Global markets were lower overnight, as US markets (S&P 500 Index -0.3%) clawed back deeper loss losses following a weak start to earnings season and a hot inflation print. Fed Governor Waller supported a 75bp rate hike on 27 July — calming concerns of a possible 100 basis point interest rate hike.
US Inflation (CPI) surged higher in June, with a +1.3% month-on-month increase taking the annual increase to a fresh four-decade high of 9.1%, higher than the +8.8% increase that was expected. Core CPI, which excludes volatile prices of food and energy, was up +5.9% year on year, also ahead of the 5.7% estimate. The CPI report also impacted treasuries, sending the 2-year Treasury yield up 9 basis points to about 3.14% while the yield on the 10-year Treasury fell about 4 basis points to 2.92%. An inversion (when short-term bond rates are higher than long-term bond rates) is a popular indicator of a recession.
JP Morgan (-3.5%) and Morgan Stanley (-0.4%) kicked off earnings season on a sour note, the former adding a significant provision to its bad debts in light of the troubling economic outlook and the later struggling with lower investment banking revenue as deals start to dwindle.
European Markets (Stoxx 600 Index, -1.5%) traded lower, with most sectors down in reaction to the US’s record hot inflation print.
The Bank of Canada shocked markets by increasing its cash rate by 100 basis points, larger than the 75 basis point hike which was widely anticipated. The statement noted “With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates”.
Closer to home the RBNZ lifted the Official Cash Rate (OCR) to 2.5% and came as a “no surprise” event. Indicating that they would remain comfortable head towards a 4%, before tapering down to a neutral rate, with another 50-basis point hike appearing likely during the August meeting.
Kathmandu (KMD.NZX)
Kathmandu shares rose +0.9% after providing an upbeat trading update. The retailer is expecting 2022 full year sales (ending July 31) to be between $955m and $965m, up from the $922.8m reported in the 2021 financial year. The result was helped by a stronger second half in Kathmandu’s key winter promotion, a major turnaround from the lockdown-impacted first half both in Australia and New Zealand.
The second half was still partially impacted by the omicron outbreak but improved retail footfall and a strong uptick in travel. We are more upbeat on Kathmandu versus traditional retailers especially “stay at home” type retailers due to their “travel” related spending likely to remain supportive even in a soft recession – given current travel-related demand.
We remain BUY (High Risk) rated on Kathmandu and think the stock price appears to be factoring-in deep recessionary trading conditions ahead.
Australia & New Zealand Market Movers
The Australian market (ASX 200 Index +0.4%) edged higher yesterday, with most sectors trading higher, helped by strong Australian employment figures which saw 88,000 new jobs created and unemployment drop to a 48-year low of 3.5%.
Tech was the best performer followed by Energy and Materials which recovered losses from the previous session. Telstra shares were up +0.8% after announcing it has completing its Digicel acquisition.
The New Zealand market (NZX 50 Index, +0.7%) was up despite hot inflation print in the US rattling markets.
Auckland International Airport rose +2.2% after revealing June passenger volumes were up +11% over the previous month, and up +38% from last year – but still well of pre-pandemic levels. Pushpay jumped +6.6% on light volume following a strong day for Australian tech companies.
3 Things Markets will be Watching this Week
- Highlights this week include US inflation data and second-quarter GDP data from China.
- Locally, the RBNZ meets with a 50bp lift to the cash rate expected.
- Later in the week all eyes will be on US corporate quarterly earnings announcements, which kick off with the major banks on Thursday.