Global markets were lower overnight, as stocks on Wall Street remain under pressure amid growing unease over effects of the China-US trade war on global growth and with Treasury yields at multi-year highs.
Stocks across Asia were hit hard as the Chinese market re-opened after a holiday period, with China's Shanghai Composite Index dropping over -3%. The Aussie market felt the brunt of the China sell-off, with the ASX experiencing its worst fall since March 23, following the lead of neighbouring markets. The NZ market also retraced in a widespread sell-off.
As we discussed yesterday, the pace of interest rate moves higher will be a key factor for driving markets, given the importance of interest rates for driving economic growth and influencing valuations. We are watching developments closely, as volatility looks to be returning to markets after what was another unusually quiet quarter for stocks.
Stock in Focus: Z Energy (ZEL:NZ / ZEL:AX)
Among stocks in the news yesterday was Z Energy, which saw its shares fall to a two-and-a-half month low on a threat of heightened regulation.
NZ Prime Minister Jacinda Ardern said fuel companies are "fleecing" consumers. In a response to outcry over high petrol prices, she pledged to fast-track new investigative powers for the Commerce Commission. Threat of regulation is not “new news” and an investigation into fuel pricing margins has been discussed for some time now – a clear risk for Z Energy. We are also cautious on Z Energy as thinking longer term we also believe there is a huge uncertainty around the company imposed by the potential proliferation of electric vehicles.
We currently have a HOLD recommendation on Z Energy.
Australia & New Zealand Market Movers
The Australian share market sold off sharply yesterday (ASX 200 index -1.38%) recording its worst session in more than six months. Material stocks closed the session lower on Monday following base metal weakness on the London Metal Exchange on Friday. All four of the major banks closed lower on Monday, led by ANZ after it announced it would take a $374 million hit to its second-half profit in order to compensate customers for fees-for-no-service, inappropriate advice and other issues. In other news, MYOB shares rose 19% after the accounting software company received an unsolicited, non-binding takeover bid from New York-based private equity firm KKR.
The New Zealand market was lower yesterday (NZX 50 index -0.74%) joining a global sell-off as rising US bond yields took the sheen off blue-chip stocks including Fletcher Building, Contact Energy and Spark New Zealand. New Zealand's sell-off was widespread, covering blue-chip stocks, rate-sensitive companies, and growth-focused firms. In other news, trading in Tegel was suspended at the close pending its takeover and de-listing later this month..
3 Things Markets Will be Watching this Week
1. Trade related news-flow is likely to continue to feature in headlines.
2. In an event light week, Tuesday’s Aussie Business Confidence survey will be carefully watched for any adverse impacts from US-China trade risk and the housing slowdown.
3. Important US inflation data is published on Friday.
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