Global markets were mixed overnight, with US Markets (S&P 500 Index -1.3%) trading in a negative tone after digesting more hawkish Fed commentary and fresh rounds of potential sanctions on Russia.
Federal Reserve Governor Lael Brainard said she expects the Fed to shrink its balance sheet at a considerably more rapid pace of runoff than in the previous recovery. The US 2-year Treasury yield gained +11bp to 2.54% and the 10-year yield jumped +12bp to 2.57%
Markets were generally in a risk off mood, with heavy losses for tech and consumer discretionary stocks, while defensive stocks like utilities and healthcare made marginal gains. Twitter rose another +2% after appointing its new significant shareholder Elon Musk to its board.
European markets (Stoxx 600 index +0.2%) edged higher as investors digest economic data and a fresh sanction onto Russia including the proposed ban on coal imports worth €9 billion.
Closer to home, the RBA left the cash rate unchanged at 0.1% but have now removed the guidance that “the Board is prepared to be patient” and have instead added the guidance that “the Board is prepared to be patient”. This represents a more hawkish tilt from one of the more dovish central banks suggesting their first rate hike could come as early as June, versus previous expectations of September.
Key data releases for the RBA ahead of the June meeting: 1) first quarter CPI (inflation) release (27 April), which should be another strong print; 2) first quarter CPI inflation data (18 May), which will likely show accelerating wages growth; and 3) first quarter GDP (1 June), which we expect will be closely watched for the broader measures of labour costs.
James Hardie (JHX:ASX)
James Hardie shares jumped +4.6% yesterday on no news recovering from its recent descend as investors find a bottom rebounding from a 12-month low. JHX was caught up in the recent sell off as a growth stock trading at a rich valuation. This comes despite delivering a solid third quarter result, where they achieved double-digit growth across all three key regions.
We are BUY rated on James Hardie, as it is set to benefit from the background of a strong economy and supportive construction sector with a high risk caveat due to valuation and high level of expectations priced in.
Australia & New Zealand Market Movers
The Australian market was edged higher yesterday (ASX200 index, +0.2%), as a more hawkish tone from the RBA trimmed potentially stronger gains.
Technology stocks were the best performer following wall street’s strong lead, while energy stocks continued their strong run, with market wide gains offset by losses from materials and real estate.
The New Zealand market was up on Tuesday (NZX 50 index, +0.6%), as the tech rebound on Wall street boosted investor sentiment.
Pushpay (+4.5%) and Vista Group International (+5.7%) both reporting healthy gains, as well as other local tech stocks trading higher. Surprisingly Air NZ rose +5% despite trading ex-rights. Oceania fell -3.6% and Pacific Edge dropped +3.8% offsetting Monday’s gains.
3 Things Markets will be Watching this Week
- Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
- The economic calendar in the week ahead is very light – minutes from the March US Fed meeting are released and a number of Fed speakers will be on the wires.
- Locally, in Australia the RBA policy decision tomorrow is a non-event, with no change in policy expected ahead of the May Federal election, but another incremental shift to more hawkish commentary wouldn’t look out of line.