Global markets were lower overnight, as the US market (S&P 500 index, up -0.3%) slipped as President Joe Biden announced he would re-nominate Jerome Powell to lead the Federal Reserve for another 4-years.
Treasury yields moved slightly higher, with the 10-year rate up to 1.6%, after the White House announced the Fed decision, which saw banking stocks outperform. This saw the NASDAQ technology index slump -1.3%, as technology shares were hardest hit, as well as utility stocks (both sectors are likely to come under the most pressure if interest rates rise sharply)..
European Markets (Stoxx 600 index -0.1%) were flat overnight as travel and leisure stocks slumped on covid induced restrictions that were offset by gains from telecom stocks – which rallied on a flurry of takeover activity.
Closer to home, Auckland will be entering the traffic light system on 3rd of December, allowing hospitality, gyms, entertainment, and other close contact businesses to re-open (Sky City being the largest listed benefactor) as well as the possibility of large events for vaccinated individuals depending on the level of alert. Vaccinated Aucklanders will be able to travel outside the city from 15th of December.
Kiwi Property Group (KPG:NZX)
Kiwi Property shares were up +0.9%, after delivering their half year result which was better than what most had feared.
Net operating profit before tax came in at $94m, which was up +11.5% from last year, due to growth in net rental income and lower rent relief of $7.4 compared to the previous period. KPG expected to realise a similar rent relief in the second half, which will make the full year rental relief abatement be below the $19.5m given in the 2021 financial year. Management announced an interim dividend of 2.75 cents per share and despite the expected costs of covid-19 rent abatement guide a full year dividend of 5.3 cents per share.
KPG’s portfolio of properties rose in value (2-5%), lifting net tangible asset (NTA) per share by 6 cents to $1.42, and it is encouraging that retail is currently able to operate in Auckland heading into the key Christmas season.
We remain Buy rated on KPG, as it trades well below its NTA, so will likely be less prone to sharp sell-off as interest rates rise while providing a supportive dividend of ~4.6% over the near-term, which is set to grow once their pipeline of developments are completed.
Australia & New Zealand Market Movers
The Australian market was down yesterday (ASX 200 index -0.6%) as covid related risks plagued global markets.
The sell-off was mostly broad-based but travel operators hardest hit as Flight Centre tumbled -7.1% down to a two-month low.
Materials was the best performer being more immune to travel restrictions, with major iron ore miners trading higher, as well as EV related miners Lynas up another +3.6% to fresh all-time highs. Likewise consumer staples were the only other sector in the green due to their defensive nature towards lockdowns.
On the flip side, the energy sector was weaker as restrictions would limit demand for travel and crude oil. The big four banks were also weaker as they continue to slide lower, being the major drag on the market.
The New Zealand market was down again on Monday (NZX 50 index -1.0%) as investors braced for RBNZ’s rate hike on Wednesday, and more importantly their guidance on where they expect rates be by next year.
With strong inflation expectations and a near-record-low unemployment rate have seen investors predicting a 45% chance of a 50-basis point hike. The RBNZ has projected the cash rate to peak at 2.1% in August but could raise it to 2.5% – a level closer to market expectations of above 3%.
Ryman Healthcare led losses falling another -3.7%, following its weak result last week as well as being negatively impacted by rate hikes.
Metro Performance Glass was down -8% yesterday after delivering a weaker than expected half year result, greatly affect by lockdown keeping sales flat, while earnings slump due to lower wage subsidy payments and higher costs.
Yield sensitive stocks which dominate the NZX were weaker including the gentailers, some property companies, as well as Spark (-1.6%). Auckland International Airport fell -1.4% and had been weaker the last few session as it is influenced by interest rate movements but also with other travel stocks influenced by resurgence of covid globally.
The NZX’s newest listing, logistics software Trade Window, jumped +85% on its share market debut after direct listing this morning the shares that initially floated at 92 cents per share.
3 Things Markets will be Watching this Week
- Key events this week in Japan and the US who will reportedly make a joint announcement on the release of oil reserves as soon as this week.
- Locally, RBNZ will may an OCR review on Wednesday and latest retail sales print in Australia.
- Earnings release from Kiwi Property Group, Metro Performance Glass, Webjet and Fisher & Paykel Healthcare.
