Global markets were lower on Friday after the first wave of US earnings failed to meet investors' high expectations. Investors appeared to opt for the side-lines going into the weekend, ahead of Saturday morning's coordinated missile strike against Syrian government targets as well as the yet to be resolved US and China trade spat.
As we touched on last week, investors will likely turn their attention to the latest round of US corporate results which will be key to supporting equity markets. Expectations are high, with S&P 500 (the major US market index) companies' earnings forecast to rise 18.5% in the quarter ended March 31 according to Thomson Reuters I/B/E/S data – the highest in seven years. On Friday JPMorgan (which reported record income and revenue), Citigroup and Wells Fargo reported higher quarterly results though their shares fell as they missed market expectations.
Stock in Focus: Fletcher Building (FBU:NZ / FBU:AX)
Fletcher Building (FBU) shares jumped +8.6% on Friday as the Sydney Morning Herald cited sources close to Wesfarmers as saying it had bought between 3% to 4% of FBU and may be considering a full takeover. A 4% holding would be about 27.9m shares and while there have been no trades of that size this year, a stake could have been built up gradually.
A potential bidder can increase its holding to 4.9%, before hitting the threshold of 5%, the maximum holding before it must be disclosed. In any case, the rumours have seen a positive share price reaction as it shows that a large investor could be seeing value in FBU shares at current levels.
In terms of other recent news, the refinancing of FBU’s US debt is not going as smoothly as expected, and at the end of April there is set to be a reweighting of the MSCI (global equity index) – as it currently stands FBU will leave the MSCI index which will likely see fund outflows.
While we believe FBU offers value for longer term investors as it exits out of its problematic Building + Interiors (B+I) unit, we have been waiting to see some positive signs before becoming more positive on the stock.
We currently have a HOLD recommendation on FBU.
Members should look out for a full update on FBU to be released in Wednesday’s weekly report.
Australia & New Zealand Market Movers
The Australian share market was higher on Friday (ASX 200 index +0.23%) as shares experienced a positive week, with miners leading the market higher as trade tensions eased between the US and China. Major miners BHP and Rio Tinto were among the standouts, experiencing positive moves every day last week. In company news, Pay-TV company Foxtel and the free-to-air Seven Network on Friday won a bidding war for television and digital cricket rights in Australia, signing a deal worth almost Aus$1.2 billion.
The New Zealand market was in positive territory on Friday (NZX 50 index +0.13%) with much of the gain driven by Fletcher Building shares, which lifted on a report Australia's Wesfarmers has taken a small stake. Mercury NZ led decliners and A2 Milk fell on concerns it could be hurt by rivalry in sales of dairy products with the A2 protein variant. Outside of the index, Metro Performance Glass jumped on the back of a broker upgrade and as the ACC lifted its ownership stake from 5.3% to 6.6%.
3 Things Markets Will be Watching this Week
1. Corporate earnings season has kicked off in the US, with the major banks being first to announce quarterly profits.
2. Chinese GDP data is published at the start of the week.
3. The latest Australian unemployment figures will be announced on Thursday.
Have a Great Day,
Team