Global markets were mixed on Friday with US stocks little changed ahead of a holiday weekend, although major indexes snapped a two-week streak of losses.
Interestingly, the price of gold has moved to its highest level of the month, lifting prices for a third week in a row as a fresh round of geopolitical jitters offset expectations for higher US interest rates (which all else equal reduce the attractiveness of gold as an investment and are negative for the price of gold). Investors were watching North Korea, the coming UK elections, and developments surrounding the Trump administration—all helping to boost gold’s appeal as a hedge against uncertainty.
As we have highlighted in the past, we believe the next leg will be lower for gold as US interest rates move higher – making it more “costly” for investors to hold gold, and continue to have a negative outlook for the gold price.
In terms of stock news, shares in Select Harvests (SHV.AX) fell sharply on Friday as the 3rd largest global almond producer confirmed its 2017 almond crop was lower than prior expectations.
Stock in Focus: Select Harvests (SHV.AX)
SHV fell sharply on Friday as it released an update on its 2017 almond crop. We had noted in our previous report that SHV had highlighted that their forecast crop was expected to be 5-10% below prior expectations, mainly due to a higher “blank nut” percentage on the back of milder growing conditions in spring and early summer. Friday’s announcement confirmed the concerns and was at the lowest end of expectations.
After processing approximately 60% of the 2017 crop, the crop estimate has been reduced to between 13,500 and 14,000 metric tonnes. While this is the second-largest crop in its history, it falls well short of its half-year forecast of 16,000 metric tonnes.
Management does not expect to offset this decline with higher prices as about 60% of sales commitments are already locked in. In terms of an almond price update, the estimate for the year has been revised to between $7.50 and $8.00 per kilo, compared to its prior estimate of $7.70 per kilo.
Overall it is likely that full-year earnings will be materially impacted. While the announcement was disappointing, clearly such risks are an unavoidable feature of Agriculture investments.
We are currently BUY rated SHV as a High Risk Investment.
Members should look out for a full update on SHV to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market was lower on Friday (ASX 200 index -0.65%). While the ASX narrowed its weekly gain on Friday, the market was up +0.4% for the week with most sectors trading in the black over the five sessions. Last week we discussed the challenges currently facing the retail sector. Interestingly retailers in Australia are heading into the so-called half yearly clearance sales a month earlier than they have before.
The New Zealand market was slightly higher on Friday (NZX 50 index +0.1%) led by Fisher & Paykel Healthcare and Sky Network Television, while Ebos and Metro Performance Glass fell. Sky TV and Vodafone New Zealand have detailed their appeal against the Commerce Commission's decision blocking their merger, arguing the regulator was mistaken to find the combined group would substantially lessen competition, and the ruling should be reversed.
3 Things Markets Will be Watching this Week
1. Whether market calm persists and if the US market hits new all-time highs.
2. Important monthly US manufacturing and employment data is released at the end of the week.
3. The Reserve Bank of New Zealand releases its financial stability report on Wednesday.
Have a Great Day,
Team