Global markets were mostly in the green overnight (S&P 500 index +0.2%) amid solid corporate earnings and confidence that the Federal Reserve will remain accommodative ahead of its meeting later this week.
Earnings season remains front of mind, and more than three-quarters of the S&P 500 companies that have reported results so far have beaten analysts’ estimates, according to data compiled by Bloomberg. A slew of earnings from mega-caps including Tesla, Facebook and Apple will be in focus this week.
While earnings season has been solid – with the Banks recovering particularly well, Netflix shares slumped last week after the streaming giant reported subscriber growth which missed market expectations, suggesting things are starting to tail off for all the 'stay at home' stocks.
We are seeing similar trends in Aussie – with ecommerce business Kogan disappointing as online retail competition becomes increasingly competitive.
The big question for technology stocks this earnings season will be whether they can meet the high bar expected by investors. This makes the week ahead key with tech heavy weights such as Microsoft, Alphabet, Apple and Facebook all set to present updates.
A2 Milk (:NZX / A2M:ASX)
A2 Milk momentum continues to downside, as speculation continues regarding an upcoming global market index re-weight, which is reportedly due to be calculated this month.
Shares in Meridian and Contact showed how much of an influence index related flows can have on stock prices, and the next stock on watch in NZ is A2 Milk – which is dangerously close to exiting the MSCI All Country World Index.
Index calculations are often opaque and complex, but at a high level it seems that if A2’s price remains low, and Fletcher Building does not rally, then A2 may be forced out of the MSCI All Country World Index. This would see significant selling of the stock as it leaves a major global index followed by funds, including ETF’s. We are watching developments closely, but for now remain BUY rated.
Australia & New Zealand Market Movers
The Australian market was lower on Monday in quiet trade (ASX 200 index -0.2%) despite a roaring session for Nib, the health insurer, as the market was dragged lower by a poor showing for utilities and consumer staples companies.
Nib was the day’s star, leading gains among blue chips and ending the day with a 10.2% gain. The jump marked one of its best one-day performances on record and was driven by a rosy profit outlook before markets opened. Fortescue Metals Group was the session’s second-best performer, rising 4.8 per cent gain to $22.70 as the price of iron trades at decade-highs on bumper demand from China.
Westpac was little changed after announcing an incremental A$280m reduction in earnings in its first half due to customer refunds and litigation costs,
Kogan, the e-commerce company that dropped sharply on Friday after an operating update upset investors. KGN highlighted a sharp rise in costs, partly associated with ongoing investment in capability but mostly related to a higher-than-expected inventory position. This update follows similar updates from listed online retail peers who have also flagged cost escalation, signaling a post-Covid phase of necessary investment and escalating competitive pressure across the Australian online retail segment.
The New Zealand market (NZX 50 index +0.6%) rose on Friday, led by Oceania Healthcare, which jumped 5.2%.
A duty-free retailer at Auckland Airport in the press suggesting sales since the opening of the trans-Tasman bubble have been 20-30% of regular earnings, with alcohol the most popular category of sales. Auckland Airport noted 8,000 trans-Tasman travellers were processed through its international terminal in the first three days of the bubble opening.
3 Things Markets will be Watching this Week
- Investors this week will focus on corporate earnings with tech heavy weights such as Microsoft, Alphabet, Apple and Facebook all set to present updates.
- The US Federal Reserve and the Bank of Japan are releasing monetary policy statements.
- President Biden's unveiling of his US$1.5t American Families Plan, and 1st quarter US GDP data Thursday is expected to show 6.9% annualized growth after a more moderate 4.3% rate in the previous quarter.