Global markets were lower overnight with broad based losses. Energy stocks remained under pressure after oil prices fell for a fourth straight day, while US retailers also reversed as Amazon's Whole Foods detailed plans to cut prices again.
As we touched on yesterday, volatility has been very low this year and there have not been any significant pullbacks/market corrections this year. As such, at the current juncture we do not see a healthy pull-back in markets after an extended period of solid gains across global markets as cause for concern.
While stock markets were down, the US dollar remained well supported after US inflation figures came in near expectations, keeping intact bets that the Federal Reserve will hike US interest rates next month and raising the odds for more hikes early next year.
Stock in Focus: Australian Agricultural Co. (AAC:AX)
Shares in vertically integrated beef producer AAC tumbled yesterday after releasing first-half results which swung to a loss of $37.7 million after marking-to-market and writing down the value of its livestock inventory (given a sharp fall in cattle prices).
Meat sales fell -26% and cattle sales rose 9.1%. The group’s operating earnings (EBITDA) margin also fell to 8.2% which was blamed on higher input costs (including feed) across a business now covering the entire beef supply chain. AAC also flagged other “external challenges” included increased exports from US markets and a higher Australian dollar.
While we are positively positioned towards Australian & NZ agricultural companies, yesterday’s announcement once again highlights a key risk associated with many agriculture exposures being commodity price risks.
We are currently reviewing our High-Risk Buy recommendation on AAC.
Members look out for a full update on AAC to be released in our weekly report.
Australia & New Zealand Market Movers
The Australian share market sold off again yesterday (ASX 200 index -0.58%) marking the fourth-straight day of losses for the ASX, dragged down by losses in the materials sector on lower prices for oil and metals. Miners were especially hard hit after metals prices dropped sharply in the London session leading into Wednesday's trade. Gold miners were the exception, suggesting a "risk-off" aspect to Wednesday's falls after an extended period of solid gains across global markets.
The New Zealand market was more or less flat on Wednesday (NZX 50 index -0.08%) as Genesis Energy and Mainfreight dropped, while Xero recovered somewhat from recent selling. Mainfreight, the transport and logistics group posted first-half results that missed its own expectations. Profit rose to $42.2 million in the six months ended Sept. 30 from $41.8 million a year earlier with sales rising to $1.2 billion from $1.1 billion. The first six months of the year were characterised by strong trading in Australia and New Zealand, and improving results in Europe which were offset by weaker results in the Americas and Asia.
3 Things Markets Will be Watching this Week
- We move into the last US corporate profit announcements, with the level of the market making the current earnings season as important as ever.
- US Politics, with Tax Reform taking centre stage.
- Australian employment data is released on Thursday.
Have a Great Day,
Team