out a dividend during the coronavirus crisis. Still, it warned it was still unable to assess the impact covid-19 would have on earnings with a number of tenants requiring rent relief.
3 Things Markets Will be Watching this Week
- Covid-19 and lock-down news-flow remains key in terms of market moves.
- Global earnings will continue to dominate headlines. Companies of note reporting this week include: Alibaba, Tencent, Vodafone, Sony, Honda Motor and Porsche.
- Locally, the RBNZ’s OCR decision along with the latest employment data in Australia are in focus. Earnings from Xero and a quarterly update from CBA will be watched closely.
Have a Great Day,