The return of Covid-19 to Auckland and the Level 3 lockdown are expected to hit hospitality and retail stocks, and play a part in the Reserve Bank’s new Monetary Policy Statement

Sharemarket likely to take a hit

The New Zealand sharemarket is likely to take a hit when it opens this morning in the wake of four cases of community transmission being discovered in Auckland requiring the city to return to Level 3 lockdown from midday today until midnight on Friday. The rest of the country will move to level 2. Bars will once again be forced to close while restaurants will have to revert to serving takeaway meals only. Companies such as Restaurant Brands, Air NZ and Auckland Airport are all expected to open weaker, while retailers, unexpectedly forced to close for three days will also come under pressure, and this will impact businesses such as the Warehouse Group, Kathmandu and Briscoes. The New Zealand dollar fell almost a cent against the US dollar following news of the Level 3 lockdown being reimposed in Auckland but erased some of those loses a short time later.

Reserve Bank monetary policy statement today will be closely scrutinised

Reserve Bank Governor Adrian Orr will take centre stage today to deliver the bank’s latest Monetary Policy Statement amidst a resurgent NZ dollar, slowing economic momentum, the end of the Government wage subsidy and now a re-emergence of Covid-19 in Auckland. However, a lift in electronic card spending in July (below) suggests consumers haven’t been feeling entirely pessimistic up until now, though that may change in the wake of developments in the past 24 hours. While the OCR will remain on hold, the central bank is widely expected to announced an increase in its program of Large-Scale Asset Purchases (LSAP). 

Fletcher Building delivers more bad news

Fletcher Building investors might be wondering if the bad news will ever stop following the company’s decision yesterday to pre-announce a $196 million net loss it expects to report next week for the year ended June. This compares to a profit of $164 million profit in the previous year.

The loss, which is still subject to final sign-off by its auditor and approval by Fletcher’s board, includes “significant lost revenues, especially during the New Zealand lockdown and start-up period, lower productivity leading to additional provisioning on the legacy construction projects, and one-off restructuring costs as the company prepares for reduced market activity,” the company said in a statement.

The restructuring will include 1,500 jobs being cut in what it calls “tough but necessary decisions” to right-size the business.

The company has incurred significant losses on a number of high-profile projects including the Christchurch Justice & Emergency precinct, the SkyCity international convention centre and hotel and the Commercial Bay project at the bottom of Auckland’s Queen Street, which opened recently.

Fletcher expects to report pre-tax earnings of $310 million for the year ended June 30 and cash flows from operating activities of $410 million, well below its February full year ebit forecast of between $515 million and $565 million.

CEO Ross Taylor said an additional $150 million of construction provisions have also been included in the result. Taylor said around 50 percent was due to reduced productivity on key legacy projects that were disrupted by Covid-19, 20 percent related to “issues which have arisen on a handful of historically completed projects,” and the final 30 percent was “a prudent risk provision across our portfolio of legacy work.”

Despite the bad news, Taylor said the company remained in a strong position – a sentiment investors seemed to share. Despite falling more than 3 percent at the open, Fletcher sharers ended the day up 1c at $3.50

Record July for hospitality spending

Hospitality venues will be celebrating a record July according to the latest electronic card spending data from Stats NZ. The increased level of business will be welcome news for a sector that has faced difficult times during the period of the lockdown.

While accommodation spending was down $30 million, or 16 percent, compared with July 2019, retail card spending at hospitality venues bounced $62 million, or 5.9 percent, compared with the same month last year. It’s the largest dollar value spent on hospitality for a July month since the series began, Stats NZ said.

Overall, retail spending using electronic cards reached $6 billion in July, up $610 million, or 11 percent, from July 2019 and is up 6.3 percent year-on-year.

Durable goods, including furniture, hardware, and homewares, led the rise, up $259 million, or 20 percent, on the year while spending on consumables was up $245 million, or 12 percent, compared with July 2019.

Economists have warned the bounce may be short lived if unemployment begins to pick up following the end of the wage subsidy.

ANZ Truckometer suggests broad economic pickup

ANZ’s latest Truckometer, which monitors traffic flows as an indicator of economic activity, confirms a broad general pickup. Light traffic (cars) in July was almost 10 percent higher than the same month the previous year, while heavy traffic (freight) increased more than 10 percent on levels a year-ago. ANZ commented that while it was encouraging to see both indexes bounce back so strongly, heavy traffic likely reflects a degree of restocking while light traffic could probably be attributed to enthusiast domestic holidaymaking during the school holiday period. However, ANZ noted it is too early to draw conclusions about where the data will settle in trend terms.

Russia claims to have first effective Covid vaccine

Russian President Vladimir Putin is claiming line honours in the bid to develop the world’s first effective coronavirus vaccine, even saying his own daughter has taken it, according to Russian media reports. Putin said the vaccine has passed all necessary tests and worked very effectively.

At the end of July, the World Health Organisation (WHO) said there were 26 candidate vaccines in the clinical evaluation stage, including the one registered in Russia that was developed by the Gamaleya Scientific Research Institute of Epidemiology and Microbiology.

Russia has denied that it is part of an “arms race” to develop a vaccine, saying it wants to cooperate with other nations. However, despite the Putin’s claims there is some scepticism that Russia has developed an effective and safe vaccine and no evidence the claims have been independently verified.

Hong Kong residents rally to support arrested media tycoon

Support for arrested Hong Kong media tycoon Jimmy Lai, the publisher and outspoken government critic who was taken in for questioning by authorities on Monday under the city’s new national security law, has found a new and unexpected form – the stock market. Hong Kong investors have been piling into shares of his media company, Next Digital Ltd. The result: a more than 1,100% surge in two days that propelled the stock to a seven-year high.

The record gain, organized via online forums, underscores the challenge Chinese and Hong Kong officials face as they try to stamp out the city’s pro-democracy movement. Residents are turning to alternative forms of protest after policy makers curtailed public demonstrations with social distancing restrictions and the national security legislation.

Since 2012 when Next Digital shares traded at HKD$1.80 they had fallen to a low of just 10c in recent weeks. The rally has pushed the company’s share price back above HKD$1 and its market value has surged by more than HK$2.6 billion ($335 million).

Lai’s supporters are also finding other ways to show solidarity. Local Hong Kong media reported residents lining up to buy copies of his flagship newspaper Apple Daily this morning. The newspaper said in a Facebook post it increased printing to 550,000 copies on Tuesday due to surging demand, versus around 70,000 two weeks ago.

Andrew Patterson is Newsroom's Markets Editor and has worked for decades as a financial journalist, radio presenter and editor with Australia's ABC, Radio Live and NBR.

Leave a comment