OPINION: In a week that was interrupted by some government announcements regarding the alert settings, the kiwi market managed to make a small gain (0.6%) over the five sessions.
The big government announcement on Friday elicited a moderately receptive reaction from investors initially, before the index eventually closed that day.
Certainly, one announcement that was warmly welcomed was the agreement in principle on a free trade agreement with the United Kingdom. This is great news for our exporters as tariffs are being phased out in some key sectors.
While it will be some time before tariffs are completely removed (five years for dairy, 15 years for sheep and beef), the deal with our seventh trading partner is timely and will boost the economy. of nearly a billion dollars.
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However, while the new ‘traffic light’ system gives some certainty under what circumstances (90% of people vaccinated) the current restrictions will be relaxed, the exact timing remains unknown – especially since this is a vaccination milestone to date matched by very few countries (Ireland for one) in the world.
Additionally, there has not been a gradual reopening with lower threshold milestones, as has been adopted by some states across the divide. This may also be why it did not receive a flashing green check mark from the Marketplace.
An increase in financial support to affected businesses has been positive (not so much for future taxpayers), but some sectors will always wonder when they will return to some sort of normalcy.
The travel and tourism sector is not the least. It will be interesting to see what Air New Zealand management has to say about this at the company’s annual meeting on Thursday. The prospect of having several regions in different contexts must surely complicate the wider recovery of domestic travel.
Meanwhile, international travel still seems far away. It was then that across the Tasman, Qantas is expected to resume flights between Sydney (for the vaccinated) and destinations such as LA and London from next month.
Companies in the New Zealand travel industry have had to be extremely adaptable and this was illustrated by management’s comments at the Auckland Airport Annual Meeting last week.
The scale of what the company has faced is reflected in the fact that passenger numbers last month were less than half of 55 years ago when the airport opened. . However, airport shares had a good week (+ 5%).
With the rest of the world reopening, investors may now be starting to believe that air travel will recover strongly over the next two years – the International Air Travel Association predicts a full recovery in 2023.
While the airport expects it to take “a little longer”, it is well put to use for this scenario anyway. Airport management believes Covid is here to stay, but we can all live with it thanks to high levels of immunization.
We’ll get a better idea of ââhow businesses perceive the current operating conditions and prospects for reopening, across a multitude of industries this week.
No less than 15 main board companies hold their annual meetings (albeit virtually), including other names such as Port of Tauranga, Genesis, Chorus, Sky City and Freightways.
It will be a useful temperature monitor on the state of the economy – just like ANZ Bank’s annual figures, which are due on Thursday and which should reflect high levels of lending activity in a strong housing market, an economy. momentum and lower borrower stress levels than expected a year ago.
Comments regarding the impact of the recent increase in OCR and efforts to cool the housing market will be closely scrutinized.
Supply chain challenges also remain a big headwind (and tailwind in the case of commodities) for many companies, and it’s a problem in most industries globally.
It’s something that even the world’s largest computer chip maker has to contend with. Intel shares fell nearly 12% on Friday as the company warned that an industry-wide component shortage was hurting its PC chip business, and despite strong demand due to the theme of home stay.
The company doesn’t expect the semiconductor shortage to end before 2023.
Another beneficiary of the pandemic who is faring a little worse off is Snap, which fell 26% after the social media company warned that privacy changes on Apple’s IOS could hurt revenue. advertising. Other advertising-dependent tech companies have weakened in sympathy.
It’s a big week for the tech industry in the United States, with Apple, Alphabet, Facebook, and Amazon all paying off. Any disappointment will likely be treated harshly given their high valuation bar.
Indeed, the profit bar is set high for US companies in general, ahead of a week where 30% of the S & P500’s components will return, along with a third of the Dow and blue-chip names such as Boeing, Caterpillar, Coca-Cola. and McDonald’s. Merck.
This will be a big litmus test for the markets, as the S & P500 and the Dow hit new highs last week. So far, US corporate profits are expected to increase by around 35% from last year. It is a risk for the markets.
That said, the U.S. companies that have reported so far have done it with flying colors – 84% have exceeded estimates, according to Refinitiv.
Be careful, the air of expectation of these companies is nothing compared to a certain SPAC (Special Purpose Acquisition Vehicle) which has been associated with the return of Donald Trump on social networks.
Digital World Acquisition Corp (DWAC) doubled on Friday and rose 800% in two days after it was revealed it was going public with the former president’s new social media platform.
Trump last week announced a deal to list Trump Media & Technology Group via a merger with DWAC, as the former president (banned by Facebook and Twitter) seeks to return to social media airwaves – albeit via a platform he owns.
PSPCs were the epitome of the memes-driven exuberance in the United States and have come to be known colloquially as blank check companies. At least this one has a business concept (sort of), even though there’s no income.
The next GameStop? Some on Reddit would say so. A full bet? Very probably. Definitely not one for the faint-hearted or risky downpours.
– Greg Smith is Head of Retail at Devon Funds Management, visit www.devonfunds.co.nz.