Global markets were mixed overnight, as the major US market indices gave up early gains as President Donald Trump threatened to shut down the federal government over funding for a wall along the US-Mexico border.
Wall Street had a strong start to the session on news that US and Chinese officials had discussed a road map for the next stage of trade talks, which Trump called "very productive”. But later in the morning the mood soured as Trump publicly fought with Senate Democratic Leader Chuck Schumer and House Democratic Leader Nancy Pelosi and threatened a government shutdown. Political uncertainty is high right now and impacting on investor sentiment, keeping investors in the defensive. Although it is not just the US, with uncertainty over Britain’s exit from the European Union being the key event also in focus right now.
Stock in Focus: QBE Insurance (QBE:AX)
QBE shares fell back below the $10 mark yesterday as the company announced profit for the 2019 calendar year would be between $50 million and $100 million. While this is a significant improvement, it was lower than what the market expected.
QBE announced a costing-cutting program set to remove $US130 million ($180 million) of expenses between 2019 and 2021. The country's third-largest listed insurer by market capitalisation also said it had completed the sale of its insurance operations in Puerto Rico, Indonesia and the Philippines as it makes good on its word to streamline business to be smaller and less complex.
Despite the miss on expectations, we have a positive view on QBE as a turnaround story and there are some promising signs. We believe QBE is relatively cheaply priced, especially given the backdrop of a weaker Aussie dollar and rising interest rates (QBE is a stock which will benefit from higher US interest rates as they should improve QBE’s investment income).
We remain BUY rated on QBE.
Australia & New Zealand Market Movers
The Australian share market managed to rebound yesterday (ASX 200 index +0.42%) on a muted day of trading as healthcare stocks rebounded from a poor start to the week's trading. TPG Telecom was among the best performers on the market on Tuesday (up +5%), a day after the telco announced it had purchased multi lots of 5G spectrum nationally for $263.3 million, as part of a joint venture with Vodafone Australia. The ACCC is also due to deliver its verdict on the company's merger with Vodafone on Thursday.
The New Zealand market was in positive territory on Tuesday (NZX 50 index +0.13%) led by Contact Energy and Meridian Energy as heightened uncertainty in global markets bolsters the attraction of defensive stocks offering stable dividends on the local market. In stock news, Restaurant Brands rose as the food operator's board said they will back a partial takeover bid from Mexico's Finaccess Capital at $9.45 for three quarters of the company. An independent valuation by Grant Samuel put a price of $8.15-$8.92 a share.
3 Things Markets Will be Watching this Week
- Tensions between the US & China following the arrest of Huawei’s chief financial officer will likely dominate headlines.
- The latest US inflation figures are published on Thursday morning (AU/NZ time).
- Australian house price data is published on Tuesday.
Have a Great Day,