Global markets were in positive territory overnight with US stocks led by the industrial sector, on optimism for further tax relief, although a drop in Apple kept gains in check.
Concerns around the trade dispute between China and the US are keeping investors defensive, and although markets were calm overnight the recent pullback could be far from over.
Closer to home, the local Australian and NZ markets continued to lose ground yesterday, with Australian shares falling for an eighth straight session, its longest losing streak since the global financial crisis. Markets are under pressure given the trade dispute between the US & China, and as instability continues to shake emerging markets. Once again, we believe when the dust settles there will be buying opportunities, particularly on the ASX.
Stock on Focus: Woolworths (WOW:AX)
Woolworths (WOW) was in the headlines yesterday as it is facing a potential $100 million class action law suit to aggrieved shareholders who saw the value of their investments plunge when the supermarket delivered a shock downgrade to its profit outlook in 2015.
Shares in retail giant WOW have pulled back recently despite delivering a sound 2018 full year result, as the markets optimism towards WOW’s Australian supermarket chain has quickly changed, which is highly influential on WOW’s share price given it contributes 69% of group earnings.
While WOW has done well to improve its business by revitalising their stores and growing online sales, eventually we believe WOW will succumb to greater industry pressure. We also remain sceptical around the recovery of their Big W Business, which is finding it difficult to profit against the likes of K-mart and Target. We remain cautious on the retailers, in particular supermarket retailers.
We are currently have a SELL recommendation on WOW.
Australia & New Zealand Market Movers
The Australian share market was more or less flat on Monday (ASX 200 index -0.03%), recovering some of its early losses after better-than-expected economic data from China. Interestingly, NAB is keeping variable mortgage rates on hold in an effort to curry favour with customers, resisting the temptation to follow its rivals in passing on increased funding costs. The Tech sector saw some relief after experiencing heavy profit taking last week.
The New Zealand market started the week on a lower note (NZX 50 index -0.51%) as NZ shares weakened from recent highs, led lower by Ryman Healthcare and Fletcher Building while Tourism Holdings was the strongest performer. In other news, a capital gains tax could see listed investment property companies paying an additional $100 million in tax a year, according to a University of Auckland study. The research report comes as the government’s Tax Working Group prepares to release its interim report to ministers this week.
3 Things Markets Will be Watching this Week
1. US-China trade tensions & whether Trump proceeds with the threats of a new tariff which would be imposed on virtually every Chinese good entering the US.
2. The Bank of England and European Central Bank make interest rate decisions on Thursday.
3. Australian employment data is published on Thursday.
Have a Great Day,
Team