Global markets were higher on Friday after the US market (S&P 500 +0.4%) swung between gains and losses as investors weighed worries about China-US trade relations and weaker-than-expected US economic data (retail sales) against growing optimism that easing coronavirus restrictions would see activity recover.
US president Donald Trump has reignited fears of renewed trade tensions with China after saying he had no interest in speaking to Chinese President Xi Jinping right now. Mounting tension between the world’s two largest economies has investors concerned about an even deeper global recession.
Markets have rebounded strongly, and it is likely that the global economic recovery will be much slower given covid-19 related restrictions and the threat of a second wave of infections before a vaccine is available.
We remain cautious on markets generally, but believe Australia & NZ are better placed to outperform than most major markets as we have controlled the covid outbreak, there has been a significant policy stimulus response, potential for a Tran-tasman bubble, and nature of exports of both countries (food, iron ore) with a reliance on China.
Fonterra (FSF:NZX / FSF:ASX)
Shares in Fonterra have edged lower since our last
report but it is somewhat promising to see their efforts to restructure the business is showing benefits with improved earnings, and asset sales helping to lower debt which had been a concern. It is unfortunate timing that with this turnaround result under normal conditions (if there was no covid-19) Fonterra could have recommenced their dividend payments to non-farmer shareholders.
At current valuations and under normal conditions we would consider changing our rating on Fonterra. However due to uncertainty from covid-19 we would prefer to remain on the side-lines with our HOLD recommendation, and see some certainty regarding Fonterra’s operating performance through covid-19. Especially as trading conditions (overseas) are likely to remain challenging.
Australia & New Zealand Market Movers
The Australian market rallied on Friday (ASX 200 Index +1.4%). Commodity and energy producers were leading the market after Saudi Arabia surprised traders by announcing a unilateral cut of an additional 1 million barrels per day, taking its oil output to the lowest level since 2002.
The materials sector jumped more than 3% with gains between 2-5% for the big players such as Rio Tinto, BHP, and Fortescue, helped by news that Chinese industrial production was recovering from the coronavirus lockdown
GrainCorp had the biggest non-mining, jumping 7% on Friday on a better-than-expected first-half profit result.
The New Zealand market was a touch lower on Friday (NZX 50 -0.13%) as investors paused to digest the extra support from the government and Reserve Bank announced last week and what it means for the economy.
Vista Group International rose, likely benefiting from its customers, cinema operators, returning to work this week throughout Australasia. Similarly, SkyCity Entertainment Group increased as investors anticipated activity getting underway again. On the flipside, tourism exposures Air New Zealand and Tourism Holdings continued to sell off – with a disappointing amount of support for the sector in the budget announcement. Tourism Holdings CEO was in the weekend press suggesting there are no plans to raise capital, albeit didn’t rule it out completely.
Pushpay continued to surge to fresh all-time highs. Outside the benchmark index, Michael Hill International fell after it announced it would not reopen nine of its 300 stores, with more closures likely.
3 Things Markets Will be Watching this Week
- Covid-19 and lock-down news-flow remains key in terms of market moves.
- China-US tensions. The National People's Congress meeting in China will commence on Friday. The meeting is the Chinese Government's platform to outline its economic growth targets and management plan for the year ahead.
- Locally, earnings are due from James Hardie, Aristocrat, Property for Industry and Argosy Property.
Have a Great Day,