Global markets were mixed overnight, as a three-day surge in US stocks stalled. Oil prices hit their highest of 2019, with Brent crude approaching $US70 a barrel, on the prospect that more sanctions against Iran and further Venezuelan disruptions could deepen an OPEC-led supply cut.
Closer to home, the NZ market continues to surge, with the NZX at a record high and close to the 10,000 index level. The ASX also traded higher for the 6th day in a row, as investors digested a Reserve Bank decision as well as the Federal Budget on “Super Tuesday” which we discuss below.
Stock in Focus: Rio Tinto (RIO:ASX)
RIO shares have rallied over +20% this year, following a surge in the iron ore price. Iron Ore is currently trading at near four-year highs after a mining disaster in Brazil cost 60 lives, with expectations that supply could be restricted following strong new regulations and a crack-down on current practices.
RIO also announced another solid result for the 2018 financial year, with the stand out of the result was the record $13.5 billion returned to shareholders, in the form of ordinary dividends, special dividends and share buy backs. This was due to reported net profit after tax was $13.6 billion, up +56% from last year, reflecting $4.6 billion of gains on disposals of businesses and land. We believe RIO is fully priced at the moment & see limited near term upside, reflecting the recent surge in the price of iron ore. While management are focused on delivering value to shareholders, RIO’s high sensitivity to the iron ore price does make it a higher risk investment and a play on the price of iron ore.
We currently have a HOLD recommendation on Rio.
Australia & New Zealand Market Movers
The Australian share market was higher on Tuesday (ASX 200 index +0.41%) for a sixth straight day.
The Reserve Bank struck a cautious note in keeping the official cash rate at a record low of 1.5 per cent, leading economists to believe the chances of a rate cut are increasing. The decision at Tuesday's April board meeting means the cash rate has not moved in 32 months, but a change in language on the falling house prices was among a number of subtle shifts toward a dovish tone.
In terms of some high-level takeaways from yesterday’s budget – it forecasts a 2018-19 fiscal deficit of -$A4.5b (–0.2% of GDP) then a headline surplus of +$A7.1b (+0.4% of GDP) for 2019-20, the latter nearly double analyst expectations of a surplus of closer to 0.2% of GDP. Surpluses are pencilled in thereafter, up to +$A19.0b by 2021-22 (+0.9% of GDP). The pace of economic growth is expected to keep rising, from 2.25% in 2018-19 through to 2.75% in 2019-20 and 2020-21.
The New Zealand market extended its rally yesterday (NZX 50 index +1.06%) for a sixth day as growing expectations for an interest rate cut stokes broad-based demand for equities. The benchmark index has been treading in uncharted territory, getting boost last week when the Reserve Bank signalled it expects to cut the record-low 1.75 percent official cash rate due to the slowing global and domestic economies. In stock news, Plexure Group soared after McDonald's invested in the tech small cap – it was released that the fast-food giant and Plexure customer McDonald's bought a 9.9 percent stake in the NZX-listed firm for $5.4 million, or 39 cents apiece.
3 Things Markets Will be Watching this Week
- Signals around the health of the global economy will likely remain a focus for investors – with US & Chinese manufacturing data published Monday.
- The Australian government will release their latest Federal Budget on Tuesday.
- The Reserve Bank of Australia also makes an interest rate decision on Tuesday.
Have a Great Day,