The S&P/ASX 200 (INDEXASX: XJO) index is expected to open higher today, with Qantas (ASX: QAN) and Macquarie Group (ASX: MQG) shares in focus. Here’s what you need to know…
Turbulence ahead?
It was another bumpy day for investors on Thursday with the ASX200 following global markets lower and falling by 2.5% as global infection rates and the threat of the re-imposition of restrictions increased. Banks (-3.1%) and energy (-4.4%) were hardest hit with the latter once again seeing storage sites near capacity at a time when demand may reduce once again.
Despite that, as previously mentioned, the huge amount of cash on the sidelines means any dips will be following by strong buying, with the S&P 500 recovering 1.1% overnight.
The banking sector benefitted from a further loosening of legislation expected to support more lending. Wells Fargo & Co (NYSE: WFC) stock rallied 4.8% and Macquarie Group Ltd (ASX: MQG) shares are also likely to benefit.
Healthcare bucked the market trend with CSL Ltd (ASX: CSL) adding 0.6% after announcing the $450 million acquisition of a late-stage gene therapy business, and ResMed (ASX: RMD) shares hitting an all-time high as its pivot into the production of ventilators continues to pay dividends.
Capital lift-off
Qantas announced a capital raising and successfully collected $1.6 billion from institutional investors. The issue price of $3.65 was just a 12% discount to the last traded price, which can only been seen as a coup for management. This comes despite the company noting just four weeks ago that they would not need any capital…
As part of the announcement, Qantas confirmed that international flights would not return to normal until July 2021 and that a further 6,000 jobs would be lost as they seek to cut $1 billion in costs. Opportunistic is the best word for this capital raising and in my view, the discount was insufficient for the heightened risk of the business model post-COVID.
The retail world once-again remains strong with online marketplace Redbubble Ltd (ASX: RBL) bouncing 25% after confirmed that quarter to date revenue had increased 109% and earnings just over 100% to $11.9 million.
Similarly, Athlete’s Foot owner Accent Group Ltd (ASX: AX1) shares rallied 9.5% after confirming its earnings would be 10% higher following a 150% hike in digital sales in June. Whilst it is great news, walking around the Melbourne CBD I can’t escape the feeling that fewer people will be buying shoes when the JobKeeper program ends, and we understand the real implications of this pandemic.
Aussie GDP at cruising altitude?
Overnight, the IMF has upgraded their global growth forecasts for the rest of 2020, predicting the Australian economy will contract by 4.5%, less than the 6.7% tipped earlier. Whilst far better than the negative 8% in the US and negative 10% in the UK, it’s yet to be seen what impact China’s renegotiation will have on our economy.
The global jobs market remains under pressure with Australia confirming a 43% reduction in job vacancies — unfortunately, it’s not because the jobs were being taken, but because they simply don’t exist anymore.
Similarly, the first-time jobless claims in the US remained elevated at 1.5 million for the week ended June 20. Neither statistic bodes well for the domestic property market and companies like Lend Lease (ASX: LLC) or Mirvac (ASX: MGR) in particular, especially after for sale apartment listings increased close to 40%, which in my view will put pressure on prices. It only takes one forced seller to drop the value of an entire building.
This report was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.
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