Global markets were higher overnight, as US Markets (S&P 500 Index +0.5%) ended another choppy session higher with a late rally heading into the Fed’s interest rate decision tomorrow.
Most sectors traded higher, led by energy and financials, while defensive sectors like real estate and healthcare also performed well.
European markets (Stoxx 600 index, +0.5%) rose helped by upbeat earnings, Bank shares performing the best as government yields rose.
The RBA increased its cash rate by +25 basis points to 0.35%, its first-rate hike since 2010 to combat inflation which for most of last year not a major issue as compared to the remainder of the world. The hike was larger than expected (market anticipating a 15-point hike) and flagged another hike for the June meeting with the possibility of a +40 basis point increase then bringing the base rate to 0.75% to ensure inflation returns to their target range – as they expect headline inflation could peak to +6% by the end of 2022. It is now a much hawkish tilt from last year where they would keep the base rates unchanged down at 0.10% until 2024.
Woolworths (WOW:ASX)
Woolworths (WOW) shares rose +0.4% yesterday after announcing a strong third quarter update. Sales rose +9.7% from the same corresponding period last year (well ahead of market expectations), rebounding after a weak first half performance. Volume share continue to accelerate while price inflation contributed to the boost and set to improve gross margins and covid related costs down significantly from the second quarter.
We remain BUY rated on Woolworths given their ability to offset inflation well with the pricing power to offload onto consumers and as covid related headwinds from the second half start to ease. The supermarkets have historically outperformed the ASX market significantly when inflation is in the top quartile as it is now.
Australia & New Zealand Market Movers
The Australian market down yesterday (ASX200 index, -0.4%) after the RBA’s interest rate hike.
Most sectors traded lower with real estate and materials stocks leading losses. Tech and Healthcare stocks were higher the former taking a strong lead from Wall street starting the session strongly.
CSL rose +0.9% after reporting that blood plasma collection is now back to around pre-cvoid-19 levels and that gross margins would return back to pre-pandemic levels.
The New Zealand market was down on Tuesday (NZX 50 index, -0.9%), extending losses towards the end of the session after RBA’s rate hike decision.
Most of the market was weighed down, property and retirement village operators made sizable losses – being sensitive to rising interest rates.
Transport and logistics company Move Logistics suffered the largest decline, down -7.8% after as supply chain disruptions forced them to lower their earnings guidance.
3 Things Markets will be Watching this Week
- Geopolitical risks remain elevated with the Russia/Ukraine conflict.
- Central bank interest rate decision from RBA and the Fed, and employment data in New Zealand
- US earnings continues, locally earnings seasons beings starting with the banks ANZ, Macquarie and NAB are all due to report this week