Global markets were lower on Friday as investors worried about a jump in US bond yields, with technology stocks leading the decline on nerves around upcoming earnings reports and iPhone demand.
US corporate earnings season will gather pace this week with about one-third of the S&P 500's (the 500 biggest listed US companies) members scheduled to report in the next five days – with a particular focus on technology shares. Reporting this week are Facebook, Alphabet, Amazon, Microsoft as well as Twitter. Apple, which saw its shares drop last week on concerns that global smartphone sales have perhaps peaked, reports on the 1st of May. Once again, we reiterate that the latest round of US corporate profit results (which have been generally solid so far) will be key to supporting equity markets and we are watching developments closely.
Closer to home, investors will continue to watch fallout from the Hayne royal commission into the financial sector in Australia. The focus will be on AMP and the rest of Australia's financial services industry as revelations from the Hayne commission made last week a horror one for the sector. AMP has shed more than 20% since early March and is moving to protect its chairman Catherine Brenner from calls for her resignation.
Stock in Focus: SkyCity (SKC:NZ / SKC:AX)
SkyCity (SKC) has been trying to sell its underperforming Darwin casino business, and reports from an Aussie newspaper on Friday said it hasn't yet attracted a buyer because the asking price of over A$200m is seen as "a little too high”.
SKC is looking to free up cash from its existing assets during a period of heavy investment and has appointed investment bank Goldman Sachs to test interest in its Darwin casino as it continues to evaluate strategic options for the business. Any funds from a sale would be used to repay debt in the short term, and fund strategic and growth initiatives. Regulatory change has seen the Darwin business get hurt by increased rivalry from gaming machines in local pubs and clubs over the past two years.
We have held a positive view towards SKC as a beneficiary of our tourism boom investment theme.
We currently have a BUY recommendation on SKC.
Australia & New Zealand Market Movers
The Australian share market retraced on Friday (ASX 200 index -0.21%) heading into the weekend. The financial sector was under pressure last week on the back of continued negative news flow from the royal commission into sector practices. Mining stocks have enjoyed a spike in commodity prices recently, although there was a retracing of recent advances in aluminium, copper, nickel and iron ore over the weekend. While most strategists/market commentators are generally positive on the outlook for commodities as the global economy accelerates toward its peak for this cycle, it is likely that prices have overshot in the near term.
The New Zealand market sold off on Friday (NZX 50 index -0.59%) as Fletcher Building's share offer weighed on demand. Fisher & Paykel Healthcare led the decline, paced by Meridian Energy, Ryman Healthcare and Arvida Group, while Synlait Milk shares rose to a record. Fletcher’s share price held up well as it announced it has completed the institutional entitlement offer and shortfall bookbuild component of its capital raising plan, so far raising $515m of a $750m target. Institutions paid $6.15 in the bookbuild for the small percentage of rights which were not taken up – above the deeply discounted rights offer itself at $4.80. The entitlement offer for retail investors opens Today.
3 Things Markets Will be Watching this Week
1. Corporate earnings season in the US will gather pace this week with about one-third of the S&P 500's members scheduled to report in the next five days.
2. Investors will continue to watch fallout from the Hayne royal commission into the financial sector in Australia.
3. The latest Australian inflation data is published on Tuesday.
Have a Great Day,
Team